NU Online News Service, Sept. 8, 3:28 p.m. EDT

WASHINGTON–Health insurance reform legislation drafted for the Senate Finance Committee would create a network of nonprofit cooperatives as an alternative provider for the coverage, according to an outline obtained by National Underwriter.

A cooperative provider system is being proposed in place of the controversial government-operated "public plan" concept that has created controversy.

The outline of the legislation was prepared by the office of Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, in preparation for a meeting of the six-member bipartisan subgroup that has been meeting for months in hopes of drafting a compromise reform plan that could pass the Senate.

Sen. Baucus hopes to win agreement from the subgroup for his plan and unveil it before President Obama makes his critical address to Congress tomorrow night. During the address, President Obama is expected to outline what he would support and what he would oppose in an omnibus health care reform plan.

The proposal as outlined in the so-called "chairman's mark" would also impose a tax on insurance companies that offer the most expensive insurance plans. This is a compromise designed as an alternative to proposals to tax people who receive these so-called "Cadillac plans" directly. It would raise about $180 billion over the next 10 years.

The proposal would also impose a fee on all health insurance companies according to their market share.

Joel Kopperud, a government affairs director for the Council of Insurance Agents and Brokers, responded to the draft by saying, "We're encouraged by the chairman's proposal, which seems to generally build on the employer-provided system."

He said it remains unclear under the draft how the proposed co-ops would be designed, "but we are hopeful that they would be established in a way that competes fairly with the private market."

Mr. Kopperud added, "We remain very concerned that any new taxes or fees on insurance plans will ultimately be passed on to the consumer.

"We recognize that a lot of work remains, and we hope that bipartisan consensus can be achieved on a solution that preserves employer-provided coverage," he said.

Analysts at Washington Analysis cautioned that while Sen. Baucus hopes to begin work within his committee on his draft starting next week, two members of the group of six "have neither discarded their opposition to liberal efforts nor the requirements on what it would take for them to support a measure. Yet they still maintain they are not walking away from the negotiations."

Those key members are Sen. Charles Grassley, R-Iowa, ranking member of the committee, and Sen. Mike Enzi, R-Wyoming, ranking member of the Senate HELP Committee.

The analysts added, "We doubt either will bless a bill from the Gang of Six, but the odds still favor support from Senator Olympia Snowe, R-Maine.

Significantly, the plan unveiled by Sen. Baucus does not contain the so-called "Community Living Assistance Services and Supports Act," or CLASS Act, which would create a long-term care entitlement system. Those provisions are contained only in legislation drafted so far by the Senate Health, Education, Labor and Pension Committee or in legislation written by three House committees.

The Senate Finance Committee draft would require health insurance plans serving the individual market to offer coverage on a guaranteed basis starting Jan. 1, 2013. It would prohibit insurance companies from excluding coverage for pre-existing conditions.

Moreover, limited benefit plans and lifetime limits would be prohibited, and health insurance companies would be prohibited from rescinding health coverage.

Health insurance premiums would be allowed to vary based only on tobacco use, age and family composition, according to the draft. Premiums could also vary to reflect geographic differences. But, taking all these factors together, premiums could not vary by more than 7.5 to 1.

Individuals with current coverage in the non-group market would be allowed to keep what they have under the plan.

The rules for the small group market would be the same as those for the non-group market except that they would be phased in over a period of up to five years beginning Jan. 1, 2013.

Under the proposal, some states may enact reforms quicker but others may take up to five years.

For purposes of these reforms, a small group would be defined as 1 to 50 employees, or up to 100 depending on state law. In 2017, states must develop a phase-in schedule, not to exceed five years, for incorporating larger groups, up to 100 employees.

The draft bill would require drug manufacturers to provide a 50 percent discount on the negotiated price for brand-name drugs covered on plan formularies when beneficiaries enter the "doughnut," or the coverage gap now part of the Part D prescription drug benefit under Medicare.

Beneficiaries are eligible provided they do not qualify for low-income subsidies, do not have employer-sponsored coverage or do not pay higher Medicare premiums under Part B or Part D.

It would also require states by 2010 to establish an ombudsman office to act as a consumer advocate for those with private coverage in the individual and small group markets. Policyholders whose health insurers have rejected claims and who have exhausted internal appeals would be able to access the ombudsman office for assistance.

Also in 2010, according to the draft, states would establish an exchange to provide easier, more efficient comparison of health insurance plan benefits and premium costs.

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