By Alex Wayne and Joseph J. Schatz, CQ Staff

July 10, 2009 -- House Democratic leaders now plan to release a finished version of their health overhaul on Monday and say they have reduced the measure's cost to less than $1 trillion over 10 years.

Members of the Ways and Means Committee said Friday that the bill would be paid for chiefly by a combination of spending reductions in Medicare—$500 billion to $600 billion worth, over 10 years—and a new income surtax on wealthy Americans that would produce $540 billion over the same period.

The surtax would be levied beginning in 2011, said Ways and Means Chairman Charles B. Rangel, D-N.Y., and the rate would be graduated. He said there would be three income brackets for the surtax—$350,000, $500,000 and $1 million—with a different rate at each level. "One, two, three [percent], something like that," Rangel said.

The tax-writing committee, in a long meeting on Friday, rejected a number of other proposals to pay for the measure, including a tax on sugared beverages or applying Medicare’s payroll tax to capital gains—an idea under consideration in the Senate. Proposals other than a surtax on the wealthy lacked sufficient political support among Democrats.

"I think that may be the only way we can do it," said Lynn Woolsey, D-Calif., co-chairwoman of the Progressive Caucus.

The Ways and Means Committee is under strong pressure from the White House, House Democratic leaders and the moderate Blue Dog Coalition to wring as much savings from Medicare as possible. Earlier in the week, the committee had settled on changes to Medicare that would have saved just $152 billion over 10 years, according to a Congressional Budget Office analysis. Committee members declined to detail how they now plan to nearly quadruple that figure.

"We’re still working on the savings side," said Chris Van Hollen, D-Md. Democratic Caucus Chairman John B. Larson, D-Conn., said aides would continue working over the weekend to produce the added spending reductions.

All About Cost

The cost of the overhaul has become the paramount issue in the debate, eclipsing even the ongoing arguments over a proposed government-run insurance plan that Democrats want to create to cover some of the 47 million Americans believed to lack insurance. While a surtax on the wealthy may be the most politically palatable way for House Democratic leaders to pay for the overhaul, it is sure to cost them votes among some members of their caucus.

"I have a concern with going outside the health care system" to pay for the bill, said Jason Altmire, D-Pa., a Blue Dog.

The Blue Dogs met with Democratic leaders for more than two hours Thursday night after publicly issuing a letter saying they would oppose the House bill without significant changes. The caucus has warned for months that the bill was leaning too far left, politically, and the Blue Dogs said they felt party leaders had ignored their entreaties to modify the measure.

"I feel like the House has moved this issue so far to the left we’ve taken ourselves out of the discussion entirely," Altmire said. A bill under development by the Senate Finance Committee, he said, seems to be perceived as more likely to become law.

But efforts by Chairman Max Baucus, D-Mont., to draft a bill that at least a smattering of Republicans would agree to support have failed to bear fruit thus far, and no formal Finance Committee markup has been scheduled.

The Senate Health, Education, Labor and Pensions Committee plans to resume markups at 2 p.m. Monday on its health bill, which has drawn only Democratic support within the committee. That draft includes both the public plan option opposed by Republicans and a mandate on employers to provide health insurance to their workers —another provision broadly opposed by the GOP.

Rangel said his committee had spent time Friday discussing the Blue Dogs' concerns, but did not detail any changes to the bill that might satisfy the moderates.

By John Reichard, CQ HealthBeat Editor

July 8, 2009 -- Vice President Joseph R. Biden Jr. announced an agreement Wednesday in which three associations representing the hospital industry agreed to Medicare and Medicaid cuts totaling $155 billion over ten years as part of a health overhaul that assumes coverage of 95 percent of the American people.

"Folks, reform is coming," Biden declared. "We have never been as close as we are today."

Biden said the agreement calls for payments to be shaved as more patients treated by hospitals obtain coverage.

Neither Biden nor hospital executives answered questions at a White House event to announce the agreement between the groups, which are the Federation of American Hospitals, the Catholic Health Association and the American Hospital Association.

But Federation President Chip Kahn said when reached later that two-thirds of the cuts would come from adjustments to yearly payment updates and the remaining one third from other reductions, including lowering payments made to compensate hospitals for treating uninsured patients. Cuts in these "disproportionate share hospital" (DSH) payments would be tied to whether milestones are met for increased coverage. Kahn said a "small part" of the changes in yearly payment updates would hinge on coverage gains but for the most part would kick in regardless.

