CORRECTED - US senators want new tax limit on health execs pay

(Corrects first two paragraphs to make clear that the tax deduction companies can take is being reduced)

* Insurers would pay taxes on executive pay over $400,000

* Measure to raise $651 mln over 10 yrs for Medicare fund

By Susan Heavey

WASHINGTON, Dec 4 (Reuters) - U.S. Democratic senators sought to further squeeze the health insurance industry on Friday by reducing the tax deduction certain companies can take for executive pay.

Under an amendment offered by Senator Blanche Lincoln, a moderate Democrat whose vote is crucial to the overall health reform effort, health insurers would have to pay taxes on executive compensation greater than $400,000, rather than the $500,000 currently proposed.

"Our amendment will make sure that premiums ... new enrollees pay are spent on better care, not executives salaries," Lincoln said.

Lincoln and other Democrats said the amendment would not limit how much health insurance company executives could be paid, only how much could be deducted for tax purposes. It would be limited to insurers participating in the Medicare program.

Democrats estimated that Lincoln's proposal could generate $651 million over 10 years, which could be used to help fund the government-run Medicare health insurance program for the elderly and disabled.

Medicare covers 45 million Americans, but could run out of money by 2017 unless Congress makes changes.

Companies such as Humana Inc (HUM.N) and UnitedHealth Group Inc (UNH.N) are major players in the Medicare market, offering private alternative insurance plans overseen by the federal government.

The Senate could vote on the proposal as early as this weekend.

Dozens of amendments have been offered as potential changes to the more than 2,000-page bill, but it is unclear how many of them would be incorporated.

Representatives of Consumers Union, Families USA and the health insurance industry's lobby group in Washington, America's Health Insurance Plans were not available to comment. (Reporting by Susan Heavey) ((sheavey@thomsonreuters.com; +1 202-354-5848; Reuters Messaging: susan.heavey.reuters.com@reuters.net))