June 26 (Bloomberg) -- Senate Finance Committee Chairman Max Baucus said the cost of health-care options being weighed by his panel can be cut to his goal of $1 trillion, potentially removing a major stumbling block to the legislation’s passage.

Baucus said yesterday the estimate from the nonpartisan Congressional Budget Office means the plan wouldn’t add to the federal deficit. The Montana Democrat and other panel members said a consensus is emerging on areas of the legislation they will write after next week’s Independence Day recess.

There are many “moving parts as we try to balance a lot of different factors,” Baucus said in an interview. He said the CBO’s estimate provided different options that lawmakers can use to stay within $1 trillion.

Baucus said lawmakers are likely to include a proposal by President Barack Obama to curb Congress’s role in cutting the Medicare system for the elderly and instead create a federal commission to make the decisions.

Even as they made progress, Democrats weren’t where they hoped to be in creating a plan to cover 46 million people who lack health coverage. Baucus had wanted his committee to pass a health-care bill by today, and he delayed a vote as Democrats realized they needed to pare costs and negotiate over issues that were dividing the political parties.

Baucus’s committee is taking the lead in the Senate on the bill, Obama’s top domestic priority. The president wants Congress to send him legislation by mid-October.

$1.6 Trillion

The CBO provided the new estimate a week after its informal price tag of $1.6 trillion over 10 years for a health- care overhaul sparked protests from Republicans and Democrats. Baucus the delayed his committee’s consideration of a bill until next month and vowed to cut the cost by $600 billion.

Among the issues to be resolved is whether to establish a new government-run health-care program to compete with private insurers, though Senator Kent Conrad, a North Dakota Democrat and finance panel member, said discussions are increasingly focusing on nonprofit cooperatives.

Conrad said the panel probably will drop a proposed requirement that all employers offer health coverage or pay a penalty to the government. Instead, employers would have to pay part of the cost of any Medicaid coverage received by their employees, or all the cost for those poor enough to qualify for a tax credit that could be used to purchase health insurance.

The legislation is likely to end the full income-tax exclusion for employer-provided health benefits, committee members say. Baucus has proposed limiting the amount of benefits exempt from income taxation, and the committee has considered a limit in the range of $15,000 to $17,000.

Coverage to Uninsured

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.

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.

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

Conrad and Senator Charles Schumer of New York, who backs a government-run plan, have been negotiating how cooperatives might work. Schumer said there is a tentative understanding that co-ops would get at least $10 billion in federal startup funds, as he is seeking.

Cuts Criticized

Proposed cuts in Medicare may prove to be just as contentious.

Health-care industry representatives yesterday criticized 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.

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.

‘Lose Their Coverage’

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 June 2 letter 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.

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 26, 2009 00:01 EDT