Tax on health benefits causing second thoughts

updated 9:17 p.m. ET July 7, 2009

WASHINGTON - Senate Democratic leaders rebelled Tuesday against a proposed tax on health insurance benefits, raising fresh doubts about the prospects for bipartisan legislation on President Barack Obama's top domestic priority.

The discontent surfaced as the White House and Vice President Joe Biden readied a triumphant announcement for Wednesday that the nation's hospitals had agreed to give up $155 billion in future Medicare and Medicaid payments to help defray the cost of legislation Obama wants.

The pharmaceutical industry agreed to a similar, though smaller, deal last month, giving a boost to the drive to overhaul the health care system. Officials said the White House and Sen. Max Baucus, the chairman of the Senate Finance Committee, would try next to win concessions from the American Medical Association and perhaps other groups representing physicians.

One day after lawmakers returned from a weeklong vacation, the White House and Democratic leadership made a conspicuous effort to assert control over the effort to push health insurance legislation through committees and both houses of Congress over the next five weeks. While Obama has called for a bipartisan measure, a partisan measure written by and for Democrats is also a possibility, given the size of the party's majorities in the House and Senate.

Challenges in the Senate
White House chief of Staff Rahm Emanuel met with House Democrats. In the Senate, Majority Leader Harry Reid told reporters he intends to sit down Wednesday with a small group of Republicans who have been involved in the bipartisan talks.

Nowhere were the challenges of passing legislation more evident than in the Senate. There, several Democratic officials said the party's leadership told Baucus, D-Mont., that they were unhappy with any tax on health care benefits — a key component of bipartisan negotiations — and expressed fears it could lose more votes on their side of the aisle than it gained among Republicans.

"It's clearly a very difficult issue. ... You go to the public to ask them what they think and they don't like it," Sen. Kent Conrad, D-N.D., who did not attend the meeting, told reporters later in the day. A compilation of four recent polls reviewed at the session showed at least 59 percent of the public opposed to taxing health care benefits to "pay for reform." The opposition went as high as 70 percent.

As a result, Conrad said, "we're looking at other options" to help finance a bill whose price tag is expected to reach $1 trillion or slightly more. He did not identify any.

Additionally, there was general sentiment among Democratic leaders that health care legislation must contain an option for the government to sell insurance in competition with private companies, according to these officials. They spoke on condition of anonymity, saying they were not authorized to disclose details of private talks.

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