June 29 (Bloomberg) -- Lawmakers working to overhaul the U.S. health-care system face a pressure-filled July after leaving town this week without resolving the biggest questions dividing Democrats and Republicans.

When lawmakers return on July 6 after a weeklong recess, the push will be on to overcome differences over issues ranging from whether to set up a new government entity to compete with private insurers to how much to tax the most generous employer- provided insurance plans to generate revenue.

Much of the focus will be on the Senate Finance Committee, the likeliest place for a bipartisan agreement. Committee Chairman Max Baucus is hailing progress made on reining in the cost of the legislation and on Congress’s role in overseeing cuts in Medicare, even after missing two deadlines he set for his panel’s work. Republicans are sounding less optimistic.

“We don’t know what’s in the bill,” said Senator Orrin Hatch, a Utah Republican and member of the group Baucus dubbed the “coalition of the willing” trying to reach a compromise.

Baucus intended for his panel to vote before this week’s recess; then he said he wanted the committee to finish draft legislation before going home. Neither happened.

Nothing ‘Set’

While the Congressional Budget Office said options under consideration by the committee can keep the cost within Baucus’s goal of $1 trillion over 10 years, how to pay for the plan remains unsettled. So is structuring some kind of government-run competition for insurers such as Cigna Corp. of Philadelphia and Minnetonka, Minnesota-based UnitedHealth Group Inc.

“Nothing has been set,” Montana Democrat Baucus told reporters in the Capitol on June 25. The recess offers a chance for “taking stock,” he said.

President Barack Obama is pressing Congress to send him legislation by October that would expand coverage to the estimated 46 million uninsured and reduce costs. The Senate plans to work five weeks after the July 4 holiday before taking a four-week recess and then coming back for another five weeks.

During that time, two Senate panels must forge a compromise and then reconcile their plan with what may be a significantly different House version. For that, Democratic leaders will likely need the support of their more conservative members as well as at least a handful of Republicans.

Republican Support

Health and Human Services Secretary Kathleen Sebelius said the final legislation may win the support of as many as 10 Senate Republicans. “I’m encouraged by the number of people who say we need to do something,” she said on Bloomberg Television’s “Political Capital With Al Hunt.”

Still, many Republicans are grumbling about being left out.

“I’ve seen no real effort by the administration or Democrats to reach out in a substantive way,” said Indiana Representative Michael Pence, chairman of the House Republican Conference.

House Democrats released their plan on June 19 and three committees held hearings last week. The proposal includes a government-run option for health insurance as well as a requirement that employers either insure employees or pay a penalty equal to 8 percent of their payroll, items that have drawn fire from Republicans.

‘Square One’

“We’re not going to support the draft,” said Texas Representative Joe Barton, the leading Republican on the Energy and Commerce Committee. To generate greater support, Democrats would “have to go back almost to square one,” he said.

Meanwhile, the Senate Health Education, Labor and Pensions Committee, run by Connecticut Democrat Christopher Dodd as Chairman Edward Kennedy battles brain cancer, last week failed to meet a self-imposed deadline to finish debating its version.

Those delays have prompted advocates to look for Obama to take a greater role in fashioning his top legislative priority. That will happen, said former Senate Democratic leader Tom Daschle, an Obama confidant. After Obama returns from a July 5- 12 trip to Russia, Italy and Ghana, he’ll “ramp up” efforts to help Congress come up with a bill, Daschle said.

Last week, the president took questions on health care from Americans gathered by the ABC television network in the White House. He said lawmakers should find a plan that extends coverage without adding to the federal deficit.

“We should be able to design a system in which people still have choices” and receive “necessary treatment” without waste, Obama said on June 24.

Voter Concerns

Lawmakers will return to Washington next week armed with concerns they heard from Americans during the break.

Senate Republican Leader Mitch McConnell’s office said he will be visiting Houston tomorrow to discuss health care with Texans, along with fellow Republican Senators John McCain of Arizona and John Cornyn of Texas. Iowa Senator Charles Grassley, the leading Republican on the finance panel and a member of the bipartisan working group, is holding town-hall meetings.

Legislation being weighed by the Baucus-Grassley panel would probably curb Congress’s role in making cuts to the Medicare health system for the elderly and put those decisions in the hands of a federal commission, Baucus said.

Taxing Benefits

Senate Budget Committee Chairman Kent Conrad, also a member of the finance panel, said the measure is likely to avoid the proposed mandate on employers in the House version. An alternative would force employers to pay part of the cost of insurance if their workers are covered by Medicaid or the entire cost if they are poor enough to qualify for a proposed new tax credit that can be used to purchase a policy.

Committee members say the legislation will probably call for imposing taxes on employer-provided health benefits. Baucus has proposed a ceiling on the level of benefits exempt from taxation. The committee has considered alternatives, including capping benefits in the range of $15,000 to $17,000.

Administration officials yesterday wouldn’t rule out taxing employer benefits. White House senior adviser David Axelrod said Obama was flexible on the details.

“The president had said in the past that he doesn’t believe taxing health-care benefits at any level is necessarily the best way to go here, but there are a number of formulations,” Axelrod said on ABC’s “This Week” program.

Senate discussions about how to create more competition for private insurers are focusing on cooperatives, said Conrad, a North Dakota Democrat. State affiliates of a nationwide structure could band together to negotiate insurance rates, he said in a Bloomberg Television interview.

Breakthrough for Baucus

Conrad and Senator Charles Schumer of New York, a Democrat and public option proponent, have been negotiating how the co- ops might work.

Baucus may have scored a breakthrough when he said the nonpartisan Congressional Budget Office told him health-care options weighed by his panel can be cut to $1 trillion and won’t add to the deficit. That may remove an obstacle as an earlier $1.6 trillion estimate sparked sticker shock for lawmakers.

Last week’s activity set off speculation the panel would announce an agreement on how to revamp a system that makes up 17 percent of the world’s largest economy. Yet when a statement emerged on June 25 from the seven members of the “coalition of the willing,” it was just one paragraph.

“The issues facing reform are difficult and complex,” the group said.

To contact the reporters on this story: Kristin Jensen in Washington at kjensen@bloomberg.net; Laura Litvan in Washington at llitvan@bloomberg.net

Last Updated: June 29, 2009 12:26 EDT