Updated at 11:35 a.m. ET
After days of secret talks, Senate Democrats tentatively agreed Tuesday night to drop a full-blown government-run insurance option from sweeping health care legislation, several officials said, a concession to party moderates whose votes are critical to passage of President Obama's top domestic priority.
In its place, officials said Democrats had tentatively settled on a private insurance arrangement to be supervised by the federal agency that oversees the system through which lawmakers purchase coverage, with the possibility of greater government involvement if needed to ensure consumers of sufficient choices in coverage.
Additionally, the emerging agreement calls for Medicare to be opened to uninsured Americans beginning at age 55, a significant expansion of the large government health care program that currently serves the 65-and-over population.
At a hastily called evening news conference in the Capitol, Majority Leader Harry Reid, D-Nev., declined to provide details of what he described as a "broad agreement" between liberals and moderates on an issue that has plagued Democrats' efforts to pass health care legislation from the outset.
With it, he added with a smile, the end is in sight for passage of the legislation that Congress has labored over for months.
A leading liberal former Democratic Party Chairman Howard Dean and a much-courted moderate Connecticut independent Sen. Joe Lieberman both signaled they might be able to live with a compromise to offer private insurance plans under the auspices of the federal employee health program, while also allowing middle-aged people to buy into Medicare.
"I am encourged by the progress toward a consensus," Lieberman said in a statement issued by his office, which also underscored his opposition to a new government insurance plan that would compete with private carriers.
Dean, meanwhile, said on the CBS "Early Show" that the Medicare option for people age 55 to 64 was "a positive step forward." A physician, former presidential candidate and one-time Vermont governor, Dean has been one of the most vocal supporters of the idea that the government should get into the health insurance market.
"Using Medicare makes more sense than reinventing more bureaucracy," he said.
However, as the Senate continued to debate, a powerful small business group swung into opposition. The National Federation of Independent Business, which was instrumental in defeating then-President Bill Clinton's health care bill in the 1990s, said the Democratic bill would raise costs and make it harder to create jobs.
"Despite the inclusion of insurance market reforms in the small-group and individual marketplaces, the savings that may materialize are too small for too few and the increases in premium costs are too great for too many," NFIB vice president Susan Eckerly said in a letter to Senate leaders.
The White House quickly applauded the developments. "Senators are making great progress and we're pleased that they're working together to find common ground toward options that increase choice and competition," said a spokesman, Reid Cherlin.
In his comments to reporters, Reid said the emerging compromise "includes a public option and will help ensure the American people win in two ways: one, insurance companies will face more competition, and two, the American people will have more choices."
It wasn't clear what he meant by a "public option," the Medicare expansion or a fallback in case private insurance companies declined to participate in the nationwide plan envisioned to be overseen by the Office of Personnel Management. One possibility was for the agency to set up a government-run plan, either national in scope or on a state-by-state basis.
Under the tentative agreement, liberals lost their bid to expand Medicaid, the federal-state program that provides health care for the poor, elderly and disabled. But they prevailed on the Medicare expansion, and the negotiators appeared ready to maintain a separate health care program for children until 2013, two years longer than the bill currently calls for, according to officials familiar with the details.
Additionally, there was consensus support for a requirement long backed by Sen. Jay Rockefeller, D-W.Va., and other liberals for insurance companies to spend at least 90 percent of their premium income providing benefits, a step that supporters argue effectively limits their spending on advertising, salaries, promotional efforts and profits.
One participant in the talks, Sen. Tom Harkin, D-Iowa, referring to a deal among the negotiators, told reporters he didn't like it, but added, "I'm going to support it to the hilt" in hopes of securing passage of the health care bill.
Another senator involved, Sen. Russ Feingold, D-Wis., issued a statement saying, "I do not support proposals that would replace the public option in the bill with a purely private approach. We need to have some competition for the insurance industry to keep rates down and save taxpayer dollars." But he did not rule out voting for the measure.
The developments followed a vote on the Senate floor earlier in the day in which abortion opponentsinto the sweeping health care bill, and Democratic leaders labored to make sure fallout from the issue didn't hamper the drive to enact legislation. The vote was 54-45.
Reid wants action on the health bill by Christmas but more challenges lie ahead. On Wednesday, senators expected to debate an amendment by Sen. Byron Dorgan, D-N.D., to legalize the importation of prescription drugs from Canada and several other countries as a way of holding down consumer costs.
The idea enjoys widespread support but is opposed by the pharmaceutical industry, which has worked closely with the administration on health care and has spent millions of dollars on television advertisements in support of legislation.