WASHINGTON - U.S. House of Representatives Speaker Nancy Pelosi said on Wednesday congressional Democrats were close to agreement on merging their healthcare bills but still faced challenges in blending the two approaches.

For the second consecutive day, Pelosi and other House Democratic leaders met with President Barack Obama at the White House to discuss ways to reconcile the House's healthcare overhaul with a version passed by the Senate.

We've had a very intense couple of days, Pelosi told reporters after the White House meeting. I think we are very close to reconciliation, respectful of the challenges.

Democratic House-Senate negotiators must bridge differences on issues including the use of federal funds for abortion, new taxes to pay for the plans, a government-run insurance option and the level of subsidies and penalties for the uninsured.

The two bills must be melded into one and passed again by each chamber before Obama can sign it.

But Democrats must keep each member of their fragile 60-vote Senate caucus together to muscle the bill through over unified Republican opposition, meaning the final version must hew closely to the Senate bill on several crucial points.

Obama urged the House Democratic leaders to include a tax on high-priced health insurance policies that is in the Senate bill, The New York Times reported. Obama has previously said he favors such a tax on so-called Cadillac plans.

There's so much agreement in the bills but sometimes we approach the issue differently, so we have to figure out the best approach, Pelosi said after Wednesday's meeting.

The overhaul, Obama's top legislative priority, would lead to the biggest changes in the $2.5 trillion U.S. healthcare system since the 1965 creation of the government-run Medicare health program for the elderly.

Both bills would extend insurance coverage to more than 30 million uninsured Americans and halt industry practices such as refusing insurance to people with pre-existing medical conditions.

House leaders have a list of about two-dozen issues to be resolved, a House aide said, with a goal of finishing work before Obama's State of the Union address to Congress sometime in early February.

SPEED THE PROCESS

To speed the process along, Congress plans to dispense with the traditional House-Senate conference committee -- which could face procedural challenges from Senate Republicans -- and let House and Senate leaders negotiate the merger.

We're in a can-do mood, Representative Xavier Becerra, a member of the House leadership, told reporters after a morning meeting in Pelosi's office to plot negotiating strategy before House Democratic leaders talk to members by phone on Thursday.

Both bills would require most Americans to have insurance, give subsidies to help some pay for coverage and create exchanges where the uninsured could compare and shop for plans.

The need to keep all 60 Senate supporters on board probably means the government-run public insurance plan included in the House bill, but opposed by a handful of Senate moderates, must be jettisoned -- an outcome Pelosi signaled on Tuesday she was willing to accept.

In return for dropping the public insurance option, House members hope to expand the subsidies available to low-income families to purchase insurance without dramatically increasing the bill's price tag -- which was $871 billion over 10 years for the Senate but more than $1 trillion for the House.

Everyone wants to make sure there is strong accountability and it's going to be affordable for the middle class, House Rules Committee Chairwoman Louise Slaughter told reporters before the White House meeting.

So far, much of the discussion has focused on the tax differences in the two bills. The Senate's tax on high-cost Cadillac insurance plans -- opposed by labor unions and many House Democrats -- could be adjusted to ensure it does not hit middle-class workers.

I think the House Democrats have been very clear on that issue, Becerra said. We're trying to make sure that this does not effect middle-class Americans.

The House's tax on the very wealthiest Americans -- those individuals making more than $500,000 and families who make more than $1 million -- also could be at risk.

Healthcare stocks have gained ground as the healthcare debate has dragged on since summer and investors have seen changes they believe are more favorable to companies.

The S&P Health Care Sector index has gained 32 percent since late February 2009 when Obama released initial healthcare proposals in his budget. But by comparison, the broader S&P 500 is up 51 percent during the same period.

(Additional reporting by Matt Spetalnick and Patricia Zengerle; Editing by Eric Beech)

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