WASHINGTON - Determined to advance President Barack Obama's health care agenda, key Senate Democrats are calling for a government-run insurance option to compete with private plans, as well as a $750-per-worker annual fee on larger companies that do not offer coverage to employees.

In a letter outlining the details, Sens. Edward M. Kennedy, D-Mass., and Christopher Dodd, D-Conn., said their revised plan would cost dramatically less than an earlier, incomplete proposal, and help show the way toward coverage for 97 percent of all Americans.

The two senators said the Congressional Budget Office put the cost of the proposal at $611.4 billion over 10 years, down from $1 trillion two weeks ago. The revising also "virtually eliminates" an earlier forecast that the proposal would cause many companies to drop coverage for their workers, they said.

Kennedy and Dodd wrote members of the Senate Health, Education, Labor and Pensions Committee on Wednesday. A copy was obtained by The Associated Press. They disclosed their plans as Congress neared the end of a July 4 vacation, and with lawmakers expected to turn quickly to health care legislation when they return to the Capitol.

The Health Committee could meet as soon as next week to complete its version of the bill, and the presence of a government health insurance option virtually assures a party-line vote.

Separately, the Senate Finance Committee is at work on a companion measure, although that effort is aimed at achieving a bipartisan compromise. As a result, a government-run option for coverage is unlikely to be included. Negotiations are centered on a proposal for a nonprofit cooperative to sell insurance as a competitor to private companies.

Three committees are collaborating in the House on legislation expected to come to a vote by the end of July. That measure is certain to include a government-run insurance option.

At their heart, all the bills would require insurance companies to sell coverage to any applicant, without charging higher premiums for pre-existing medical conditions. Poorer individuals and families would qualify for government subsidies to help with the cost of coverage. The government's costs would be covered by a combination of higher taxes and cuts in projected Medicare and Medicaid spending.

Obama has urged Congress to pass legislation this year, both to control the costs of health care generally, and to make coverage available to an estimated 47 millions who lack it.

Kennedy, D-Mass., has devoted years to the struggle for universal health care, although he has been absent from the Capitol in recent weeks as he copes with a brain tumor. As chairman of the Health Committee, he and his aides have been heavily involved in drafting legislation, and in his absence Dodd has taken on a more prominent public role as the next senior Democrat on the panel.

"Like the president and a strong majority of Americans, we believe that a strong public option is an important component of any health reform bill that keeps costs down, expands coverage and offers American families a wide variety of affordable options," the two Democrats wrote.

They outlined an approach in which the Health and Human Services Department would negotiate rates and premiums, and poorer individuals and families would be entitled to the same subsidies as anyone buying coverage from private insurance firms.

"We must not settle for legislation that merely gestures at reform," the two Democrats wrote. "We must deliver on the promise of true change."

The letter indicated that the cost and coverage improvements resulted from two changes: the government-run health insurance option, which has drawn intense opposition from Republicans, and the employer fees.

The proposal calls for a $750 annual fee on employers for each full-time worker not offered coverage through their job. The fee would be set at $375 for part-time workers. Companies with fewer than 25 employees would be exempt. The fee was forecast to generate $52 billion over 10 years, money the government would use to help provide subsidies to those who cannot afford insurance.

The same provision is also estimated to greatly reduce the number of workers whose employers would drop coverage, thus addressing a major concern noted by CBO when it reviewed the earlier proposals.