US senators reject stronger abortion restrictions

* Senate panel rejects Republicans on abortion

* Panel moves closer to completing healthcare work

* Senate recess postponed as floor debate nears

By Donna Smith and John Whitesides

WASHINGTON, Sept 30 (Reuters) - A U.S. Senate panel rejected a Republican effort on Wednesday to further restrict abortions in a sweeping healthcare overhaul as it inched closer to finishing work on the bill.

The Senate Finance Committee defeated two attempts by Republican Senator Orrin Hatch to strengthen the measure's anti-abortion provisions, with Democrats arguing the amendments would create new limits on a woman's right to an abortion.

Democrats on the panel also beat back a Republican attempts to repeal a $6.7 billion fee on insurers, a key element of the overhaul proposed by Chairman Max Baucus, and to strengthen provisions to deny benefits to illegal immigrants.

The bill, one of five healthcare measures pending in Congress, is designed to rein in costs, regulate insurers and expand insurance coverage to many of the 46 million uninsured people living in the United States.

The measure includes a provision ensuring no federal funds could be used to pay for abortions except in cases of rape, incest or to save the life of the mother.

But Hatch offered an amendment requiring women to purchase a separate policy for abortion coverage under the bill.

"As a woman I find it offensive," Democratic Senator Debbie Stabenow said "This is an unprecedented restriction on what people can buy in private insurance market."

The panel rejected the proposal on a 13-10 vote, with Republican Olympia Snowe siding with Democrats and Democrat Kent Conrad siding with Republicans.

A second Hatch amendment that would have toughened rules protecting the rights of hospitals and other providers to decline to perform abortion for conscience reasons also failed on a 13-10 vote.

COMING TO A HEAD

The panel hopes to complete work in the next few days, and Senate Democratic Leader Harry Reid canceled a planned Senate recess scheduled to start on October 13 in anticipation that healthcare will advance to a debate on the floor.

"With all the things going on here, it just would not be right for us to take that week off," Reid said.

The committee on Tuesday rejected a government-run "public" insurance option as part of the healthcare overhaul, President Barack Obama's top domestic priority.

Reid will merge the panel's final bill with a measure passed earlier this year by the Senate Health committee before the full Senate takes up the issue.

The Finance Committee has slowly waded through hundreds of amendments to the overhaul of the $2.5 trillion healthcare system,

The Senate Finance bill would require all individuals to purchase insurance and offer subsidies on a sliding scale to help pay for it. It would create state-based exchanges where individuals and small businesses could shop for insurance.

On another party-line 13-10 vote, the panel defeated an amendment by Republican Senator Charles Grassley that would have eliminated a proposed $6.7 billion annual fee on insurance companies, designed to help pay for the changes.

Grassley and other Republicans argued the fees would be passed on to consumers in the form of higher premiums. The change would have been paid for in part by reducing federal aid to states to cover Medicaid administrative costs, drawing Democratic objections.

The panel also defeated on party lines a Grassley amendment trying to tighten restrictions on illegal immigrants. It would have required government-issued photo identification when applying for Medicaid -- the government healthcare program for the poor -- or the children's healthcare program. (Editing by Cynthia Osterman)