Wednesday, October 14, 2009

What’s Next? Follow the Money

With the passage of the Senate Finance bill the health care effort now moves to a critical stage with the Senate Majority Leader and the House Speaker now clearly in charge.

The more important effort will be Reid’s. Pelosi’s final product will be more predictable (very liberal) but Reid’s will have to be more practical. Every inch Reid moves away from the more moderate Baucus bill will cause problems.

The big issue is going to be money—just whose taxes are going to get raised to the tune of $500 billion to pay for it.

The Senate Finance bill has the $211 billion “Cadillac” benefits tax. Dead on arrival. No way the party that put the unions ahead of the Chrysler bondholders is going to cross their traditional allies on this one. The $40 billion tax on medical device makers is also under pressure and likely to at least shrink.

And, don’t think the insurance underwriting reform issue is behind us. That one is just beginning and it will create its own pressure to increase the cost of any bill by improving insurance subsidies so an individual mandate is workable.

The Finance bill also ignores the Medicare physician payment problem. Don’t fix that and you risk alienating the docs. The House did fix it and it cost them $240 billion they still haven’t found the money for.

The Senate Finance bill minus the “Cadillac” tax, fewer medical device taxes, the imperative to improve the subsidies, and in need of a doc fix has about a $500 billion hole in it.

The House solves that problem with a $500 billion tax on “millionaires”—defined as families making more than $500,000 a year. But lots of Democratic Senators think that is really just a tax on small business and job creators.

The Dems would have no chance holding Olympia Snowe's vote with a tax on small business given that the Maine Senator has a well deserved reputation for being one of the Senate's strongest advocates for them.

If the House tax could have passed the Senate yesterday afternoon Baucus would have had it in his bill rather than the “Cadillac” tax placeholder he did have.

Bottom line: The Democrats have to figure out a way to get 60 Senators to vote for a tax scheme that will raise at least $500 billion.

The public option, employer mandates, a turbo-charged MedPAC? These are not the biggest issues. The White House will take any deal they can get and will quickly pressure liberals to back off wherever necessary.

The biggest issue they face by far is just whose taxes are going to get raised $500 billion. This is the make or break issue.
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