Q+A: What does the Senate healthcare bill do?

WASHINGTON (Reuters) - A sweeping healthcare reform bill appears headed for passage in the U.S. Senate after surviving a test vote early on Monday morning.

The bill has been criticized by some liberals who complain that without a new government insurance option it will not provide meaningful reform and by conservatives who say it costs too much.

Here are some questions and answers about the Senate bill.

Q: What does the Senate bill do?

A: The bill would significantly change the $2.5 trillion U.S. healthcare system that almost everyone agrees costs too much and leaves too many people without medical coverage. For the first time in U.S. history, citizens and legal residents will be required to purchase a health insurance policy.

Federal subsidies will be available to help them afford coverage. The subsidies will be available for people with incomes up to 400 percent of the poverty level, about $88,200 for a family of four. The poverty levels for 2009 is $22,050 a year for a family of four and $10,830 for an individual.

Small businesses will be able to tap into federal tax benefits to help buy medical plans for employees.

Employers are not required to provide health coverage for workers, but they would have to pay a penalty if any employees use federal subsidies to purchase insurance.

Q: Where will people get their medical insurance?

A: Most people get their coverage through their employer and that will not change under this bill.

Small businesses and people without employer-sponsored insurance have struggled in recent years to obtain affordable health coverage. For those groups, the bill creates new state-based insurance exchanges where they can shop for policies. Federal subsidies will be available to people purchasing medical coverage through the exchanges, which are expected to be up and running by 2014.

Liberal Democrats wanted a new government-run insurance plan to be one of the options offered on the exchange to compete with private insurers and help keep a lid on insurance premiums. Republicans and a few moderate Democrats opposed the idea and it is being dropped from the Senate bill in order to win the votes necessary to pass it.

The government option remains in the bill passed by the U.S. House of Representatives in November.

The Senate bill now will ask the U.S. Office of Personnel Management, which oversees health plans for 8 million federal workers and their families, to contract with private insurance companies to offer plans on the exchanges.

Millions of people, with income up to 133 percent of poverty, will be newly eligible for Medicaid, the health program for the poor. Currently many states set eligibility requirements well below that level of poverty.

Q: Are there protections for consumers?

A: Yes. Insurance companies will no longer be able to deny coverage to anyone because of a pre-existing condition. They also will not be able to charge higher premiums because of gender, health history or occupation. Insurers also will be prohibited from dropping people when they get sick.

There will be no more lifetime limits on coverage and annual limits will be restricted. Insurers also will be required to cover preventive healthcare services. Co-payments and other out of pocket expenses for beneficiaries also will be limited.

Q: What do insurance companies and hospitals get?

A: Insurance companies will get 31 million more customers, many of them subsidized by the federal government. However, in addition to new coverage regulations, insurers will be required to spend a minimum of 85 cents of every premium dollar on medical care for large group plans and 80 cents on every premium dollar for individual and small group plans.

By requiring everyone to obtain insurance, hospitals will have fewer cases of uncompensated care. Many people without insurance seek care at hospital emergency centers because they do not turn away patients. When patients are unable to pay, hospitals make up those losses by charging more to those with insurance. Democrats say that pushes premiums higher by about $1,100 a year.

Q: How does the bill reduce costs?

A: The bill seeks to save money by streamlining paperwork and providing more information to consumers to help them make decisions about their healthcare.

Other cost savings will be driven through Medicare, the government healthcare program for the elderly and Medicaid. Lawmakers hope that payment reforms that reward quality rather than quantity of services and treatments will help drive down costs. The bill aims to encourage coordinated care for patients particularly those with chronic conditions.

Studies have shown that better coordinated care can save significant amounts of money and improve the quality. The bill will provide for pilot programs to explore some of those cost saving methods for Medicare and Medicaid.

It also will encourage creation of Medical Homes and Accountable Care Organization where doctors, hospitals and other health providers can better coordinate care.

Editing by Sandra Maler