By Shailagh Murray and Lori Montgomery
Washington Post Staff Writers
Friday, June 26, 2009

Senate health-care negotiators said yesterday they were closing in on a $1 trillion health-care bill that would be fully funded by tax increases, Medicare cuts and new penalties for employers who do not offer health insurance.

Senate Finance Committee Chairman Max Baucus (D-Mont.) said members of the panel would consider a menu of policy and financing options over the Fourth of July recess, with the goal of producing a deficit-neutral 10-year bill shortly after Congress returns July 6. "We're getting a lot closer to an agreement," Baucus told reporters after the committee reviewed new Congressional Budget Office cost estimates yesterday.

Sen. Charles E. Grassley (Iowa), the ranking GOP member on the Finance Committee, confirmed that talks were moving forward but added, "There's still a lot of decisions that have to be made."

Senate Budget Committee Chairman Kent Conrad (D-N.D.) said the Finance Committee had reduced the overall cost of its bill by cutting subsidy levels for uninsured people. He said members had not yet resolved the issue of the "public option," a government alternative to private insurance, although he said discussions continued to focus on a member-owned cooperative model.

As the contours of a bill begin to take shape, Conrad said prospects for bipartisan support appear to have brightened. "We've narrowed the options and gotten a better sense of how this is going to all add up," said Conrad, who also sits on the finance panel.

The Senate health committee is considering a separate reform bill, but the finance version is crucial because it will include provisions to pay for the subsidies and tax incentives that Congress is seeking to expand. Lawmakers have been struggling for weeks to reach agreement on those issues, and an array of contentious proposals remain on the table.

As described by aides and lawmakers on the Senate Finance Committee, the financing package includes substantial reductions in future spending on Medicare and Medicaid, the primary federal health programs for elderly and low-income people.

In addition to trimming payments to hospitals and other providers, the panel is considering empowering an existing federal agency, known as MedPAC, to monitor Medicare costs and make adjustments unless Congress objects. The shift would take much Medicare authority out of the political process, diminishing the health-care industry's lobbying power.

The package also is expected to include just over $300 billion in new taxes on health insurance benefits that millions get from their employers. The leading proposal would tax as income any premiums exceeding about $17,000 a year, starting in 2013. Currently, the average cost of family coverage provided by employers is about $12,500 a year, and premiums for employer-sponsored coverage -- whether paid by the employer or the worker -- are tax-free.

Many Democrats oppose the new tax, and President Obama campaigned against the idea. But lawmakers said they could identify few acceptable alternatives.

A final major element of the financing package is a new penalty for employers who do not offer health insurance. One option under discussion is a "free rider" provision that would require businesses to help finance coverage for workers who receive it elsewhere, such as through Medicaid or other government programs. Conrad said the free-rider provision would generate about $300 billion over the next decade.

Coverage provisions under committee consideration include an expansion of Medicaid; extensive insurance reforms, including a ban on denying coverage for preexisting conditions; and a new national insurance entity, either a co-op or something run by the government. Senators also are weighing an individual mandate to buy insurance.