UPDATE 1-Obama says gov't-run health insurance "makes sense"

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WASHINGTON, June 23 (Reuters) - President Barack Obama said on Tuesday he firmly believed that a government-run health insurance plan "made sense" in a broader overhaul of the U.S. healthcare system, and that private insurers should find ways to compete for clients.

But Obama declined to answer a direct question on whether he would veto any healthcare legislation that did not include a public plan option, saying it was too early in the process to "draw lines in the sand."

"A public plan is in an important tool to discipline insurance companies," Obama told a news conference. "I think there is going to be some healthy debate about the shape that this takes."

Republicans and private insurance companies have raised concerns over a public health plan, arguing that it would lead to a government takeover of the entire U.S. healthcare system and drive private insurance companies out of business.

Democrats, who are developing healthcare reform legislation in Congress, hope to keep a public option in the bill but have also suggested that non-profit medical cooperatives could be formed to compete with insurers.

Obama said a government-run plan could help to drive efficiencies throughout the system.

"If it turns out that the public plan, for example, is able to reduce administrative costs significantly, then I'd like the insurance companies to take note," he said. "That's good for everybody in the system."

He added that he did not accept insurers' arguments that they would be unable to compete with a government-run plan.