In the end, a Ping Pong process

DURHAM -- The biggest development since the Senate passed its health reform bill on Christmas Eve is Democrats' forgoing a traditional conference committee to negotiate differences between the House and Senate bills.

Instead, Democrats are engaging in an informal negotiation that, if successful, would result in the House's passing the Senate bill plus a catch-all "manager's amendment" that codifies the changes agreed to by House and Senate leaders. Then the Senate would take up the bill, and, if it is amended, it would go back to the House, and so on. The same version must pass both Houses and be signed by President Barack Obama to become law.

Democrats are doing this to avoid a Republican filibuster of their attempt to create a conference committee, which would slow the process. This so-called Ping Pong approach is not unheard of, especially in year-end bills designed to keep the government operating, but it is unusual for such a substantive piece of legislation. However, the shift in process has not made the hardest decisions on taxes that must be made to integrate the bills any easier.

While opponents of health reform have been railing against "Obamacare" since last spring, one of the hallmarks of the reform debate has been the president's refusal to weigh in clearly with specific requirements for the legislation except to insist that it be deficit neutral as scored by the CBO, to have total outlays of less than $1 trillion over 10 years and to address long-term cost inflation in health care.

There have been many points in the process when I thought "certainly the president must now weigh in forcefully," but it was not until the past week that Obama clearly showed his preference for the Senate tax on high-cost insurance instead of an income tax increase on high-wage earners favored in the House.

Most health policy analysts (including me) believe a tax on high-cost insurance would begin to apply some cost-slowing pressure to the health system, while the income tax favored in the House has no hope of doing so. However, winning this argument with the House has proved difficult for the president.

Deleting a Tax Subsidy from the EquationOrganized labor is a key Democratic constituency that is opposed to the tax on high-cost health plans (a 40 percent tax on total premiums over $23,000 for couples; $8,500 for individuals), and key labor leaders have personally lobbied Obama against this provision. It appears that this tax will be included in the final bill, but it will likely apply to fewer policies than what passed the Senate, lessening its cost-saving potential. The final structure is unclear.

Several other provisions that would increase the cost of the bill, notably extending the Nebraska Medicaid financing deal to the entire nation, mean that another source of revenue to offset spending is needed to keep the bill from adding to the deficit.

House-Senate negotiators are considering applying the individual portion of the Medicare payroll tax to dividends and other investment income for persons making more than $250,000. The current employee portion of the Medicare payroll tax is 1.45 percent of total wages; the Senate bill would increase it to 2.35 percent for wages above $250,000.

This new proposal would apply the tax to investment income for those with incomes over $250,000. This tax is more broad-based than the House income tax increase that would apply to couples making more than $1 million ($500,000 for individuals), but it still focuses on higher-income persons. Such a tax will not slow health care inflation.

A similar proposal by Sen. Debbie Stabenow, a Michigan Democrat, was rejected by the Senate Finance Committee. Her proposal was scored by CBO as raising about $100 billion over 10 years, which is close to the amount needed to keep the bill deficit neutral.

Other issues remain. But the president's decision on what mix of taxes will pay for reform, and his ability to convince the House and Senate, will complete the final details and turn a congressional bill into Obamacare.

Donald H. Taylor Jr. is an assistant professor of public policy. His blog is available for discussion of this article and health care reform in general. This is part of a series of articles by Donald Taylor exploring aspects of the health care reform issue originally published in the News & Observer