(Corrects vote total in second paragraph to 15-8)
* Senate panel rejects amendment on public option
* Panel opens second week of debate on healthcare reform
WASHINGTON, Sept 29 (Reuters) - The U.S. Senate Finance Committee on Tuesday rejected including a government-run "public" insurance option, which is backed by President Barack Obama, in its sweeping healthcare reform bill.
The panel voted 15-8 against a government-run insurance plan in the first of what is expected to be several battles in Congress over the public option, one of the most contentious issues in the raging U.S. debate over healthcare reform.
Obama has made reforming the $2.5 trillion U.S. healthcare system his top domestic priority.
Five Democrats joined all the panel Republicans in opposing inclusion of the government-run option in the bill. The issue is expected to be raised again in the full Senate and the House of Representatives.
The Senate Finance plan by Democratic Chairman Max Baucus is the only healthcare bill pending in Congress that does not have a public insurance plan, which Obama and other backers say would boost competition for insurers.
Republican critics said the public option would devastate the private insurance industry and ultimately lead to a government takeover of the sector.
Democratic Senator John Rockefeller, who offered an amendment to insert a public option, said the approach would give the public more choices and force the insurance industry to compete.
"Who comes first, the insurance companies or the American people?" he asked.
Senator Charles Grassley, the senior Republican on the panel, said the public option would represent a first step toward what he said was the eventual goal of Democrats -- a complete government-run health insurance system.
"A government-run plan will ultimately drive private insurers out of business," Grassley said. "If you support government bureaucrats, not doctors, making decisions, you should support this amendment." (Writing by John Whitesides; Editing by David Storey)