July 9 (Bloomberg) -- The Obama administration pressed House lawmakers to strengthen legislation to revamp health care, saying it doesn’t go far enough to fix a system plagued by spiraling costs that leaves millions of Americans uninsured.

White House Budget Director Peter Orszag raised the stakes in the congressional debate over the issue by telling Democratic lawmakers a proposal they are considering “would perpetuate a system in which best practices are far from universal and costs are too high.”

Orszag delivered a letter to lawmakers during a meeting last night on Capitol Hill amid signs that congressional momentum for overhauling the system is slowing. Senators, considering a more modest version of the legislation, are clashing over how to finance the $1 trillion cost and whether to set up a government entity to compete with private insurers.

While Orszag, 40, expressed “strong support” for many of the proposals to extend coverage to the estimated 46 million uninsured, he said it would be “desirable to build upon these measures with additional steps that will help make our health- care system sustainable for generations to come.”

Among other points, he urged lawmakers to include further cuts in the Medicare and Medicaid payments that hospitals receive for treating the uninsured.

October Deadline

President Barack Obama has given Congress a deadline of this year to deliver a bill to his desk that would rein in the cost of a system that accounts for 18 percent of the economy and cover the uninsured. The House and Senate must each pass separate bills, then reconcile them into a single measure for Obama’s signature.

Should House Democrats go along with the administration’s push to broaden their proposal they would be even farther apart from ideas under discussion in the Senate. Senate Republicans such as Lamar Alexander of Tennessee have opposed cuts to Medicare, complicating Senate Majority Leader Harry Reid’s efforts to attract the Republican support he says he needs to pass a bill.

Senators from both parties have urged Democratic leaders in that chamber to abandon their goal of trying to push the legislation to a vote in the next month.

“Arbitrary, artificial deadlines have not been helpful to this effort,” Maine Republican Olympia Snowe told reporters. “These are very complex and costly issues,” and solutions are “not going to come out instantaneously.”

Complex Plan

Senate Budget Committee Chairman Kent Conrad suggested that the complexities of crafting a plan may derail Reid’s goal of passing a bill before the August recess.

“The important thing is to get it right, not to get stuck on some specific day or some specific week,” said Conrad, a North Dakota Democrat. “There is plenty of time to do this.”

Snowe, a member of the Finance Committee, is among a handful of Republicans that Democrats are trying to persuade to back the health-care overhaul, Obama’s top domestic priority. Conrad is playing a lead role in working to win over Republicans.

Their appeal to go slowly came a day after Democratic leaders told finance panel Chairman Max Baucus to find alternatives to his plan to tax the costliest employer-provided health benefits, one of the most contentious issues.

Baucus acknowledged the challenge he was facing in meeting Obama’s deadline: “We’ll try. It’s complicated.”

Taxing Benefits

Baucus later said taxing health-care benefits -- a plan opposed by Democratic-leaning labor unions -- was still an option. Conrad said proposals such as imposing a surtax on incomes of more than $250,000 are also under consideration.

In the House, the three committees with oversight of health issues assembled a draft proposal in June that would include a public insurance plan to compete with private insurers. It would require employers to provide insurance for their workers or pay a penalty equal to 8 percent of their payroll. The draft made no tax-increase recommendations.

Representative Henry Waxman, the California Democrat who chairs the Energy and Commerce committee, said he expected to unveil the legislation tomorrow. Waxman and Ways and Means Committee Chairman Charles Rangel are working with California Representative George Miller, chairman of the House Education and Labor committee.

‘Health Exchanges’

Their proposal would create “health exchanges” where people could comparison-shop for coverage among plans that met minimum standards set by a federal advisory committee. The exchanges would include a public plan.

Families and individuals with incomes up to 400 percent of the poverty level would be eligible for credits to help them purchase insurance in the proposal and a federal standard would be set to expand Medicaid, the federal insurance program, to those earning up to 133 percent of the poverty rate. Currently, Medicaid rates are set by states.

The House bill may contain cuts to Medicare of $500 billion to $550 billion, said a lobbyist familiar with negotiations.

House lawmakers met yesterday for a second day in Rangel’s office to work through the details of their proposal. Orszag and Nancy-Ann De Parle, head of the White House Office of Health Reform, arrived shortly before 6 p.m. Rangel, a New York Democrat, said lawmakers discussed policy and revenue-raising provisions with administration officials and wouldn’t provide details.

Earlier, Rangel said he didn’t expect opposition from the administration over the income surtax, originally his idea.

“I have every reason to believe they have no objection to the surtax,” he said during a break from the meetings with committee members and administration officials in his office just steps from the House floor.

Linda Douglass, a White House spokeswoman, declined to comment.

To contact the reporters on this story: James Rowley in Washington at jarowley@bloomberg.net; Ryan J. Donmoyer at rdonmoyer@bloomberg.net

Last Updated: July 9, 2009 00:00 EDT