"The president is open to good ideas about how we finance health reform," she said in testimony prepared for delivery to a House committee. "But we are not open to deficit spending."
Sebelius' appearance before the House Energy and Commerce Committee comes as congressional Democrats struggle with the $1 trillion-plus price tag for extending health coverage to 50 million uninsured Americans over 10 years.
Although lawmakers are considering an option Obama has opposed; taxing employer-provided benefits; Sebelius' testimony indicates that the administration is ready to be flexible if Congress can deliver a bill.
That has seemed uncertain, as cost concerns and partisan disputes have stalled progress. Sebelius used her testimony to encourage Democratic efforts; and to make clear that Obama expects lawmakers to deliver.
"Health reform constitutes our most important domestic priority," she said.
In an interview with ABC News that aired Wednesday, Obama declined to say whether he was open to taxing health benefits. But he indicated there was a breaking point in the balance sheets where he would say that the cost of reforming the system is too great for the federal government to handle.
"I'm going to wait and see what ideas ultimately they (Congress) come up with," he said.
"I think that if any reform that we get is not driving down costs in a serious way," Obama added. "If people say, 'We're just going to add more people onto a hugely inefficient system,' then I will say no. Because ... we can't afford it."
Obama also said in the broadcast interview that his position on many elements of health care overhaul has "evolved" over time.
And he said he could support a law mandating that individuals buy health care coverage, with fines for those who do not. But he stressed in the ABC interview that there has to be some kind of waiver for people who simply don't have enough money to pay for it.
A new Washington Post-ABC poll found that most Americans are "very concerned" that a health care overhaul would lead to higher costs, lower quality, fewer choices, a bigger deficit, diminished insurance coverage and more government bureaucracy. About six in 10 are at least somewhat worried about all of these factors, the poll found.
More than eight in 10 said they were satisfied with the quality of care they now receive and were relatively content with their own current expenses.
Addressing that issue, Obama on Tuesday dismissed as "not logical" the insurance lobby's assertion that a new government health plan he backs would dismantle the employer-sponsored coverage most Americans now have. Yet, despite the harsh words from the president, senators attending a Tuesday evening meeting in the Capitol with White House Chief of Staff Rahm Emanuel said the administration was not ready to abandon the search for compromise.
That puts the spotlight on a small group of senators who are trying to find common ground on the issue of giving the middle class the option of joining a government health plan. Republicans are almost unanimously opposed, while Democrats insist it must be part of any final deal.
Dubbed "the coalition of the willing," the Senate group is focusing on nonprofit co-ops as an alternative both to private insurance and full-blown government intervention.
"The co-op proposal is alive and well, and negotiations are ongoing," said Sen. Kent Conrad, D-N.D., who proposed the idea, adding that it's the only version of a public plan that stands a chance of getting Republican support.
Democratic liberals in Congress are leery of the co-op idea, even if the White House is open to it. Part of the debate centers on whether the co-ops would be part of a national organization, or isolated outposts.
The health care industry went on the attack, meanwhile, warning in a letter to senators released Tuesday that a government plan would take over the U.S. health care system.
America's Health Insurance Plans and the Blue Cross Blue Shield Association also said they didn't believe it was possible to design a government plan that could compete fairly with private companies in a revamped health care market.
"We do not believe that it is possible to create a government plan that could operate on a level playing field," said the insurers' letter, signed by AHIP head Karen Ignagni and Scott Serota, the Blue Cross CEO. "Regardless of how it is initially structured, a government plan would use its built-in advantages to take over the health insurance market."
The public plan that most Democrats envision would be offered alongside private plans through a new kind of insurance purchasing pool called an exchange. Individuals and small businesses would be able to buy coverage through exchanges, but eventually businesses of any size might be able to join.
Officials disclosed Tuesday that key Senate Democrats had whittled more than $400 billion off the cost of a health care plan that carried a $1.6 trillion price tag last week. The new cost is below $1.2 trillion, but still above the informal target lawmakers have set. The officials spoke on condition of anonymity, saying they were not authorized to disclose details of the closed-door talks.
Conrad told reporters the reductions were achieved by lowering subsidies designed to make insurance affordable for those who lack it, as well as other changes.