The debate over healthcare reform has taken a tumultuous turn as constituents voice their concern to members of Congress returning to their districts for the summer recess, but healthcare analysts still believe legislation will ultimately be enacted by the first quarter of next year.

Ironically, congressmen appear to be taking heat for proposed reforms even though the critical bill, being drafted by a bipartisan group within the Senate Finance Committee, is unlikely to be unveiled before Sept. 15.

Even so, current bills, one written by a House Committee as its members struggled to finish up and leave by July 31, do contain provisions with critical implications for insurance underwriters and agents.

At the same time, a key insurance industry player, America’s Health Insurance Plans, appears committed to seeing enactment of health reform legislation even as its members endure withering criticism from the public as well as the Obama administration and House Democratic leadership.

In a statement last week, AHIP President and CEO Karen Ignagni defended the industry. “Health plans last year proposed health insurance reform to make sure that no one is denied coverage because of a pre-existing condition,” she said. “Our proposal includes new consumer protections and market rules to guarantee coverage for pre-existing conditions, discontinue basing premiums on a person’s health status or gender, and get everyone covered through a personal coverage requirement.”

Ignagni also said AHIP is “encouraged” that policymakers in both parties are coalescing around health insurance reform as an essential component of comprehensive health care reform.

The strong constituent criticism, on top of activities by extremists to disrupt town meetings convened by congressmen, may delay action, but is unlikely to derail ultimate enactment of healthcare reform legislation, says a buy-side analyst group.

In comments to investors, Washington Analysis says it maintains its view that the House and Senate will both pass legislation sometime in September.

That will “set the date for a conference with the House bill in the fourth quarter,” the analysts say. “This would conform to our view that enactment of healthcare reform will not take place until the fourth quarter or the first quarter of 2010.”

But tough negotiations over final language lie ahead for the insurance industry.

For example, a provision added to the Energy and Commerce Committee version of healthcare reform legislation, approved by the committee on July 31, just before the House left town, would shift oversight of the Medicare Advantage program to the states. Rep. Henry Waxman, D-Cal., is chairman of the committee.

This conflicts with a provision adopted by another of the House committees working on the bill that would create a federal health czar to protect consumers.

Another provision agreed to under a compromise by conservative and liberal members of the committee would give federal regulators the power–but not the mandate–to set drug prices under Part D, the prescription drug program under Medicare.

The provisions are contained in H.R. 3200, “America’s Affordable Health Choices Act of 2009.”

The E&C bill also contains three other provisions stirring controversy within the insurance industry.

Specifically, the provisions would:

–Require that a new public health insurance option use a formulary and must negotiate payment rates with providers rather than setting rates at 5% above Medicare payment levels.

–Require that insurers selling plans in the new health insurance exchange obtain government approval for premium increases exceeding 150% of the annual medical inflation increase.

–Increase the small business exemption from “pay or play” requirements.

The new penalties will be phased in, beginning at 2% for businesses with annual payrolls of $500,000 to $585,000, rising gradually to 8% for businesses with payrolls over $750,000.

The E&C version of the legislation will now be reconciled with versions of the House bill already passed by the Ways and Means Committee and the Education and Labor Committees of the House during the current August break.

After the three bills are reconciled, under present plans, a single bill will be forwarded to the full House for action sometime after Sept. 8, when Congress returns to work.

Another controversial provision for the industry is a proposal to tax health insurers to fund healthcare reform.

This would be a proposed tax on insurance companies offering individual plans valued at more than a certain limit, estimated by AHIP to vary between $21,000 and $25,000, according to various reports.

Insurers would have to pay an excise tax on such policies, and the cost would likely be passed on to employers. While the structure isn’t clear, the tax would likely fall on the portion of any policy exceeding the mandated limit.

Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, responded by saying that taxing insurers “is the wrong approach at the wrong time. New taxes on health-care coverage will make coverage less affordable.”

He added that the new tax would disproportionately impact employees in high-cost states, specifically, New York, California and Texas, as well as older workers “who have more comprehensive benefits packages.”

Regarding Medicare Advantage, under current law and policy, state insurance regulators oversee the licensing and solvency of these plans, but the federal government oversees the marketing of them.

However, the Centers for Medicare and Medicaid Services last September adopted new regulations after input from state regulators that substantially tightened the rules governing the marketing of Medicare Advantage plans.

These included strong prohibitions against use of unsolicited sales contacts, such as unsolicited telemarketing calls.

The final regulations also bar insurers from offering financial incentives that could encourage agents and brokers to maximize commissions by inappropriately moving, or churning, beneficiaries from one plan to another.

Another section of the regulations requires Medicare Advantage plan agents and brokers to be licensed and appointed in accordance with state laws.

The Part D provision is similar to legislation adopted by House Democrats soon after they took control of Congress in 2007. But, the legislation died in the Senate.

The specific provision strikes the so-called Part D “non-interference” clause that prohibits the Secretary of the U.S. Department of Health and Human Services from interfering with negotiations between pharmaceutical manufacturers, pharmacies and Part D Plan Sponsors.

The legislation would authorize the Secretary to directly negotiate with pharmaceutical manufacturers the prices–including discounts, rebates and other price concessions–that may be charged to Part D Plan Sponsors for covered Part D drugs.

The negotiated prices would apply beginning in calendar year 2011, and would not prevent Part D plan sponsors from obtaining further reductions or discounts, according to healthcare lawyers at McDermott, Will & Emery in Washington, D.C.

But Washington Analysis analysts rate the chances of that provision heatedly opposed by the insurance industry, being in final healthcare legislation as a “toss up.”

But, the analysts said, “Even if the Senate Finance Committee decides to give the liberals this victory, we think the actual implementation of this authority will be more limited in scope.”