Senate negotiators made a last stab at a bipartisan healthcare compromise as the U.S. Congress returned to work Tuesday, with House of Representatives Speaker Nancy Pelosi calling a government-run insurance option essential to the bill.

But one day before President Barack Obama tries to revive momentum for his top domestic priority with a prime-time healthcare address to Congress, a prominent leader of a group of conservative House Democrats said he could no longer support the government-run public option.

In the Senate, the so-called Gang of Six negotiators met behind closed doors to consider a proposal for sweeping insurance market changes and a fee on insurers to help pay for coverage of the uninsured.

With the debate hitting a crucial phase, Obama said in an interview with ABC's Good Morning America that will air on Wednesday that his speech would make his healthcare proposals clear and make sure that Democrats and Republicans understand that I'm open to new ideas.

The long-awaited plan from the Senate Finance Committee chairman, Democrat Max Baucus, would create nonprofit cooperatives to compete with insurance companies instead of a government-run insurance plan sought by liberal Democrats and backed by Obama.

Shares of U.S. health insurers fell on fears the final reform deal may dramatically cut profits.

The public option has come under fire from critics concerned it would hurt insurance companies and give government too broad a role in the sector, but many liberal Democrats in the House say it will foster increased competition and they will not support a plan without it.

While Obama backs a government-run option, he has signaled it is not essential to help meet his goal of expanding coverage to most of the 46 million uninsured Americans.

Mike Ross, the leader of the conservative Blue Dog Democrats in the House, said in a statement a government-run option is the wrong direction for health reform in this country and I will oppose it in the U.S. Congress.

Pelosi reiterated the importance of a government-run plan after she met Obama at the White House. Three House committees have passed bills that include the option.

I believe a public option will be essential to our passing a bill in the House of Representatives, said Pelosi, who was joined in the meeting with Obama by Senate Democratic leader Harry Reid.

She said an overwhelming majority of House members favor a public option. The proposal faces much tougher going in the Senate, where Republicans and a handful of moderate Democrats have expressed doubts and have the votes to kill it.

The debate over the public option exemplified the healthcare challenge for Obama as he seeks a middle ground between liberal and more moderate Democrats while still trying to attract enough Republican support to ensure Senate passage.

His speech to Congress Wednesday is widely seen as a possible turning point in the debate.

'A PLACE AT THE TABLE'

Reid said Senate Democrats were still interested in working with Republicans on a healthcare deal.

We still after all these months have a place at the table for the Republicans, and we're going to do everything we can to work with them. We want a bipartisan bill, Reid said.

The Baucus plan under discussion by negotiators is expected to cost slightly less than $900 billion over 10 years. It would tax insurance companies on their most expensive healthcare policies and levy a fee on companies that would raise about $6 billion a year to help pay for the plan.

It also would offer tax credits on a sliding scale for individuals and families starting in 2013 to offset the cost of private plan premiums, and would provide tax credits to small business.

In addition, it proposes to limit out-of-pocket expenses for patients, bar insurers from placing caps on benefits and expand the government-run Medicaid program for the poor.

Robert Zirkelbach, spokesman for America's Health Insurance Plans, which represents health insurance companies, said the added fees and taxes in the Baucus proposal would drive up the cost of healthcare rather than control them by making coverage less affordable.

Baucus is prepared to move the bill through the panel soon with Democratic backing alone if he cannot win over the three Republicans -- Charles Grassley, Mike Enzi and Olympia Snowe -- in the negotiating group.

Enzi and Grassley have been critical of Obama's plans during the recess, dimming hopes they would be included in an ultimate compromise and prompting the White House and other Democrats to focus on Snowe as a possible partner.

Baucus said he is still hopeful of a bipartisan agreement and asked his negotiating partners for feedback on his plan by Wednesday morning. The group will meet again Wednesday.

Snowe supports a compromise plan that would not initially include a public option but would trigger the creation of a government program if insurance companies failed to meet cost and quality benchmarks.

Snowe told reporters that Obama has been receptive to the idea of a trigger given the difficulties facing a public option. She said reaching a deal before Obama's speech on Wednesday night was overly ambitious.

The healthcare legislation would require 60 votes in the 100-seat Senate for it to avoid a procedural move by Republicans to kill it. Democrats had 60 seats in the chamber until the death last month of Edward Kennedy of Massachusetts.

While it is expected that Democrats will hold Kennedy's seat, it is not certain that his successor will be in place in time for a vote on healthcare legislation.

(Additional reporting by Thomas Ferraro, Patricia Zengerle, Susan Cornwell and Susan Heavey; editing by Mohammad Zargham and Jackie Frank)

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