Nov. 19 (Bloomberg) -- The health insurance industry proposed guaranteeing coverage for every American, regardless of medical condition, in return for an enforceable requirement that everyone have a policy.

The proposal also calls for the government to subsidize premiums for moderate-income people, according to a statement today by the Washington-based trade group America's Health Insurance Plans. AHIP speaks for 1,300 companies that provide public or privately funded benefits, led by UnitedHealth Group Inc. and WellPoint Inc.

The insurers' plan is similar to ideas offered by President- elect Barack Obama, except Obama hasn't supported making insurance mandatory for everyone. During his presidential campaign, Obama proposed expanding government health programs, giving subsidies to low-income families and requiring insurers to cover all applicants.

``No one should fall through the cracks of our health care system,'' said Karen Ignagni, the industry group's chief executive officer. ``Universal coverage is within reach and can be achieved by building on the current system.''

Senator Charles Grassley of Iowa, the Finance Committee's senior Republican, said at a hearing today that mandating coverage won't ``come cheap.'' He warned that the federal budget deficit, already $400 billion excluding the $700 billion financial rescue package and costs from the recession, would swell.

``Increasing the record-breaking deficit is not a legitimate option,'' said Grassley. ``Ignoring the burden of inefficient spending that health care places on our economy is also not an option.''

Baucus, Kennedy Meet

The Finance Committee, headed by Senator Max Baucus, and the Health, Education, Labor and Pensions Committee, led by Senator Edward M. Kennedy, have begun working on separate legislative proposals to overhaul the health system.

Democrats Baucus of Montana and Kennedy of Massachusetts held a closed-door meeting at the Capitol today to discuss strategy for health-care legislation. Among Republican senators participating were Grassley and Orrin Hatch of Utah.

The White House is moving ahead too. Obama has selected former Senate Majority Leader Tom Daschle to head the Department of Health and Human Services, a person familiar with the matter said today.

``Obama would have a very smart politician on hand to keep the Congress within the bounds of what can get the votes, what will get broad stakeholder support, and at the same time what will fly on Main Street,'' said Robert Laszewski, an Alexandria, Virginia, health-policy consultant in a blog posting today.

Government-Enforced

The plan offered today by AHIP would promise health insurance for all applicants as long as a verifiable, government- enforced enrollment process ensures that everyone has a policy, the insurance industry group said. The group didn't say what penalty should be imposed for those who fail to get coverage.

The trade group proposed refundable tax credits for working families and said families buying coverage on their own should get the same tax break as those who obtain insurance through their employers. The value of employer-provided benefits isn't taxed.

The health insurers also said premiums should be kept stable through a ``broadly funded reimbursement mechanism that spreads costs for the highest-risk individuals.''

The Blue Cross Blue Shield Association, representing 39 companies that cover 102 million Americans, today issued a similar proposal calling for mandatory coverage.

`Spread the Risk'

``With everyone covered through an effective individual mandate, insurance can function as intended and spread the risk over a broad and representative population and, thereby avoid the risk of only those who need insurance purchasing coverage,'' said Scott P. Serota, the association's chief executive, in a statement today.

Last week, Baucus presented his blueprint for changing the $2.2 trillion health care system, including mandatory coverage. Baucus would create government-run insurance exchanges where small businesses and people without workplace benefits could buy coverage.

Spending to reform the U.S. health-care system would stimulate the economy and can't be delayed, Baucus said at the hearing today.

``Health-care reform is not a distraction from addressing the economy,'' Baucus said. ``Health-care reform is central to restoring America's economy.''

To contact the reporters on this story: Avram Goldstein in Washington at agoldstein1@bloomberg.net; Aliza Marcus in Washington at amarcus8@bloomberg.net.

Last Updated: November 19, 2008 15:31 EST