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Houston--er, Washington--we Have A Problem

On Wednesday, according to a Capitol Hill source, the Senate Finance Committee distributed to its members a list of about twenty ways to help pay for health care reform. Everything you could imagine was on the list: Taxes on soda and cigarettes. More savings from Medicare and Medicaid. A value-added tax.

It might sound like an ordinary and perfectly reasonable thing to do. And it would be--if this exercise were taking place, oh, six weeks ago.

But it’s the second week of July. By this point, the Finance Committee was supposed to be holding hearings in order to “mark up” legislation, so that the full Senate would have time to consider and vote on it before the August recess. Instead, the Committee is, in a sense, stuck at square one. Or at least square four, when it needs to be at square seven. Markup hearings won’t begin until there's language to mark up. And there won't be language until there's a basic understanding of the financing part.

What brought us to this juncture? Most immediately, it was Senate Majority Leader Harry Reid’s message to Finance Chairman Max Baucus on Monday, which was widely reported in the press but somewhat under-appreciated for its import.

Most observers focused on the fact that Reid made clear to Baucus the strong preference of Democratic Senators for including a public insurance option, something Baucus was ready to ditch in order to win Republican support. Reid said that alright. But that wasn’t the only thing he said--or, apparently, the most important.

No, according to several sources on and off Capitol Hill, Reid’s primary message was about the financing of reform. Baucus had hoped to get around $300 billion in funding over the next ten years by capping the tax exclusion on group health benefits. I’m not sure what the exact parameters of the cap were supposed to be, but it's safe to assume they would either have hit a small number of people, hit people with a small tax hike, or some combination of the two.*

This apparently was unacceptable to several members of the Democratic caucus. Highly unacceptable. If reform included a cap on the exclusion, Reid warned, between ten and fifteen Democrats would oppose it. That's why Baucus and his colleagues on Finance are back to looking for money.

What sparked this Democrats' resistance? Unions like the American Federation of State, County, and Municipal Employees (AFSCME) have been up in arms about the idea, because some of their members would end up paying slightly higher taxes. But the polls showing widespread opposition to the idea may have been more influential.

I’ve discussed the merits of the capping the exclusion in this space before, many times. Like many health care experts, I think it achieves two important policy goals: It helps raise the large sums of money necessary to pay for expanding coverage and it fixes some of the poor incentives in our health care system. But the public skepticism is real, even if the polls phrase the questions in leading ways. And there are other, perfectly reasonable ways of financing reform.

Still, you would have thought somebody saw this coming. Baucus’s interest in the exclusion was hardly a secret. He’d said, privately and publicly, it was a good way to raise a few hundred billion dollars from within the health care system. And although Obama had attacked the idea in his campaign--now you know why some of us had qualms about those ads--he’d signaled quite clearly that he’d go along with an exclusion cap as long as it was part of a package that otherwise achieved his reform goals.

Inside the administration and on Capitol Hill, and within the broader reform community, there are a lot of very frustrated people right now. Some feel like blame belongs with Baucus, for pushing an idea he knew was unpopular and bending so far in the direction of Republicans generally--on the exclusion, on the public plan, on the overall level of spending--that he was about to produce a bill lots of Democrats were bound to oppose. Others feel like the blame belongs with Reid and the Democrats opposing the exclusion cap--for letting Baucus go so far in one direction, only to pull the rug out from under him just when a deal was close (although how close is difficult to tell).

Me? I wish I knew the answer. I have a lot of respect for most of the people at the center of this process. They are smart, serious, and trying to do what they believe is the right thing--which, at least in the broadest sense, is what I also believe is the right thing. They want to make sure every American has good health insurance or, at the very least, has the ability to get good health insurance. They want to pay for it in a way that doesn’t make people feel even more insecure financially. They don't want to run up huge deficits. And they want to change medical care so that it is better and, in the long run, cheaper.

I do know one thing, though. It’s going to cost at least $1 trillion over ten years to accomplish these goals, probably a bit more if we want to do it right. And if somebody doesn’t put together 50 votes in the Senate, let alone 60, for a combination of new revenue and spending cuts equal to that amount, the goals will not be realized.

To be clear, the situation is not dire. (See, no panic light today!) The legislative process is messy. As sure as there will be bad times, there will be good. Just a week ago, the Senate Health, Education, Labor, and Pensions (HELP) Committee put out a bill that showed how you could cover most people, providing mostly good insurance, for between $1 and $1.3 trillion, give or take. Previous CBO estimates suggested that might not be possible. So this was no small thing.

HELP doesn’t have jurisdiction over raising revenue, of course. But, who knows, if the Finance Committee--which has that jurisdiction--can’t cobble together the votes for financing reform, with or without the exclusion cap, then maybe it can pass a placeholder bill and let the full Senate sort it all out during a floor debate. Several sources I consulted on Wednesday raised this possibility--although, I should add, one senior Hill staffer told me the idea was positively nuts.

Over on the House side, things are looking a good bit better. On Monday, the three committees jointly writing legislation in the House announced that their proposed changes in the way Medicare and Medicaid pay for services would generate $500 billion in savings. Sometime soon--very soon--those committees will unveil their full bill, which the architects say will pay for itself. This is very good news.

But the House can’t pass legislation by itself. (Even Henry Waxman can’t pull off that trick!) That means the Senate must get its act together. And it may take White House intervention to make that happen.

Obama, to his credit, has done his share to solve the financing problem. He’s put on the table almost a full trillion dollars in new revenue and spending cuts, including a proposal for reducing itemized income tax deductions that remains, by the way, a perfectly good idea.

But when you’re the president and you’re trying to pass a historic, complicated piece of legislation like health care reform, doing your share isn’t enough. You have to lobby for your ideas, and lobby hard. You have to sit people down, get them to specify what they can abide and what they can't, whether it's members of the opposition or members of your own party. You have to call in favors, make trades, and threaten retribution to would-be allies who aren’t falling in line.

For all I know, that’s happening already. Like all reporters, I get only brief glimpses into what’s happening behind closed doors. But if the White House isn’t steering the process more aggressively, then I hope they know something I don’t--because, right now, I'm not so confident the Senate can do this on its own.

*Update: Politico's Carrie Budoff Brown and Patrick O'Connor are reporting that Baucus had been hoping to cap the tax exclusion at $17,000 a year in benefits, presumably for a family policy. Also, Bloomberg's Ryan Donmoyer and Nicole Gauoette say that Budget Director Peter Orszag delivered a letter to the House on Wednesday, warning them that they're not going far enough on system reform. I don't know many details about that, but I'm guessing it has something to do with the administration's desire to give more power to the Medicare Payment Advisory Commission (MedPAC) and the House's skepticism of the idea.

--Jonathan Cohn