Kahn said the full details of the agreement will be a part of the “chairman’s mark” to be released by Senate Finance Committee Chairman Max Baucus, D-Mont. Asked how hospitals would respond if lawmakers try to cut more deeply than in the agreement, Kahn said, "We have an agreement with the White House that I’m very confident will be seen all the way through conference."

When asked whether the agreement would preclude charging Medicare rates in any public plan, Kahn said the deal didn’t specifically provide for that. However, hospitals assume that the Finance Committee will consider alternatives that involve negotiating payment rates that do not involve the Health and Human Services Secretary setting payments based on Medicare rates.

Biden apologized for the half hour delay in starting the event, saying that he had just come out of meeting with Baucus and Senate Majority Leader Harry Reid, D-Nev. Baucus, who was originally scheduled to appear at the event, was not present because he had to return to Capitol Hill for a vote, Biden said.

Reid has come under fire from Sen. Michael B. Enzi, R-Wyo., for pressuring Democrats to move ahead on a health overhaul without greater efforts to enlist Republican support. Baucus has consistently expressed a need for a bipartisan approach to a health overhaul. Reid said later Wednesday that he is seeking a bipartisan bill.

The three associations said in a joint statement that "today’s package makes significant strides in reforming our health care delivery system." We are pleased to see restrictions on physician self-referral to hospitals in which they have an ownership interest, proposals to simplify administrative red tape and no cuts to funding that teaching hospitals rely upon to train the next generation of physicians. In addition, the disproportionate share programs (DSH) that help hospitals care for the uninsured and underinsured and support important community resources would not be reduced until 2015, and reductions would only occur if coverage expansions actually took place. Roughly 60 percent of the existing DSH payments would be preserved to support our nation’s safety net.

"We applaud the work of Senator Baucus in putting together this important framework and stand ready to work with the Senate, House and the Administration to enact comprehensive health reform that works for patients and families and the hospitals and health care professionals that serve them," the groups added.

Republicans weren’t voicing much enthusiasm.

"My concern with this idea is that it does not do anything to address the geographic inequity in Medicare and Medicaid reimbursement rates, [in] which rural providers often get paid less than urban providers for the very same procedure," Sen. Charles E. Grassley of Iowa said in a conference call with reporters from his home state.

Grassley, the top Republican on the Senate Finance Committee, added, "What’s more, the deal abandons a promise made by Barack Obama when he was a candidate in a letter that he sent to the National Rural Health Association last October, and this was obviously when he was running for president. His letter, and I quote, 'Extending insurance coverage is a hollow victory if there’s no facilities or providers available. That’s why I will take concrete steps to address this geographic inequity.'"

"This is a great deal for hospitals, not American taxpayers," said Rep. Dave Camp of Michigan, the top Republican on the House Ways and Means Committee. "After all, why should hospitals care whether they get their taxpayer subsidies through Medicare or some other taxpayer-funded, government-run insurance plan? Either way, it will be middle class families footing the bill through higher taxes, all while seeing jobs and the health care coverage they have and like disappear."

"At the end of the day, American taxpayers are still being asked to pay higher taxes for a $1.5 trillion government takeover of health care," Camp added. "Health care reform does not have to cost that much, and wouldn’t if we focused on eliminating the inefficiencies within the current system instead of providing taxpayer-funded insurance to non-citizens and those who already have private health insurance."

Meanwhile, a key Democrat Wednesday questioned a different industry deal involving Baucus and the White House, an $80 billion agreement with the Pharmaceutical Research and Manufacturers of America that involves filling in half the "doughnut hole" gap in Medicare prescription drug coverage. It is "really a Senate agreement," House Energy and Commerce Committee Chairman Henry A. Waxman, D-Calif., told a breakfast meeting sponsored by the National Journal. "Why that should be anything that should bind us in unclear. The White House is not bound —they tell us they’re not bound by that agreement. We’re certainly not bound by that agreement." Waxman appears to favor deeper cuts in pharmaceutical reimbursement to fund a health overhaul than Baucus does.

