UPDATE 2-U.S. Senate panel backs health insurance requirement

(For other stories on healthcare reform, click [nN20512341])

* Senate panel protects White House deal with drugmakers

* Committee upholds individual requirement for insurance

* Senators want votes on public option on Friday (Adds Schumer and Rockefeller, details)

By John Whitesides and Donna Smith

WASHINGTON, Sept 24 (Reuters) - A U.S. Senate panel considering a sweeping healthcare overhaul upheld a requirement on Thursday that individuals purchase health insurance and rejected a proposal that could have scuttled an $80 billion White House deal with drugmakers.

On their third day of debate, members of the Senate Finance Committee made slow progress on hundreds of amendments to the healthcare bill, the last of five measures pending in Congress on President Barack Obama's top domestic priority.

The Democratic-controlled panel defeated on a largely party-line vote a Republican proposal to let individuals opt out of the bill's requirement that everyone have health insurance. The plan would offer subsidies on a sliding scale to help people buy it.

Republicans said the issue was a matter of personal freedom and questioned the constitutionality of forcing people to purchase insurance.

"The individual mandate in this bill is un-American. It may even be unconstitutional," said Republican Senator Jim Bunning, the amendment's sponsor.

Democrats said the requirement was vital to the success of the overhaul, which aims for a dramatic reduction in the number of uninsured people living in the United States. "The system won't work if this passes," Baucus said of the amendment.

The panel's bill, which committee staff said would cost about $900 billion over 10 years, mirrors Obama's proposals to rein in costs, increase insurance competition and regulation and expand coverage to the uninsured.

PUBLIC OPTION VOTES PLANNED

The Baucus proposal does not include a government-run insurance plan -- the "public option" -- that is included in the other four bills in Congress, and two Democratic senators said they would seek votes on the issue on Friday.

Democratic Senators John Rockefeller and Charles Schumer said they would bring up public option amendments in order to kick off a discussion on the approach, which is backed by President Barack Obama as a way to create competition but opposed by critics who fear it will hurt the private insurance industry.

"This is the starting point," Schumer told reporters about the debate on a public option, which was included in the four other bills in Congress.