Oct. 8 (Bloomberg) -- Legislation overhauling U.S. health care cleared its latest obstacle when the Congressional Budget Office said a Senate finance panel measure would reduce the federal budget deficit even as it insures millions more people.

The report paved the way for a vote by the finance committee, which Senate Majority Leader Harry Reid said today would take place on Oct. 13.

The $829 billion legislation would cut the deficit by $81 billion over 10 years, with new taxes and savings more than offsetting the cost, the CBO said in a preliminary analysis yesterday. That eases one of the major concerns about the bill.

“The report is good news,” panel Chairman Max Baucus, a Montana Democrat, said after the release of the analysis of the measure, an amended version of a proposal he made last month. “Our balanced approach in the finance committee to health reform, I think, has paid off.”

The CBO report was critical because President Barack Obama has pledged not to sign legislation that adds to the budget gap. The finance committee plan would continue to reduce the deficit in the subsequent decade, the CBO said, though the nonpartisan agency said it couldn’t give precise figures.

The panel’s legislation would require that millions of Americans purchase health coverage, impose new restrictions on insurers, and tax high-end insurance plans.

Grassley Criticism

Senator Charles Grassley of Iowa, the committee’s senior Republican, said this morning the CBO analysis hasn’t convinced him to support the measure.

The report “is only part of the story,” he said on CNBC. “Most everybody is going to see their premiums go up” under the measure because of the insurance mandate on individuals and taxes on insurers, which will be passed through to consumers.

Still, Grassley said the legislation was preferable to the “other radical bills that are out there” in the House.

After the panel votes, Reid can focus on merging the plan with one passed by the health panel in July. He’ll have to mollify Democrats who are divided over issues such as whether to create a government-run insurance option and how to pay for the legislation.

Snowe Seeks Time

Maine Senator Olympia Snowe, a finance panel member and the Republican most likely to support the plan, said she wants to put off a vote until next week so she has time to examine the report. She called the agency’s conclusion on the deficit “important” while saying she still has “a lot to review.”

“I would rather have the comfort level of having sufficient time to analyze it over the weekend,” Snowe told reporters.

Lawmakers are attempting to extend coverage to millions of uninsured Americans and curb health-care costs, which account for a sixth of the economy. Reid, a Nevada Democrat, had planned to start debate as early as next week. House leaders are also combining versions of their plan.

Republicans and some Democrats had voiced concern that the legislation would cost too much and widen the federal budget gap. The CBO said its estimate is preliminary because it hasn’t received the legislative text yet and there may be “significant changes.”

‘Right Direction’

Even so, the analysis shows the measure “is certainly moving in the right direction,” said Nebraska Senator Ben Nelson, a Democrat and potential swing vote. He said he would examine the findings and see what the legislation looks like at the end of the full Senate debate before deciding how to vote.

“Any time the numbers improve on something, you feel real good about it,” Nelson said in an interview.

North Dakota Senator Kent Conrad, a Democrat on the finance panel who’s worked closely with Baucus, told reporters the legislative process has a long way to go. “It will be months before this is concluded,” he said.

Under the plan, about 94 percent of legal, non-elderly residents would have insurance coverage by 2019, up from 83 percent now, the CBO said. That means some 25 million people would still be uninsured, roughly a third of them illegal immigrants, the agency estimated.

Industry Concerns

That coverage level is lower than the 97 percent target set in a $155 billion deal the hospital industry made with Baucus and Obama in July, said Chip Kahn, president of the Federation of American Hospitals based in Washington. While the group isn’t walking away from its agreement to take cuts in government payments and contribute other savings, Kahn said it wants to see changes.

The measure “does not meet the standard of coverage that our agreement is based on,” Kahn said in an interview.

The insurance industry said a decision by Baucus’s panel to scale back penalties on people who fail to buy coverage will hurt the plan’s effectiveness.

“For market reforms to work, you have to have a mandate,” said Karen Ignagni, president and chief executive officer of America’s Health Insurance Plans, a Washington trade group.

There are other hurdles. House and Senate Democrats are divided over whether to create a government-run insurance option, whether to require that employers cover workers, and how to pay for the legislation. Party members will battle over the issues in the next few weeks as leaders combine plans and then prepare for the merging of House and Senate versions.

Public Option

Baucus, after negotiating for months with two other Democrats and three Republicans on his panel, opted against an employer mandate and the so-called public option. He also included $6 billion in federal seed money for nonprofit cooperatives to offer an alternative to private insurers.

His bill calls for new taxes on so-called Cadillac insurance plans and fees on industries including drugmakers and medical device manufacturers. The House versions would institute surtaxes on the wealthiest Americans.

All the versions have common ground. They require that Americans get insurance, with varying penalties for failing to do so. They also encourage greater use of preventive care, electronic records and research on the effectiveness of treatments. Under all the plans, insurers would have to accept new clients, regardless of preexisting conditions.

To contact the reporters on this story: Kristin Jensen in Washington at kjensen@bloomberg.net; Brian Faler in Washington at bfaler@bloomberg.net

Last Updated: October 8, 2009 10:18 EDT