By Alex Wayne, CQ Staff

July 9, 2009 -- The White House wants House Democrats to make deeper spending cuts in Medicare and Medicaid and do more to change payment systems for doctors and hospitals as part of a health overhaul they are writing.

Peter R. Orszag, director of the Office of Management and Budget, in a letter Wednesday to three House committee chairmen, expressed the White House’s support for Medicare spending cuts already included in the legislation. The Congressional Budget Office says that the Medicare changes House Democrats propose—a mix of spending increases and cuts—would save the government $152 billion over the next 10 years. But the White House wants more savings, Orszag said.

"Adopting a deficit-neutral health reform that expands coverage ... is not enough," Orszag wrote, "because it would perpetuate a system in which best practices are far from universal and costs are too high."

Orszag said that changes currently proposed would "begin the process" of overhauling the health system to improve the quality of care and reduce both costs and waste. But he added that "it would be desirable to build upon these measures with additional steps that would make our health care system sustainable for generations to come."

Specifically, he recommended that House leaders cut deeper into the additional payments from Medicare and Medicaid that go to hospitals with many uninsured patients. The White House contends these payments, known as "disproportionate share hospital," or DSH, payments, will be less necessary if a health overhaul expands insurance coverage to most Americans.

Hospitals agree to some extent, but want some DSH payments preserved to help pay for the care of illegal immigrants and other people who would remain uncovered.

CBO projects that DSH payments from both Medicare and Medicaid will total $18.9 billion in fiscal 2009.The House bill would require reports on Medicare and Medicaid DSH payments—in 2016—but would not cut spending in the programs.

Ways and Means member Chris Van Hollen, D-Md., said his panel had focused heavily on the types of changes Orszag wrote about in private talks on the bill this week. "There’s a lot in there," he said, referring to the Democrats’ bill. "A lot of us want more."

Orszag also recommended Democrats include “changes to the process through which Medicare policies are set” in their bill. The White House has endorsed a proposal to strengthen an advisory panel called the Medicare Payment Advisory Commission, or MedPAC, which regularly recommends adjustments in Medicare spending.

Some lawmakers have proposed changing the law so that MedPAC’s recommendations would be binding unless affirmatively rejected by Congress. But many lawmakers are leery of surrendering so much power to an appointed panel.

Three House committees—Ways and Means, Education and Labor, and Energy and Commerce—share jurisdiction over the emerging health care overhaul. They are expected to start formal markups of the legislation next week.

Joseph J. Schatz contributed to this story.

By Bart Jansen, CQ Staff

July 8, 2009 -- Senate Majority Leader Harry Reid, meeting Wednesday with four GOP members of the Finance Committee, committed to producing a bipartisan health-care bill with no set timeline and promised to include Republicans in a Senate–House conference on the legislation.

Charles E. Grassley of Iowa, the ranking Republican on Finance, asked for the meeting as the committee works on writing its bill. Olympia J. Snowe of Maine, Michael B. Enzi of Wyoming and Orrin G. Hatch of Utah joined him at the session with Reid.

"It was a very constructive meeting and bipartisan talks are going to continue, and not continue under a hard timeline," Grassley said.

The group discussed four major concerns: the cost of the legislation, whether to tax health-care benefits, whether a public plan option should be available to the uninsured and whether employers should be forced to provide insurance.

Snowe said Reid, D-Nev., assured the group that Republicans would be included in negotiations with the House on a final version of the legislation. "He said it would be a bipartisan, open conference," she said after the meeting.

Democrats complained in 2003, when they were in the minority, that Republicans largely shut them out of conference negotiations on the law that created Medicare’s prescription drug benefit (PL 108-173).

There is no schedule for the Finance Committee to mark up its bill, which will include ways to pay for the massive legislation. Cost estimates hover around $1 trillion over 10 years.

Snowe signaled her opposition to one of the leading proposals to pay for extending coverage to the uninsured—taxing some portion of employer-provided health benefits.

"It ought to be off the table, but the point is to find other options," Snowe said.

Hatch said that although the senators discussed the four major issues, "there are tons of other issues."

"It’s very complicated," said Hatch, who is also a member of the Health, Education, Labor and Pensions (HELP) Committee, which shares jurisdiction over the bill. "Harry is sincere. He’ll tell you when he doesn’t agree. He’s a good man."

