WASHINGTON - Democrats in the House of Representatives finished work on Wednesday on a healthcare bill that includes a government-run insurance plan, requires individuals to buy health coverage and imposes a surtax on the wealthy to help pay for it.

The measure, the product of weeks of closed-door talks to merge three pending health bills, will be unveiled by party leaders on Thursday and submitted to the full House for debate as early as next week.

The bill includes a government-run public insurance option that uses reimbursement rates negotiated with healthcare providers, Democrats said, a setback for House liberals led by Speaker Nancy Pelosi who favored a more robust version to compete with private insurers.

Pelosi failed to gain the 218 votes needed to pass a version of the government-run plan using lower rates pegged to Medicare, the health plan for the elderly.

The healthcare measure being prepared for debate in the Senate also includes a public insurance option based on negotiated reimbursement rates but, unlike the House bill, it would allow states to decline to participate.

The House's version of a sweeping healthcare overhaul, President Barack Obama's top domestic priority, would require individuals to buy insurance and all but the smallest employers to offer health coverage to workers, Democrats said.

It would offer subsidies to help the uninsured buy insurance through newly created exchanges and would expand eligibility for the Medicaid program to those with incomes up to 150 percent of the poverty level.

The House bill includes a 5.4 percent surtax on individuals making more than $500,000 and couples earning more than $1 million, which an aide said would bring in about $460 billion over 10 years to help pay for covering the uninsured.

NO CADILLAC TAX

The House bill does not include a tax on high-cost Cadillac insurance plans that is included in the Senate bill. House Democrats have strongly opposed that approach, which has drawn criticism from labor unions that fear it will hurt too many middle-income workers.

Obama has sought a health bill that reins in costs, regulates insurers and expands coverage to millions of the uninsured. The House bill includes restrictions to keep insurers from declining to cover those with pre-existing conditions or dropping the sick.

Democrats who attended a meeting with Pelosi said they were told congressional budget analysts had estimated the bill would cost less than Obama's target of $900 billion.

The House bill includes about $20 billion in fees over 10 years for medical device manufacturers, an aide said.

It will phase in penalties for businesses that fail to provide insurance, starting at 2 percent for firms with a payroll of $500,000 and ending at 8 percent for businesses with a payroll of $750,000 or more, the aide said.

The battle over a government-run insurance plan has become a flashpoint in the debate over the healthcare overhaul. Obama and liberals believe the option would create more choice for consumers.

Critics say the public option, which would compete with private plans on state-based exchanges where individuals could shop for insurance, would lead to a government takeover of the sector.
The House bill still faces a potential uprising by liberals who had pushed hard for a public option tied to Medicare rates. Rural Democrats had opposed that approach, fearing it would hurt small hospitals.

We think we'll have the votes, for the negotiated rates, said George Miller, chairman of the House Education and Labor Committee.

Democratic leaders also face possible opposition from a group of about 40 House Democrats who want to strengthen the bill's language to ensure no federal funds would be used for abortions.

Democratic Representative Marion Berry of Arkansas said he was undecided if he would support the measure because he was concerned about how it would be paid for and he wanted to see more money taken from the drugmakers and insurance industry.

If they aren't squealing to the high heavens, we haven't hit them hard enough, he told reporters.

(Editing by Eric Walsh)

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