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Sources: Senate Health Overhaul Costs Hit $1.6 Trillion

Jolted by cost estimates as high as $1.6 trillion, Senate Democrats agreed Tuesday to scale back planned subsidies for the uninsured and sought concessions totaling hundreds of billions of dollars from private industry to defray the cost of sweeping health care legislation.

At the same time, key Democrats disagreed openly among themselves over a proposed tax on health insurance benefits to pay for expanding coverage to the uninsured.

And a compromise with Republicans over a role for government in the insurance marketplace remained elusive.

Despite numerous uncertainties, Sen. Christopher Dodd, D-Conn., announced that the Senate Health, Education, Labor and Pensions Committee would begin formal work Wednesday on legislation to provide "successful, affordable, quality health care."

The meeting would mark the first public drafting session in either chamber on legislation to control the costs of health care while expanding coverage to the nearly 50 million who lack it -- a goal that President Barack Obama has placed atop his domestic agenda.

Separately, the Senate Finance Committee is expected to begin work next week on a companion measure. Several officials said the Congressional Budget Office had issued a cost estimate of $1.6 trillion, with only about $560 billion paid for. They spoke on condition of anonymity, saying the matter was confidential.

Sen. Max Baucus, D-Mont., chairman of the panel, dismissed the estimates as outdated, and officials predicted the final bill would come in under $1 trillion.

Sen. Kent Conrad, D-N.D., said that with cost estimates coming in so high, "It is clear there have got to be changes made to make the whole package affordable."

In a brief interview with The Associated Press, Baucus also disclosed he was "very close" to agreement with a handful of industry groups for them to accept hundreds of billions of dollars less in Medicare and Medicaid fees than they currently are projected to receive. He said the talks have involved insurance companies, hospitals, doctors, pharmaceutical firms and the makers of medical devices, among others, but did not provide a specific figure for the savings overall.

The efforts are separate from pledges that Obama won earlier in the year from industry groups to restrain future increases in health care spending by roughly $2 trillion over a decade. In a letter to Republicans, the CBO said "most of the proposals are steps that do not require the involvement of the federal government or are not specified at a level of detail that would enable CBO to estimate budgetary savings."

Numerous officials said cost constraints were forcing Democrats in both committees to refine their plans of offering federal subsidies to help the uninsured buy health coverage.

At the Senate Health panel, officials said that after penciling in subsidies for families with incomes as high as $110,000, or 500 percent of the federal poverty level, they would limit the help to families up to $88,000 in income, or 400 percent of the poverty level. A preliminary CBO estimate on that measure, released Monday, calculated a cost of $1 trillion.

The emerging Finance Committee bill also cuts off subsidies at 400 percent of the poverty level, but officials said that might be lowered due to cost concerns.

These officials spoke on condition of anonymity, citing confidential deliberations.

To pay for the legislation, Baucus has signaled he intends to propose a tax on health insurance benefits for individuals with the costliest health insurance coverage, possibly plans with premiums totaling more than $15,000 between employer and employee combined. Obama campaigned aggressively against the idea when Republican rival Sen. John McCain proposed it during last year's presidential campaign.

While the president has recently signaled flexibility on the issue, Dodd criticized it for potentially penalizing individuals and families at a time they are under financial pressure. "I'm not attracted to that idea," he said.

Other senators, allied with organized labor, have also expressed opposition, although Baucus has told reporters he could exempt health benefits included in union contracts from the tax.

Baucus has been negotiating privately with Sen. Chuck Grassley, R-Iowa, the senior Republican on the committee, over the role of government in insurance.

Democrats generally favor allowing government to offer insurance in competition with private companies, and Republicans oppose it.

Conrad last week offered a compromise that would allow nonprofit cooperatives to sell policies, and he joined Baucus and Grassley in a closed-door evening session to review their efforts.

Grassley said before the meeting that nothing was finalized yet, and indicated the sticking point was Baucus' insistence that the federal government play a behind-the-scenes role.

Baucus told reporters, "The goal of public option is to keep the health insurance (industry's) feet to the fire. Make sure they do all the things we tell them to do in the legislation." He said another goal is to keep costs down.

But, he added he remains open to "another way to accomplish the same result."

In an interview with The Associated Press, Health and Human Services Secretary Kathleen Sebelius stressed that Obama is open to compromise on the issue of a public plan. She spoke positively of the compromise proposal of cooperatives, which she said could receive seed money from the Treasury but then be free of control.

She predicted that in the end, the insurance industry will blink first in a showdown over the issue.

"I think they understand there's a lot of momentum both in the House and in the Senate for something to pass, and they'd much rather be inside the room, having those discussions, and helping to shape it as much to their liking as they possibly can," she said.