Reid issued a statement describing the meeting as "positive."

"Democrats have said from the beginning of this Congress and throughout this debate that with the health of our economy and our citizens at stake, our strong preference is to pass a bipartisan bill that lowers crushing health care costs for the middle class," Reid said.

"I appreciate some of our Republican colleagues' demonstrated commitment to that goal, and I look forward to more Republicans joining us at the negotiating table."

A Race to the Recess

The HELP Committee, meanwhile, continues to mark up a more liberal version of the overhaul legislation, and Democrats still hope to blend the two panels’ bills before the summer recess begins Aug. 7.

But Judd Gregg, R-N.H., a member of the HELP Committee, predicted Wednesday that the Senate would not complete a bill before the recess because Finance hasn’t begun its markup and the combined bill would consume two to three weeks of floor time.

"The one consistency is that this bill is extremely expensive and it’s not paid for," Gregg said.

Gregg said that contrary to what Christopher J. Dodd, D-Conn., the acting HELP chairman, has said of that committee’s draft, the bill would not provide health insurance coverage to 97 percent of Americans. To reach that level would require an expansion of Medicaid to cover everyone with incomes below 1.5 times the federal poverty level—about $33,075 for a family of four in 2009, "which adds another $1 trillion cost on to this bill." A Medicaid expansion falls under Finance’s purview.

"My guess is when we get it all finished, you’re looking at something in the $1.5 to $2 trillion range" for the HELP bill "if you presume a Medicaid expansion" of that magnitude, he said.

When asked whether the Senate could finish work on a health bill before the recess, Finance Chairman Max Baucus, D-Mont., Baucus replied, "I would hope. I hope. It’s a goal. We’ll see."

Drew Armstrong contributed to this story.

By Jane Norman, CQ HealthBeat Associate Editor

July 9, 2009 -- How high an income is too high when it comes to government subsidies of health insurance plans?

Republicans on the Senate Health, Education, Labor and Pensions (HELP) Committee pushed that question to the forefront Thursday as they tried to carve the top subsidy level in the health overhaul bill from the 400 percent of poverty favored by Democrats down to 250 percent of poverty.

The amendment by Sen. Michael B. Enzi, R-Wyo., failed on a party-line 10-13 vote, but allowed Republicans to make the argument that billions of dollars in subsidies would be directed toward families earning as much as $88,000 a year. Democrats countered that the subsidies level off at that high an income level compared with lower-earning families, and that the subsidy is tied to what percentage of their income families are paying for their health insurance.

Discussion on the single amendment also consumed nearly the entire morning for the committee, leading Democratic Sen. Barbara A. Mikulski to ask if time limits could be imposed on debate. "I understand there are 300 amendments pending," Mikulski said as the afternoon session began.

"It was, earlier. I think we’re down to 297," said Sen. Tom Harkin, D-Iowa, who acted as chairman of the hearing in the absence of Sen. Christopher J. Dodd, D-Conn., who was absent because of the death of his sister.

Dodd, in turn, has been filling in for ailing Chairman Sen. Edward M. Kennedy, D-Mass.

According to the Congressional Budget Office (CBO) estimate for the bill, $723 billion would go toward subsidizing the cost of health insurance plans provided through the state-level exchanges, known as gateways, beginning in 2012 and through 2019, with the annual cost at its highest in the last year at $140 billion.

The $723 billion does not include any costs that might be incurred by extending Medicaid coverage eligibility to those at 150 percent of poverty or lower, a piece of the legislation to be handled by the Senate Finance Committee.

Sen. Judd Gregg, R-N.H., said subsidies would go to those earning as much as $88,000 for families of four. "That’s no longer poverty," said Gregg. He also said that statistics show most people at that income level or just below have health insurance, so the effect could be to move people who already have insurance onto public subsidized plans. "We’re not accomplishing our goal," said Gregg. "I just don’t see the logic in this."

Sen. Tom Coburn, R-Okla., said that some 80 percent of families in the United States, excluding Alaska and Hawaii, earn less than $80,000 a year. "What we’re really saying is we’re giving subsidies to 80 percent of the people in the country," he said. "How do we do that?"

