By Lori Montgomery and Michael D. Shear
Washington Post Staff Writer
Friday, January 15, 2010; A01
Gripped by a building sense that its window of opportunity could be closing, the White House on Thursday broke the last major logjam blocking enactment of far-reaching health-care legislation, cutting a deal with organized labor on how to tax high-cost insurance policies.
The agreement, forged in a marathon negotiating session that included White House officials and seven prominent labor leaders, would exempt union members from a proposed surtax on expensive insurance plans until 2018, five years after the legislation would take effect. The tax is a key source of financing for Democrats' plan to extend coverage to as many as 36 million additional Americans over the next decade.
Thursday's breakthrough came as Democrats rushed to finish the bill in time for President Obama to tout the achievement in his first State of the Union address, expected to be held later this month or in early February. Already under intense pressure to resolve differences between measures approved by the House and Senate last year, Democratic leaders are growing increasingly concerned that they could lose their 60-vote majority in the Senate on Tuesday, when a little-known Republican will face Massachusetts Attorney General Martha Coakley (D) in a special election in the state for the Senate seat that was held by Edward M. Kennedy. A victory by Massachusetts state Sen. Scott Brown would give Senate Republicans a crucial 41st vote -- and the power to block Obama's top U.S. initiative.
Obama expressed that fear in a video e-mailed to Massachusetts Democrats on Thursday, warning that the fate of health-care reform rests in their hands.
"It's clear now that the outcome of these and other fights will probably rest on one vote in the United States Senate," Obama says in the video. "That's why what happens Tuesday in Massachusetts is so important."
As senior lawmakers met for a second day at the White House in hopes of reaching a compromise, Obama went d to Capitol Hill to rally House Democrats gathered for their annual retreat. Many rank-and-file House members have been furious with the president's insistence on taxing costly insurance plans to help pay for health-care legislation, arguing that the 40 percent levy would hit many middle-class families along with corporate executives who have such policies.
Obama acknowledged that overhauling the health-care system has been a "big lift" and that many Democrats "have been beaten up at home" for supporting the initiative, which has grown increasingly unpopular. He assured lawmakers that he will work to convince Americans of the benefits of reform once the legislation is passed.
"If Republicans want to campaign against what we've done by standing up for the status quo and for insurance companies over American families and businesses, that is a fight I want to have," he said.
House and Senate leaders were set to return to the White House on Thursday night to continue working with Obama. White House aides and senior lawmakers said they expect health-care talks to continue through the weekend as negotiators race to deliver a final package to congressional budget analysts, who must attach a cost to the measure before either chamber can hold a final vote on it. Lawmakers expect the final legislation to split the difference between the Senate bill, which would spend $871 billion over the next decade, and the House version, which would devote more than $1 trillion to the biggest expansion of the health-care system since Medicare.
One sticking point of the talks has been the shape of government-run marketplaces in which people could shop for heavily regulated private insurance plans. In a closed meeting with House Democrats, Obama indicated support for a national exchange, as the House prefers, rather than the 50 state exchanges the Senate would like, according to one person present who spoke on the condition of anonymity because of the sensitive nature of the negotiations.
Meanwhile, AFL-CIO President Richard Trumka told reporters that beginning in 2017, all workers would be permitted to buy coverage in the exchanges, a claim White House officials disputed on Thursday. Both the House and Senate bills would limit access to the exchanges to small businesses and people who lack access to affordable coverage through an employer, a restriction designed to preserve the system of employer-provided health care for the vast majority of Americans.
White House press secretary Robert Gibbs said negotiators were "very, very close" to a deal and hoped to have most of their differences resolved by Thursday night, though participants said that an agreement may not be announced until early next week. They said the resolution of the tax issue provided a burst of momentum, raising hopes that the end is in sight nearly a year after Obama put health-care reform at the top of his agenda.
"It brings us down to a few very important but very solvable issues," Rep. Robert E. Andrews (D-N.J.), whom House leaders assigned to brief reporters on the talks, said of the tax breakthrough. "It was the last major policy issue on the table."
The tax on high-cost policies was designed in the Senate, which voted to impose a 40 percent excise levy on family policies that cost more than $23,000 a year -- far above the national average of $13,400, according to the Kaiser Family Foundation. Senate Democrats argued that the tax would not only generate nearly $150 billion for health-care legislation but also help lower costs. Last week, Obama endorsed the tax, which is also critical to ensuring that health-care legislation does not add to future deficits.
Labor leaders have long argued that the tax would fall especially hard on union members, who have for years bargained for more generous benefits in lieu of higher wages. By one analysis, the Senate tax would have affected as many as one in four union members.
The deal cut Thursday would raise the value of policies subject to the tax to $24,000 for families and $8,900 for individuals. Plans with significant numbers of women or older workers would receive an additional break, as would workers in high-cost states and high-risk professions. Dental and vision plans would be exempt starting in 2015. And workers with collective-bargaining agreements and government employers would be exempt until 2018, giving labor leaders time to negotiate new contracts.
The changes would cut anticipated revenue from the tax by $60 billion over 10 years, labor leaders said, opening a hole in the health-care financing package that Democrats say is likely to be filled by a tax on the wealthy, most likely by applying Medicare payroll taxes to investment income for families earning more than $250,000 a year.
Republicans blasted the deal as a giveaway to a major Democratic constituency, but labor leaders defended their agreement in a conference call with reporters.
"We were always concerned about the impact on working people in this country," said Anna Burger, head of the labor-backed Change to Win coalition. "The compromises we reached in the last 24 hours make a huge difference in making sure that workers who have good health care can hold on to their health care."
Staff writers Paul Kane and Alec MacGillis contributed to this report.