June 25 (Bloomberg) -- Senate Finance Committee Chairman Max Baucus said the cost of health-care options being weighed by his panel can be cut to $1 trillion over 10 years and won’t add to the deficit, citing the Congressional Budget Office.

The non-partisan budget office last week delivered an informal cost estimate of $1.6 trillion for the legislation to overhaul the health-care system, sparking protests from both Republicans and Democrats and prompting Baucus to say his panel may delay consideration of a bill until next month.

“CBO now tells us we have options that would enable us to write a $1 trillion bill, fully paid for,” Montana Democrat Baucus, who set that amount as his goal, told reporters at the Capitol. CBO spokeswoman Melissa Merson declined to comment.

Baucus also said a federal panel is likely to recommend cuts to Medicare, the federal health-care program for the elderly and disabled, which Congress may decide to act on by an up-or-down vote. “It’s just one way to help reduce the excessive rate of growth” in health-care spending, he said.

Baucus’s committee is taking the lead in the Senate on the bill, President Barack Obama’s top domestic priority, crafting legislation that can meet Obama’s goal of bringing down the cost of health care and expanding coverage to the estimated 46 million Americans who lack insurance. Obama wants Democratic congressional leaders to send him legislation by mid-October, and to seek Republican support.

Taxing Health Benefits

Among other issues the lawmakers are grappling with are whether to tax employer-provided health benefits to help offset the cost of legislation and whether to establish a new government-run entity to compete with private insurers.

Any Senate legislation would have to be reconciled with a version produced by the House of Representatives. The three House committees with jurisdiction over health care last week collaborated to produce a draft proposal that would cover 95 percent of Americans, said Representative Henry Waxman, the California Democrat who heads the Energy and Commerce Committee.

It includes a government insurance plan, which is opposed by many Republican lawmakers and the insurance industry.

Cooperatives the Focus

Senate discussions about how to create more competition for private insurers are increasingly focusing on cooperatives, said Senator Kent Conrad, a North Dakota Democrat and finance panel member. State affiliates of a nationwide structure could band together to negotiate insurance rates, he said earlier this week in a Bloomberg Television interview.

Conrad and Senator Charles Schumer of New York, a public option proponent, have been negotiating how the cooperatives might work. Schumer said today there is a tentative understanding that his demand that the co-ops get at least $10 billion in federal start-up funds will be met.

Proposed cuts in Medicare may prove to be just as contentious, with health-care industry representatives today criticizing the idea in testimony to the House energy and commerce panel.

Reductions in Medicare could “jeopardize the health” of nursing homes and assisted-care facilities, said Bruce Yarwood, president and chief executive officer of the American Health Care Association. “Quality of care is inextricably linked to stable funding,” he said.

Lost Coverage

Private companies like Louisville, Kentucky-based Humana Inc. run Medicare Advantage programs, which were created to compete with Medicare, though they cost about 14 percent more. Medicare Advantage plans, with more than 10 million people enrolled, often offer extra benefits such as dental care or gym memberships.

The proposed reductions “would cause millions of Medicare Advantage enrollees to lose their coverage and lead to significant reductions in benefits or increases in premiums for millions more,” said Alissa Fox, a senior vice president of the Blue Cross and Blue Shield Association.

Obama suggested in a letter June 2 to Baucus and Senator Edward Kennedy, chairman of the Health, Education, Labor and Pensions Committee, that cost-cutting recommendations from the Medicare Payment Advisory Commission, “created by a Republican Congress,” be adopted “unless opposed by a joint resolution of the Congress.”

“This is similar to a process that has been used effectively by a commission charged with closing military bases and could be a valuable tool to help achieve health care reform in a fiscally responsible way,” Obama said in the letter.

Obama’s Principles

While Obama has left largely to Congress the task of crafting the legislation, he set down principles for lawmakers to heed: extend coverage to the uninsured without contributing to the federal budget deficit.

Obama last night defended government involvement in the health-care system and said an overhaul should meld the best from the public and private sectors.

“There’s going to have to be some compromise at the end of the day,” he said during a town hall-style event at the White House arranged by ABC News. “If we are smart we should be able to design a system in which people still have choices” and receive “necessary treatment” without waste.

To contact the reporters on this story: Laura Litvan in Washington at llitvan@bloomberg.net; Nicole Gaouette in Washington at ngaouette@bloomberg.net.

Last Updated: June 25, 2009 14:24 EDT