Dec. 9 (Bloomberg) -- Senate Democrats tentatively agreed
to abandon a full government-run insurance program in a bid to
remove one of the biggest obstacles to health-care legislation.

Lawmakers instead backed a proposal to establish a program
modeled on the U.S. government employee-insurance system under
which private companies would provide coverage under federal
oversight to millions of uninsured Americans, senators and aides
said. They also want to lower the eligibility age for the
Medicare program for the elderly to 55 from 65 now.

The deal, which needs backing by 60 senators to get into
the final bill, was negotiated by 10 Democrats seeking an
alternative to the government-run program. While most Democrats
support that so-called public option, the idea has drawn fire
from party members in the Senate and all Republicans.

“We are on the brink of a final breakthrough,” Senator
Kent Conrad told reporters today. The plan to offer consumers
choices like the federal employee system is “a very
constructive proposition,” the North Dakota Democrat said.

Senate Majority Leader Harry Reid said in a statement last
night that Democrats reached “a broad agreement” on the issue,
yet he offered no details.

Reid is pushing the Senate to pass health-care legislation
before the end of the month, paving the way for a House-Senate
compromise early next year. The 10-year, $848 billion Senate
bill is designed to cover 31 million uninsured Americans and
curb medical expenses.

‘Several’ Alternatives

The dispute over the government-run insurance plan
threatened to derail any agreement, with Republicans and
centrist Democrats saying it would provide unfair competition to
insurers such as Hartford, Connecticut-based Aetna Inc.

Reid, seeking to break an impasse, encouraged the group of
Senate Democrats to meet behind closed doors and come up with an
alternative to his original plan to set up a government program
that would allow states to opt out.

He said last night the “consensus” is still for a public
option. Jim Manley, his spokesman, said the proposal by the
senators to allow the federal Office of Personnel Management to
administer insurance plans could be construed as a public
option.

Medicare Solvency

Reid sent several alternative proposals to the
Congressional Budget Office, which must offer a cost estimate
for the legislation, Manley said.

Conrad said he wanted to see an analysis of “the effect on
Medicare solvency” and whether it would hurt hospitals in North
Dakota, which already has one of the lowest rates for Medicare
reimbursements.

“If you add a whole new cohort at lower age levels that
threatens my hospitals,” he said.

The American Hospital Association’s executive vice
president, Rick Pollack, warned that if more patients were
reimbursed at Medicare’s levels, it will be harder to maintain
hospital services “that communities depend upon.”

In addition to the plan drawn up by the senators, Reid also
sent to the budget office a proposal that would start a public
option up only if private insurers failed to keep costs down.
That so-called trigger idea is being pushed by Maine Senator
Olympia Snowe, one of the few Republicans being courted to
support the bill.

Long Path Ahead

The White House applauded what it called “great progress”
by the senators. “We’re pleased that they’re working together
to find common ground toward options that increase choice and
competition,” Communications Director Dan Pfeiffer said in a
statement.

The plan agreed to last night would let private companies
sell insurance to businesses throughout the U.S.

Lawmakers have cautioned that there is a long way to go
even if an accord holds.

For one thing, the analysis by the nonpartisan budget
office may set back Reid’s timetable. And at least one of the
Democrats involved in the negotiations, Wisconsin Senator Russ
Feingold, said his support isn’t guaranteed.

“I do not support proposals that would replace the public
option in the bill with a purely private approach,” Feingold
said in a statement.

The steering committee for the Health Care for America Now
coalition, whose members include the NAACP, United Auto Workers
and the AFL-CIO, yesterday said a public option has to be part
of the new insurance exchanges.

‘Won’t Work’

“Using nonprofits to replace a public option won’t work,”
the committee said. “In fact, with half of people in private
insurance currently enrolled in nonprofit plans, they are part
of the problem.”

Like the $1 trillion measure passed by the House on Nov. 7,
the Senate legislation would require Americans to get health
coverage or pay a penalty. It would expand Medicaid, set up new
online purchasing exchanges to get insurance and provide
subsidies for those who need help buying policies.

Last night’s deal followed a vote in which the Senate
refused to add stricter limits on abortion funding to the bill.

The lawmakers voted 54-45 to reject an amendment by
Nebraska Democrat Ben Nelson. Nelson said his proposal would
preserve the ban on federal funding of abortion; opponents
argued it would discourage insurance companies from covering the
procedure.

The loss means Reid may have to find a compromise to gain
Nelson’s backing for the broader measure.

“This is not the right place for this debate,” Reid said
before the vote.

To contact the reporters on this story:
Laura Litvan in Washington at
llitvan@bloomberg.net ;
Nicole Gaouette in Washington at
ngaouette@bloomberg.net