Richard Schulte was very polite but firm when he stepped up to the microphone at a town-hall meeting on health care reform in suburban Chicago last week.

"I believe our president is a socialist," the 55-year-old engineering consultant said before walking back to his seat.

Schulte's underlying anger belies the problem President Obama faces this week as he tries to salvage his $1 trillion reform of the health care system. A major component of the plan—a government-run program to compete with private insurers—angered many Americans who view it as a step toward a socialized model (think Canada). A woman speaking at the same town hall was booed when she relayed her positive experience with health care in the nation to the north.

Perhaps no issue in the debate is more polarizing than the idea of a government plan—the so-called public option. The issue divides not only the two parties but also creates a fissure within the Democratic majority in Congress. It's central to angry outbursts at public meetings and rallies across the country. And it's the issue that Obama will have to tackle head-on when he addresses Congress in a speech Wednesday that will define the issue and his presidency.

"He needs to articulate a very bare-bones centrist approach to making some progress on health reform," says Dan Mendelson, CEO of Washington research group Avalere Health and a former Clinton health care policy coordinator from 1997 to 2000. Obama "has come to a point that he needs to act, he needs to acclimate in an environment in which he lost a lot of popular support."

As part of that plan, the president is negotiating with Republican Senator Olympia Snowe of Maine to reach a compromise on the public option. Snowe proposes a system in which a government plan is set up only in markets in which private insurance isn't adequately covering the estimated 46 million people who currently have no health insurance.

The compromise idea wins support from big business and potentially diffuses the issue of a government takeover. It draws moderate Democrats into the fold even as it threatens to alienate liberals who championed the public plan as central to any meaningful health reform. If the president can strike a compromise, he'll still have to walk a very fine line to convince both liberals and moderates in his party that these negotiations are necessary to pass reform. Along the way, he hopes to pick up some Republican support, but he can push his plan through if he has all Democrats on board.

"This is a pivotal moment," Mendelson says.

On the Sunday TV talk-show circuit, top Obama officials suggested that the public option wasn’t the be-all and end-all of health care reform. “It shouldn’t define the whole health care debate,” presidential adviser David Axelrod said on NBC’s Meet the Press. Instead, when the president speaks to the nation, Axelrod says he’ll talk about other aspects that affect people who already have health insurance, such as limiting out-of-pocket costs for patients.