Aug. 1 (Bloomberg) -- Legislation to overhaul the U.S. health-care system cleared its final House committee, setting up a September floor vote on a measure that may curb the profits of insurers and drugmakers and would extend coverage to tens of millions of uninsured Americans.

The House Energy and Commerce Committee last night approved by a 31-28 vote legislation designed to stem rising costs for care, require the federal government to negotiate prices with drugmakers such as New York-based Pfizer Inc., and place restrictions on some insurers seeking to raise premiums.

The action was “a defining moment for our country,” committee Chairman Henry Waxman, a California Democrat, said in a statement after the vote. Five Democrats joined all the panel’s Republicans in voting against the measure.

President Barack Obama, in a statement today, called the panel’s action an “historic step” that “moves us closer to health-insurance reform than we have ever been before.” The bill strengthens consumer protections and choice, lowers costs and improves health care, he said.

The effort to cover almost 50 million uninsured Americans and rein in health-care costs that make up a sixth of the U.S. economy faces a host of obstacles. Waxman’s bill will have to be melded with those passed by two other House committees before the September vote, then that version must be reconciled with whatever comes out of the Senate. The legislation is likely to cost about $1 trillion over 10 years.

Deadline Missed

The House and Senate already failed to meet Obama’s deadline for having their bills passed by the start of the monthlong congressional recess, handing a victory to Republicans and some Democrats who wanted to slow down the process of enacting the most sweeping health-care changes in more than four decades.

The House adjourned for its August recess yesterday.

In the Senate, which has another week left in Washington, finance committee chairman Max Baucus has struggled for months to produce a bipartisan compromise. Baucus, a Montana Democrat, said on July 30 his panel won’t be able to pass a plan next week.

Waxman said the failure to meet Obama’s deadline wasn’t a problem. “I feel confident we can pass a health-care reform bill when we come back in September,” he said in an interview. “We really are not set back that much.”

Government Plan

The plan passed by his committee would create a government- run insurance program that would compete with private companies. To win passage, Waxman agreed to require the new program to negotiate rates with health-care providers the way private insurers do, instead of pegging them to the lower rates of Medicare, the federal program for the elderly.

Lawmakers approved an amendment that would establish a 12- year period of exclusivity for biologic drugs. During those dozen years, biotechnology companies such as Amgen Inc., of Thousand Oaks, California, and Roche Holding AG’s Genentech unit, of South San Francisco, California, wouldn’t face competition from cheaper, generic copies of their drugs, which are made from living cells.

The committee passed that amendment on a 47-11 vote, following the Senate Health, Education, Labor and Pension Committee’s move July 13 to reject the Obama administration’s call to limit exclusivity to seven years for biologic drugs.

Blue Dog Rebellion

Waxman spent days negotiating a compromise on the broader legislation after a group of seven Democrats on the panel objected to the cost and structure of the measure. He and House Speaker Nancy Pelosi finally struck a deal with some of the lawmakers, who are also members of the coalition of self- described fiscally conservative Blue Dog Democrats, on July 29.

That agreement reduced the number of people eligible for subsidies to purchase insurance, which the legislation mandates all Americans must have. Small businesses with annual payrolls of less than $500,000 would also be exempt from the mandate that companies provide workers with insurance or pay a fine.

Republicans expressed displeasure with the legislation. “I’m very, very disappointed; there is still a federally run plan,” said Representative Mike Rogers of Michigan.

Referring to the Waxman-led negotiations, he said, “The only thing that happened is that you allowed the Blue Dogs to pick the color of the lipstick going on this pig.”

After making the bargain with the Blue Dog members, Waxman and Pelosi faced another rebellion from Democrats. Leaders of the Congressional Progressive Caucus were unhappy about agreed- upon cuts in subsidies for lower-income Americans and the requirement that the government-run insurer negotiate with providers.

New Deal

Waxman then had to put together another deal to satisfy the progressives and the Blue Dogs. That one involved a “unity package” that restored some $50 billion in subsidies to help low-income people buy insurance, said Representative Tammy Baldwin, a Wisconsin Democrat.

Baldwin said the package would repeal the prohibition on the federal government bargaining on prices with pharmaceutical companies under Medicare. All insurers in a newly formed health exchange would have to receive approval before raising premiums above a certain amount, she said. The Centers for Medicare and Medicaid Services would have to bring down costs by processing claims electronically.

Representative Christopher Murphy, a Connecticut Democrat, said greater use of electronic transactions could save $10 billion to $15 billion annually.

To contact the reporters on this story: Nicole Gaouette in Washington at ngaouette@bloomberg.net; Kristin Jensen in Washington at kjensen@bloomberg.net

Last Updated: August 1, 2009 13:38 EDT