WASHINGTON (Reuters) - Senate Democratic healthcare negotiators said they agreed on Tuesday to replace a government-run insurance option with a scaled-back non-profit plan and would seek cost estimates on the deal.

Senate Majority Leader Harry Reid talks to reporters about healthcare legislation after the senate Democrats' weekly policy lunch on Capitol Hill, December 8, 2009. REUTERS/Jonathan Ernst

“We have a broad agreement,” Senate Democratic leader Harry Reid told reporters, refusing to provide details of the healthcare proposals to be sent to the Congressional Budget Office.

A team of 10 Senate Democrats -- five liberals and five moderates -- had worked for days to find a substitute to the government-run “public” insurance option included in the Senate healthcare bill after moderates voiced concerns about it.

The government-run plan has been one of the biggest hurdles for the healthcare overhaul, which is President Barack Obama’s top domestic priority.

Democratic Senate sources said the substitute would create a non-profit plan operated by private insurers but administered by the Office of Personnel Management, which supervises health coverage for federal workers.

One of the liberal negotiators, Democratic Senator Russ Feingold, said he had concerns about the direction of the talks on the public insurance option, which was designed to create more choice for consumers and competition for insurers.

“I do not support proposals that would replace the public option in the bill with a purely private approach,” Feingold said. “We need to have some competition for the insurance industry to keep rates down and save taxpayer dollars.”

The negotiators also sought cost estimates on an expansion of the Medicare health program for the elderly, which is now available at age 65, to Americans as young as 55 who could “buy-in” to the coverage, a Democratic source said.

That proposal, designed to create more affordable insurance options for older workers, had been pushed by liberal Democrats in exchange for dropping their support for the public option.

“I’ve got a smile on my face,” Democratic Senator John Rockefeller, who has been advocating the Medicare expansion since 2001, told reporters after the talks broke up.

‘MORE COMPETITION’

“Insurance companies will certainly have more competition,” Reid said of the deal, which he said would be enough to bring the bill to final passage. “The American people will certainly have more choices.”

The Democrats met in Reid’s office late into Tuesday, their fourth consecutive day of negotiating, and afterward Reid said the deal could lead to final passage of the bill.

Democratic Senator Tom Carper said once the cost estimates were received from CBO “then we’ll take it up and decide what we can afford.”

The other potential hurdle to the healthcare overhaul was abortion, and the Senate on Tuesday rejected an attempt to tighten restrictions on abortion coverage -- a vote that could threaten a crucial Democrat’s support for passage of the bill.

Democratic Senator Ben Nelson’s amendment to tighten the bill’s restrictions on the use of federal funds for abortions, identical to a provision approved by the House of Representatives last month, was killed on a 54-45 vote.

Without the abortion language, Nelson had threatened he would not back the final healthcare bill when it came to a vote. If he followed through, Democrats would be one vote short of the 60 they need to pass the measure.

But after his amendment failed, Nelson softened his stance slightly. “It makes it harder to be supportive. We’ll see what happens,” he told reporters.

Reid said he was willing to keep working with Nelson to add language to the bill that would resolve the concerns on both sides of the divisive issue.

“If in fact he doesn’t succeed here, we’ll try something else,” Reid said of Nelson before the vote. Nelson said he was not looking to negotiate a compromise.

The amendment would have blocked people who receive federal subsidies from buying insurance plans that cover abortions and prohibited a proposed government insurance plan from offering abortion coverage in most circumstances.

The Senate was on its ninth day of debate on the bill, which would extend coverage to 30 million uninsured people and halt industry practices like refusing coverage to those with pre-existing medical conditions.

Senators are racing the clock to meet a self-imposed end-of-year deadline for the bill’s final passage. It would still need to be reconciled with the House version in January.