Health insurers, drugmakers and other companies expect U.S. Senate lawmakers to soften the blow from health reform legislation narrowly passed by the House of Representatives that calls for a greater government role in the industry.

Pharmaceutical and insurance sector stocks were all in positive territory in line with the overall market on Monday, following the approval of the House bill late Saturday calling for a public insurance option and a government role in drug prices under Medicare.

Investors took the House vote in stride, with expectations growing that a final measure could be delayed until next year.

The Senate remains very unlikely to pass any bill containing an unbridled public plan that potentially could ultimately threaten significant price deflation for US sales, said Morgan Stanley pharmaceutical analyst Andrew Baum.

We continue to feel very comfortable with our projection that any eventual healthcare reform is likely relatively benign to the pharmaceutical part of the healthcare value chain, Baum said in a note to clients.

With the House bill out of the way, attention has shifted to the Senate and whether Democrats can stay united and make good on President Barack Obama's pledge to overhaul the nation's $2.5 trillion health-care system and expand coverage.

Senate Democratic leaders need every vote -- they control 60 of the legislature's 100 seats -- but face opposition from more moderate members who oppose a government-run insurance program as proposed by the House.

Industry has blasted the House bill and vowed to fight for changes.

Angela Braly, chief executive of insurer Wellpoint (WLP.N: Quote, Profile, Research, Stock Buzz), said the House had been widely expected to pass a bill with a public plan option -- but she now sees a battle ahead in the Senate.

I do think there is an expectation that the process in the Senate will be a fulsome one and there will be a great discussion about the true impact of these reforms, she told the Reuters Health Summit in New York.

Drugmakers are also looking for major changes in the Senate.

We are still hopeful that before the curtain comes down on health care reform, the Senate will seriously consider the impact any final legislation will have on U.S. jobs and innovation, said Pharmaceutical Research and Manufacturers of America Senior Vice President Ken Johnson.

In the end, we believe that thoughtful leaders will step up and recognize the overriding importance of striking the right balance, he said in a statement.

Still, if House Democrats are successful in pressing their case, insurers could see their margins squeezed.

If they can put through some kind of public option where they can drive down prices (or) control prices that would obviously cut into the profit margins of certain firms, said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co. in San Francisco.

Obama wants health reform to pass this year, and Democrats are counting on a legislative victory to help them stave off Republicans in the 2010 mid-term elections. Democrats currently control both houses of Congress.

But a growing number of analysts see cracks that could push any final measure until early next year, possibly as far as February or March.

We have long anticipated that Obama was willing to sign virtually any version of health reform that he could spin as a victory and that he would have to intervene to get liberal members to compromise on cornerstone issues, Kim Monk, a healthcare analyst at Capital Alpha Partners in Washington, said in a research note.

Insurers such as WellPoint were buoyed on Monday, with the overall sector trading up 1.6 percent on the Morgan Stanley Healthcare Payor index after earlier seeing a 2.5 percent jump. Pharmaceutical companies were trading up 1.5 percent on the NYSE Arca Pharmaceutical stock index.DRG.

The broader market as measured by the S&P 500 .SPX was up 1.6 percent in early afternoon trading.

(Reporting by Susan Heavey and Ben Hirschler; Additional reporting by Ed Krudy; Editing by Tim Dobbyn)

Medicine Barack obama