UPDATE 1-U.S. Senate approves children's health bill

(Updates, adds quotes, background)

By Donna Smith

WASHINGTON, Aug 2 (Reuters) - The U.S. Senate on Thursday overwhelmingly approved legislation that would raise tobacco taxes to pay for expanding a children's health program, shrugging off a veto threat from President George W. Bush who wants a more limited plan.

The Senate voted 68-31 for the bill that would provide an extra $35 billion to provide health insurance for more children under the popular state grant program. The Senate acted a day after the U.S. House of Representatives approved a $50 billion increase financed by higher tobacco taxes and cuts in payments to private insurers in the Medicare Advantage program for the elderly.

The Senate and House must reconcile their differences before sending a final bill to Bush sometime after lawmakers return from their monthlong August recess.

Bush has threatened to veto either version, which he and Republican allies have called a step toward nationalized health care.

The program is designed to help working families who cannot afford health insurance but who earn too much to qualify for the Medicaid health-care program for the poor.

Senate Democrats said their bill would provide health insurance coverage for 3.2 million more children and ensure continued coverage for the 6.6 million children already enrolled in the program.

"For the life of me I can't understand why the president would want to veto this legislation," said Senate Finance Committee Chairman Max Baucus, a Montana Democrat who helped write the bipartisan bill. "It is moderate. It is bipartisan. It helps low-income kids. ... It's just the right thing to do."

Bush wants to add just $5 billion over five years to the current $25 billion funding level. He advocates using tax breaks to help more Americans afford health insurance.

Democrats hope to spend the month building public support for the plan to extend health-care coverage to millions of uninsured children, setting up what could be a politically unpopular veto for Bush. The Senate vote on Thursday would be enough to override a veto.

Sen. Orrin Hatch, a Utah Republican who backs the Senate bill, said government spending on the children's health program accounted for only a tiny fraction of the $2 trillion U.S. health-care industry.

Most of the states contract with private insurers to run the program.

The Senate bill would raise taxes on cigarettes by 61 cents a pack to $1. It would also raise taxes on other tobacco products, including cigars. The House bill calls for a 45 cent- per-pack increase in taxes.