Oct. 15 (Bloomberg) -- The Obama administration signaled a willingness to compromise on a proposed government-run health- insurance company by praising Senator Olympia Snowe’s plan to start the entity only if private insurers don’t meet targets.

Snowe, the lone Republican to vote for legislation approved this week by the Senate Finance Committee, proposed triggering the so-called public option if private insurers fail to curb insurance-premium increases.

A senior administration official, who spoke on condition of anonymity, said that while President Barack Obama prefers the public option, Snowe’s trigger was a potentially good compromise if the Senate decides to pursue it. Senate Democratic leaders say they are considering her approach as they work to keep their party united behind a broad-based overhaul of the U.S. health- care system.

“Every Democrat will vote for national health-care reform, and I’m hopeful that several Republicans will as well,” said Senate Finance Committee Chairman Max Baucus, a Montana Democrat, after a meeting of all Senate Democrats to discuss legislation in that chamber. He dismissed threats by some Senate Democrats, including Roland Burris of Illinois, that they will oppose a final bill that lacks an immediate public option.

Negotiating Muscle

The comments came as House Speaker Nancy Pelosi said she favors a “robust” public option because “I want to send our conferees to the table” for House-Senate negotiations “with the most muscle” to make health-insurance affordable.

Still, Pelosi wouldn’t say whether she would leave the negotiations to reconcile House and Senate versions of the health-care legislation without obtaining an agreement on the government plan.

“Our House position is what we will go in there to fight for,” she told reporters at her weekly news conference. “We are taking this one step at a time.”

“We are where the American people are on the public mandate,” she said citing recent polls showing that more than 60 percent of voters favor a public option.

She said House leaders will decide “in the next few days” whether to press for a government-run plan that would base doctor fees on rates for Medicare, the government health program for the elderly, or one that requires the plan to negotiate potentially higher fees with doctors and hospitals.

Medicare Peg

One alternative under consideration is pegging doctor reimbursements to Medicare plus 5 percent and hospitals to Medicare rates. A variant of that idea would pay hospitals 5 percent more than the Medicare rate, Nadeam Elshami, a spokesman for Pelosi, told reporters.

Pelosi said a public option that pegs doctor reimbursements to Medicare would save $110 billion and the “negotiated rate does not save as much money.”

The Congressional Budget Office has estimated negotiated rates would save the Treasury $25 billion over a decade.

One plan being considered by House Democrats for a public option with negotiated reimbursements of doctors would expand Medicaid eligibility to another 7 million Americans.

That would save another $25 billion over 10 years because it would be less expensive to provide Medicaid coverage than to subsidize insurance premiums for those people, said Elshami.

Senate Weighs Options

In the Senate, Democratic leaders are working to resolve differences between health-overhaul measures approved by the Senate Finance Committee this week and the Senate health committee in July.

The health panel creates a Medicare-like public insurance program that would negotiate rates with providers as private insurers do, instead of pegging rates to the lower fees paid by Medicare.

In a bid for Republican support, the Senate Finance panel dropped any public option, instead approving the use of nonprofit co-operatives to provide competition to the insurance industry. The co-ops would receive $6 million in initial federal seed money, and then after they are established would push all of their profits into lower premiums or better benefits for members.

Other alternative ideas on a public option are percolating. Some analysts, such as Ira Loss of the Washington-based firm Washington Analysis, say they anticipate the Senate negotiators might include a combination of ideas to provide more competition to industry.

Snowe’s Plan

Under Snowe’s plan, the government would offer coverage in any state where less than 95 percent of residents have access to affordable insurance. Coverage would be deemed unaffordable if the premium cost exceeds a percentage of personal income, ranging from 3 percent for those at 133 percent of the federal poverty level to 13 percent for those at 300 percent of the poverty level and above. For a family of three this year, that level is $18,310.

Another idea, promoted by Senator Tom Carper, a Delaware Democrat, would allow states to take steps if price competition isn’t adequate. That would include allowing them to create state-administered health insurance plans, perhaps extending over regions of the country. Carper is in talks with other senators about his idea, and some are urging him to allow states to opt in to a national health-insurance plan.

Senator Maria Cantwell, a Washington Democrat, is pushing for a different approach to providing competition: States could negotiate with insurers to provide affordable coverage for those whose income is between 133 percent -- the cap on the new Medicaid expansion -- and 200 percent of the poverty level. The finance panel included her amendment in its version of the bill.

Cantwell’s proposal wouldn’t give states the role of negotiating coverage directly with doctors, hospitals and other providers as a public option would.

Loss said a combination of ideas could take hold, such as the use of co-ops along with a trigger for a public option.

“You don’t duck the public option, you say we won’t start with a public option, but if things don’t work out, we’ll go there,” Loss said. “It gives insurers a challenge to do it.”

To contact the reporters on this story: James Rowley in Washington at jarowley@bloomberg.net; Laura Litvan in Washington at llitvan@bloomberg.net

Last Updated: October 15, 2009 17:13 EDT