Oct. 8 (Bloomberg) -- House Democrats are considering new options to pay for an overhaul of the nation’s medical system, including a tax on health insurers’ profits, while scaling back a proposed levy on the wealthiest Americans.

The 11-company Morgan Stanley Health Care Payer Index fell 3.5 percent, the biggest drop in three months, as House Speaker Nancy Pelosi said lawmakers were considering the so- called windfall profits tax. WellPoint Inc., the largest health insurer by enrollment, led the decline.

“Maybe that’s something we can put in the mix,” the California Democrat told reporters today. While calling the idea “very preliminary,” she said insurers, drugmakers and other health-care industries have “much more they can put on the table to bring down the cost.”

Lawmakers are considering the biggest changes in the U.S. health-care system since the 1965 creation of Medicare, the government program for the elderly. They are trying to cover tens of millions of uninsured people and rein in health-care costs that currently account for a sixth of the economy.

House leaders are working to bring the cost of their plan to less than $900 billion over 10 years. A rival measure set for a vote on Oct. 13 in the Senate Finance Committee would cost $829 billion.

The Senate legislation cleared its latest hurdle yesterday when the Congressional Budget Office said the finance panel’s measure would reduce the federal budget deficit while insuring millions more people.

Scaling Back Surtax

House Democrats had been depending on a graduating surtax starting on couples earning at least $350,000 a year to raise $544 billion. A new proposal would increase that threshold to at least $1 million for couples, bringing in $460 billion over the next decade, said Representative Sander Levin of Michigan.

Lawmakers are looking at a variety of other tax increases to make up the difference, including a Senate proposal to limit tax benefits from flexible-spending accounts, an employer- provided benefit used by workers to pay for out-of-pocket medical expenses, Levin said.

The windfall profits tax came up in a meeting with House leaders last night and again today “as a trial balloon,” without any details, said Representative Gerald Connolly, a Virginia Democrat. The idea would be “very popular” among lawmakers because the legislation will bring new clients for insurers who should in turn offer savings, Connolly said.

Pelosi said she asked Ways and Means Committee Chairman Charles Rangel of New York to study the idea.

‘What Windfall Profits?’

A spokesman for the insurance industry said the idea was misguided and based on “misinformation.”

“What windfall profits? The insurance industry profits are in line or less than almost any other industry,” Robert Zirkelbach of the Washington-based trade group America’s Health Insurance Plans said in a telephone interview. “There is a lot of misinformation out there.”

UnitedHealth Group Inc., the largest insurer by sales, had a 3.8 percent profit margin last year. It was 4.1 percent for WellPoint and 4.5 percent for Aetna Inc. of Hartford, Connecticut, the third-largest insurer, Bloomberg data shows.

With enrollment down in the recession, the industry’s margin will be about 3.3 percent this year, Karen Ignagni, chief executive officer of the insurance industry group, said in an interview yesterday. That’s less than the 15 percent or better at pharmaceutical companies, she said.

Indianapolis-based WellPoint dropped $2.94, or 6.2 percent, to $44.72, while Minnetonka, Minnesota-based UnitedHealth dropped 89 cents, or 3.6 percent, to $24.16 in composite New York Stock Exchange trading.

Republican Reaction

Asked about the insurer profit tax idea, House Republican Leader John Boehner told reporters that “Americans who have policies today will end up paying higher premiums to pay for this tax” and “there are no ifs, ands or buts about it.”

Still, other House Republican leaders said they were willing to back major pieces of the House legislation if Democrats drop ideas such as the establishment of a new government program to compete with private insurers.

Eric Cantor, the No. 2 House Republican, met with House Majority Leader Steny Hoyer, a Maryland Democrat, to outline three areas of agreement. They include offering subsidies to help Americans afford insurance; banning insurance companies from denying coverage based on preexisting medical conditions; and capping punitive damages in medical liability lawsuits.

“It does provide a way for us to move forward” if Democrats can’t garner enough votes for a broader plan, said Cantor, of Virginia.

Going to the Floor

House Democratic leaders are working to merge health- insurance overhaul plans passed by three committees into a single version to be considered on the House floor. Pelosi said she will send a draft health plan with three versions of a government-run insurance option to the CBO for cost estimates.

“When we get the response back from the CBO, then we’ll make our decision as to what legislation we bring to the floor,” Pelosi said. “I want to be fair and give the most opportunity to all of the options that the members have put forth.”

Her spokesman, Brendan Daly, said the draft legislation will be sent to CBO today or tomorrow.

Democrats have to decide whether to peg doctor and hospital reimbursements under the government-run plan to Medicare, or require the plan to negotiate rates. Medicare- tethered rates would save $110 billion and negotiated rates would save $25 billion, according to an earlier Congressional Budget Office estimate provided to the House.

To contact the reporter on this story: James Rowley in Washington at jarowley@bloomberg.net

Last Updated: October 8, 2009 18:00 EDT