But Sen. Jeff Bingaman, D-N.M., said the subsidy would apply to families who are paying more than 12.5 percent of their incomes for their health insurance premiums. The idea is that the government should assist those who find health insurance too expensive to obtain, he said.

Harkin said he did some quick math and figured that members of Congress would be paying $20,000 a year for their health coverage if it consumed 12.5 percent of their incomes. "If every senator had to pay that, there would be a revolt on the Hill,” said Harkin. “That is a lot of money out of a person’s income."

Later in the day, Democrats turned aside on another party-line vote 10-13 an amendment by Coburn that would have allowed everyone who would be covered by Medicaid to instead receive subsidies to buy private health insurance, like those above 150 percent of the poverty level. Coburn said poorer outcomes are found for many patients on Medicaid and low-income Americans should be able to buy a policy that "takes the Medicaid stamp off their foreheads." Bingaman said Medicaid packages, though, often are tailored to meet the needs of low-income people and offer minimal cost-sharing.

The only party split on an amendment came as Mikulski proposed requirements that insurance plans provide coverage without cost-sharing for women’s preventive care and screenings, and that health insurance plans include "essential community providers" who serve low-income women. Sen. Orrin G. Hatch, R-Utah, asked if that would include abortion providers. Mikulski said it would include women’s health clinics such as Planned Parenthood clinics but "does not in any way expand a service — it does not expand nor mandate an abortion service."

Democratic Sen. Bob Casey, a Pennsylvania Democrat who has been an opponent of abortion though he said he’s also voted for family planning services, said he was nonetheless worried the provision was written too broadly. "The way it could be interpreted down the road could include abortion," he said. Hatch suggested language could be inserted specifying abortion should not be included but Mikulski was resistant. The amendment was approved 12-11.

By John Reichard, CQ HealthBeat Editor

July 7, 2009 -- Senate Finance Committee member Kent Conrad told reporters Tuesday that the panel is looking hard for alternatives to taxing health care benefits in light of polling over the July Fourth congressional recess showing the public is cool toward that approach to financing a health overhaul.

The North Dakota Democrat said the polling shows that most of the public is opposed to such taxation, with disapproval "in the 70 percent range." But he indicated that the polling may not be a true measure of levels of public support for such taxation because most people aren’t aware of the dollar value of their health care benefits.

The committee is eyeing taxation at benefit levels that may not affect most Americans. The idea of taxing benefits above 110 percent of the federal health care benefits level "certainly remains a significant option," Conrad said. "But we’re looking at other options because of what we see" in the polling. "When you go out and ask people across the country their initial reaction. . .is they don’t like it."

Conrad said that the committee is discussing approaches to increasing revenues that it hasn’t considered before. While committee leaders have said they want to keep revenue-raising options within the health care sector, financing challenges appear to be forcing a change in that strategy. "Some are in the health care [sector], some outside," he said of the new approaches after leaving a luncheon in the Capitol with fellow Democrats.

Senate Finance Committee Chairman Max Baucus, D-Mont., is under pressure to unveil a proposal this week or early next week if his panel is to successfully mark up a package in time for it to be blended with a Senate Health, Education, Labor and Pensions Committee package so that the Senate can approve health overhaul legislation before the August recess. Baucus declined Tuesday to predict when his "chairman’s mark" will be ready.

Alternative methods of taxation to limiting the "exclusion" of employer-paid health insurance premiums from individual income taxes may make it much harder to attract any Republican votes for an overhaul package.

Meanwhile, the White House is scrambling to sign agreements with industry groups to accept cuts in Medicare and in some cases Medicaid payments to finance an overhaul plan. Industry sources say the hospital industry is on the verge of announcing such an agreement totaling $155 billion in cuts over 10 years. An industry lobbyist said the Finance committee and the White House are discussing an agreement with health insurers that would trim $125 billion over 10 years in payments to Medicare Advantage plans, the private health plans in the Medicare program.

Robert Zirkelbach, a spokesman for the insurance lobby America’s Health Insurance Plans, was noncommittal about such discussions. "There is no deal. . .or timetable," he said when asked about the figures cited by the lobbyist. "We’re going to continue to do what we can to contribute to this process" of overhauling the health care system, he said.