July 17 (Bloomberg) -- U.S. lawmakers attempting to reshape the nation’s health-care system encountered a stumbling block when the head of the Congressional Budget Office said their proposals would fail to rein in spending.

“We do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount,” Douglas Elmendorf, director of the nonpartisan agency, told the Senate Budget Committee yesterday. “The curve is being raised.”

Elmendorf’s comments on draft plans issued by one Senate committee and being debated by three House panels may hinder efforts to pass the biggest expansion of health care since the establishment of Medicare and Medicaid in 1965. His office releases cost projections that can make or break legislation.

Democrats are trying to craft a plan to both trim health- care costs and expand coverage to an estimated 46 million uninsured Americans. A leading issue is how to pay for the measure, which may cost more than $1 trillion over a decade.

Three House committees that oversee health care are working to amend a 1,018-page measure unveiled by their chamber’s leaders on July 14. The Education and Labor, Energy and Commerce and Ways and Means panels aim to finish their portions of the measure by today or early next week, staff members said.

The Senate health committee cleared its version on a party- line vote on July 15. Senate Finance Committee Chairman Max Baucus, who is leading the effort to forge a bipartisan compromise, so far has failed to get an agreement on his panel for alternative legislation.

Main Controversy

One of the main areas of contention for Baucus’s panel is how to fund the overhaul. He complained that President Barack Obama has made his job harder by joining labor unions in opposing a tax on health-care benefits. “That’s making it more difficult,” Baucus said yesterday.

House Speaker Nancy Pelosi moved to mollify critics of her chamber’s plan by signaling leaders may scale back a proposed a tax on the wealthiest Americans. The plan called for a surtax on annual incomes of more than $350,000 that graduated to a 5.4 percent surtax on couples making more than $1 million a year.

“If we can get more savings, we can perhaps lower the percentage that the high end will pay,” Pelosi, a California Democrat, told reporters yesterday.

Elmendorf’s testimony raises questions about how much savings lawmakers can find. The Senate Health, Education, Labor and Pensions Committee would worsen the overall outlook for the government’s budget, and a review so far of the House proposal hasn’t found change “of the order of magnitude” needed to make up for increased insurance coverage costs, he said.

Republicans React

Republicans seized on Elmendorf’s comments.

The testimony “should be a wake-up call,” Senate Republican Leader Mitch McConnell said in a statement. It confirms Republican arguments that the Democratic plan “would actually make things worse.”

John Boehner, the House Republican leader, said Elmendorf’s comments show that “the Democrats’ government takeover will drive health-care costs even higher.”

Democratic leaders expressed frustration.

Asked about Elmendorf’s remarks, Senate Majority Leader Harry Reid said, “what he should do is run for Congress.”

Pelosi had already taken aim at the CBO on June 18. “The CBO will always give you the worst-case scenario on one initiative and never a best case,” she told reporters.

Not ‘Devastating’

Even so, North Dakota Senator Kent Conrad, a Democrat on the finance committee and head of the budget committee, said he thought Elmendorf’s testimony would just spur lawmakers to find better cost savings.

“I don’t think it’s devastating to the cause of reform at all,” he told reporters yesterday on his way to meet Baucus.

The House and Senate are racing to pass their separate versions by August, a goal set by Obama. In the Senate, the health panel’s plan will be merged with the one that comes out of the Senate Finance Committee and set for a vote by the full chamber.

While how to pay for health care is the biggest challenge, the idea of imposing a so-called millionaire’s tax to help fund the expansion is drawing fire from Republicans and Democrats. Senator Ben Nelson of Nebraska has expressed skepticism, as have House Democrats in the Blue Dog Coalition, who describe themselves as fiscally conservative.

The surtax is “not my first choice,” said one Blue Dog Democrat, Stephanie Herseth Sandlin of South Dakota. “I’ve got some concerns.”

Public Option

Arkansas Representative Mike Ross, the group’s chairman, said the Blue Dogs couldn’t support the current House measure.

Among other things, the House version calls for a public- health insurance plan and includes mandates on employers and individuals to purchase coverage. Both issues are sticking points in the Senate Finance Committee.

Obama met with both Nelson and Republican Senator Olympia Snowe of Maine at the White House yesterday. Snowe, a member of the finance panel who in the past has been willing to support Obama initiatives, said she told the president the Senate may need more time even as he stuck to his August deadline.

“We have a very complex, costly endeavor,” Snowe told reporters. “So it is important that we get this right.”

To contact the reporters on this story: Jim Rowley in Washington at jarowley@bloomberg.net; Kristin Jensen in Washington at kjensen@bloomberg.net

Last Updated: July 17, 2009 00:01 EDT