When President Obama spoke to members of Congress the other day about the need to enact health-care reform he conveniently forgot to mention the public option.

Senate Democrats got the message.

Their negotiators struck a tentative agreement Tuesday night to eliminate the “public option” — the controversial but necessary plan to set up government-run insurance program to provide competition (and an incentive to hold down costs) for private insurers.

The negotiators tried to ease the blow to the hopes of progressive reformers by agreeing to an initiative that would create a number of national insurance policies that would be developed by the federal Office of Personnel Management, which oversees health policies for federal workers, but administered by private firms.

If the private firms fail to do an adequate job, the Senate bill calls for establishment of a genuine public option.

More significantly, the Senate bill proposes to drop the Medicare eligibility rate to 55, a move that would permit millions of Americans to buy into the immensely popular federal program for retirees.

These are not inconsequential steps. Nor are the new regulations of insurance companies that are contained in the Senate bill, which Democrats leaders now believe they have a genuine chance of passing — perhaps even gaining a Republican vote, that of Maine’s Olympia Snowe. (But both Snowe are Connecticut Independent Joe Lieberman have expressed reservations about dropping the Medicare eligibility age.)

But the loss of the public option remains a bitter pill — especially for progressives who want to expand access to health care and hold down the costs that are run up by insurance company profiteering.

Wisconsin Democrat Russ Feingold lodged the most serious objection, saying he would not “support proposals that would replace the public option in the bill with a purely private approach.”

“We need to have some competition for the insurance industry to keep rates down and save taxpayer dollars,” said Feingold. “I will base my vote on the bill on the entirety of what is in the bill, and whether I think the bill is good for Wisconsin.”

Feingold is not alone in his concerns although, as usual, he is the more willing than most senators to stand on his own against the leadership.

Where does this leave us?

Senate Majority Leader Harry Reid’s still got some serious cajoling to do if he plans to pass a bill before the Holiday break.