Oct. 14 (Bloomberg) -- The U.S. Senate Finance Committee’s approval of health-care legislation after months of struggling to reach an agreement sets the stage for an even bigger battle.

Senate Majority Leader Harry Reid now has to meld the $829 billion legislation with a measure passed by the Senate health committee in July. While both proposals aim to curb medical costs and cover tens of millions of uninsured Americans, their different paths to the goal have divided Democrats and unsettled some of the party’s main supporters.

Lawmakers are grappling with a host of issues -- whether to create a government-run insurance program, whether to require that employers cover workers and how to pay for all the changes. Even as Democrats stuck together in yesterday’s 14-9 panel vote and won the support of Republican Senator Olympia Snowe of Maine, they hardened their stances.

“The bill before us still falls short of what people need and what people expect,” said Senator Jay Rockefeller, a West Virginia Democrat who supports a government insurance entity, or public option, to compete with private insurers such as Indianapolis-based WellPoint Inc.

The public option is a fault line, with a majority of House Democrats and senators including Rockefeller and New York’s Chuck Schumer lined up on one side and Democrats from Republican-leaning states, such as Senators Blanche Lincoln of Arkansas and Kent Conrad of North Dakota, on the other.

Conrad’s ‘Nonstarter’

Schumer yesterday said the option must be in final legislation, after the finance committee voted against it. Conrad said at least one version of the plan is a “nonstarter” because his state’s hospitals would go bankrupt.

The United Auto Workers and 26 other unions will publish a newspaper advertisement today saying labor will oppose the legislation unless lawmakers include a public option, among other changes, before a vote by the full Senate.

House Democrats and Senate Democrats led by John Kerry of Massachusetts, are lining up to support another proposal that Senate Finance Committee Chairman Max Baucus knocked down: a requirement that employers cover workers.

While Reid tries to navigate the conflicting demands from his party, he may not have much room to change the finance panel proposal. Lincoln said her support wouldn’t extend to a final bill that “strays too far.” And Snowe was measured in backing the legislation, President Barack Obama’s top domestic priority.

No Promises on Vote

“There are many miles to go in this legislative journey,” Snowe said. “My vote today is my vote today. It doesn’t forecast what my vote will be tomorrow.”

The administration is dispatching White House Chief of Staff Rahm Emanuel to the Capitol today to meet with Reid and other Democratic lawmakers as they try to merge the bills, according to an administration official. Nancy-Ann DeParle, director of the White House Office for Health Reform, and Peter Orszag, director of the Office of Management and Budget, are also going at Reid’s invitation, the official said.

Senate Democrats control 60 votes, the number needed to avoid Republican stalling tactics and pass major legislation. Some, such as Nebraska Senator Ben Nelson, say they won’t back a bill unless it has Republican votes. That means Reid has to combine the two measures to keep his party on board while retaining Snowe and wooing other Republicans such as Susan Collins of Maine and George Voinovich of Ohio.

Reid, a Nevada Democrat, will face a similar challenge if his chamber passes the legislation: working with House Speaker Nancy Pelosi to craft a compromise.

‘Notched Up’

“Every step in this process you see the degree of difficulty notched up,” said Jennifer Duffy, senior editor at the Cook Political Report in Washington.

Like measures passed by other committees, the Senate finance proposal requires that Americans get insurance, creating purchasing exchanges and tax credits to help. Instead of a public option, it offers $6 billion in seed money for nonprofit insurance cooperatives.

The Senate health committee left the work of paying for the legislation to the finance panel, which opted for $13 billion in annual fees on health-care industries as well as a tax on insurers that offer the most generous benefit plans, which the Congressional Budget Office says would raise $201 billion over 10 years.

Democrats expressed concern that the tax on so-called Cadillac plans would affect people such as coal miners who need high-end benefits because of dangerous work. The House plan instead imposes surtaxes on the wealthiest Americans, and leaders are considering levies on insurers’ profits.

‘Tug-of-War’

“We see a five-party tug-of-war” among labor unions, senior citizens, lawmakers, employers and health industries, said Anne Kim, economic program director for Third Way, a Washington research institution. “The right compromise is going to be one that requires each of these groups to hurt just a little.”

Industry groups will seek other changes. Insurers, counting on acquiring millions of new customers, are upset that the finance panel scaled back penalties for not buying coverage. Hospitals, which agreed to contribute $155 billion in savings toward the effort, say not enough people are covered.

There is common ground. Besides the insurance requirement, all the plans restrict insurers’ ability to deny people coverage and encourage preventive care, electronic records and research on the effectiveness of treatments.

And there are possible compromises. Nelson and others have expressed approval of a proposal by Senator Thomas Carper, a Delaware Democrat, to allow states to create their own public options if insurance competition is lacking.

“Let’s get this merger right,” Baucus said yesterday of the process ahead. “Let’s not botch it.”

To contact the reporters on this story: Kristin Jensen in Washington at kjensen@bloomberg.net; Laura Litvan in Washington at llitvan@bloomberg.net

Last Updated: October 14, 2009 11:44 EDT