June 19 (Bloomberg) -- U.S. senators seeking to lower the price tag of a health-care overhaul below a $1.6 trillion estimate are cutting back proposed subsidies to help low-income Americans buy insurance.

An outline of a plan being weighed by Senate Finance Committee members also leaves out a costly option opposed by most Republicans -- a government insurance program that would compete against private insurers. Instead, the outline suggests creating non-profit cooperatives to provide coverage to some of the approximately 46 million Americans without health insurance.

Senate Finance Committee Chairman Max Baucus is working to keep the plan’s cost below $1 trillion as he seeks to build support from both parties. The nonpartisan Congressional Budget Office said this week that earlier options under consideration would total $1.6 trillion.

Baucus yesterday continued to express confidence that a measure will pass the Senate with sizable support from both parties. “There’s no question we’re getting closer to a bipartisan bill,” the Montana Democrat told reporters.

Although the draft makes tradeoffs on some Democratic priorities, it includes other measures sought by party members seeking to meet President Barack Obama’s call to revamp the U.S. health-care system. Obama has said he wants a bill sent to him by October. The draft would require all Americans to have health insurance, with fines for some who refuse to get it. It would impose restrictions on insurers, including a ban on denying coverage to people with pre-existing conditions.

Automatic Cuts

Baucus yesterday also said he is considering a mechanism to create automatic cuts in Medicare payments if needed.

A slide presentation to committee members this week outlined a proposal that would set a target for lower Medicare spending. If the target is not met, a federal panel -- the Medicare Payment Advisory Commission -- would recommend to Congress policies that would reduce spending by the government health program.

Congress would vote up-or-down on the recommendations, similar to the process for closing military bases, according the proposal, a copy of which was obtained by Bloomberg News.

The outline of the Senate finance panel plan, which was sent to the CBO, says the committee’s bill would provide tax credits to families and individuals with income up to 300 percent of the federal poverty level. Earlier this year, Baucus circulated options that would have provided credits for those with income up to 400 percent of the poverty level.

‘Taken Aback’

“I’m taken aback by the extent to which they have pulled back,” said Harold Pollack, faculty chair at the University of Chicago Center for Health Administration Studies. “The drive for bipartisanship for its own sake really will produce a less efficient, less well-crafted, less effective piece of legislation in the end.”

The Senate Finance Committee document didn’t address how to pay for a health-care overhaul.

It described the issue of utilizing co-operatives rather than a public insurance program as an open question, still subject to debate. Similarly, it left open the question of whether to require all employers to provide health insurance to workers or pay a penalty to the government.

Instead, employers might be required to pay a percentage of costs for employees who receive Medicaid or a tax credit to purchase health insurance through a new insurance “exchange” that would offer coverage through group rates.

The draft document was posted yesterday on the Washington Post Web site, and a committee aide confirmed that it was a committee outline. The aide said no aspects of the document have been agreed to and that they represent ideas under discussion.

To contact the reporters on this story: Laura Litvan in Washington at llitvan@bloomberg.net; Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net.

Last Updated: June 19, 2009 11:00 EDT