The health insurance industry won significant breakthroughs last week as Congress stepped up its work on health care reform legislation.

At the same time, industry officials acknowledged that much work remains to be done if legislation that preserves the current industry role in delivering health insurance is finally enacted.

First, in the House, Democrats unveiled a 1,018-page proposal on July 14 that includes provisions calling for a “public option,” a health insurance exchange, an employer mandate and appointment of a federal “health choices commissioner.”

However, in financing the cost of providing virtually universal healthcare for Americans, the legislation, H.R. 3200, does not include taxing life insurance, as the Obama administration had proposed as a financing option earlier this year, according to officials at the Association for Advanced Life Underwriting.

And in another breakthrough, the Senate Health, Education and Labor Committee also on July 14 passed an amendment to its version of the legislation that restores a key role to health agents in providing advice and selling health insurance to the public.

The HELP Committee passed its version of the legislation on July 15; the Senate Finance Committee began work on its version on July 16.

The House legislation is moving through with little Republican support, as is the Senate HELP Committee bill. But the Senate Finance Committee’s bill is being negotiated on a bipartisan basis, according to congressional staffers and industry lobbyists.

After the two Senate committees complete work on their bills, they will mesh the bills in hopes of completing floor action before the Senate leaves for its summer recess in early August. The hope is that staff work on reconciling the competing bills will take place in early August, setting the stage for negotiating final legislation by October.

The original language of the advice provision, creating a so-called “Navigators” program, would have created a system that would award grants to public and private entities to “conduct public education; distribute fair and impartial information regarding health plans; [and] assist with enrollment and provide information.” The provision explicitly barred insurance agents from participating in providing such information.

However, the amendment offered by Sen. Orrin Hatch, R-Utah, and which passed, specifically adds “other licensed insurance agents and brokers” to those authorized to provide such information. The amendment also mandates that any information provided to consumers who access the system be provided by people “qualified, and licensed, if appropriate” to provide such service.

Janet Trautwein, executive vice president and CEO of the National Association of Health Underwriters, called it a “breakthrough” addition to the legislation, adding that it will allow agents “to support this system.”

But Trautwein cautioned that much work remains to be done.

The House bill is divided into three divisions–affordable health care choices, Medicare and Medicaid improvements, and public workforce and health care development.

On July 14, Rep. Charles Rangel, D-N.Y., chairman of the House Ways and Means Committee, unveiled the final component of the legislation, financing the multi-trillion package. He also scheduled a vote on the bill by his committee for July 16.

The House Education and Labor Committee and the House Energy and Commerce Committee will then take turns marking up the bill.

They are working intensely because the House Democratic leadership wants the bill passed by the full House before it starts its month-long summer recess on July 31.

The bill calls for cuts in payments to Medicare Advantage starting in 2011, with payments to insurers in excess to those paid for fee-for-services plans to be based on a complex formula partially determined through creation of quality-of-service standards.

The bill will prohibit insurance companies from denying coverage based on pre-existing conditions, and will also require all Americans to obtain health insurance, and would impose a tax on those who fail to purchase healthcare coverage.

It would also scale back Medicare and Medicaid payments to hospitals and doctors.

Most of the revenue-related provisions in the House version of the legislation, according to AALU officials, come from within the health industry.

The bill would finance the cost of the legislation by imposing a surcharge on high income individuals and couples–a graduated rate starting with 1% for those couples with adjusted gross income above $350,000 and ending with 5.4% for those with AGI over $1 million.

Many of its key provisions, including the public insurance option, will take several years to kick in. The public plan would pay health care providers 5% more than current Medicare rates. Under the legislation, the government would provide $2 billion in start-up funding. The public plan, opposed by insurers and agents, would pay doctors and hospitals rates based on Medicare payment rates for its first three years.