Sen. Max Baucus (D-Mont.) is trying to hand over $24 billion in much needed Medicaid funding for states, known as FMAP. A Senate Finance Committee aide writes, “Chairman Baucus continues to work to build the support of 60 Members needed to pass the FMAP funding and is in close contact with [Sen. Harry] Reid on a potential vehicle to extend that policy.”

And House members including Rep. Jim McDermott (D-Wash.) are working to try to re-up funding for the Temporary Assistance for Needy Families (TANF) Emergency Fund. (Senate Republicans blocked a reauthorization of TANF funding in March.) Rep. Nancy Pelosi (D-Calif.), the Speaker of the House, has continued to pressure the Senate to pass House bills authorizing and offsetting the spending.

Speaking earlier this week, Pelosi said that these initiatives have been “paid for, but they have not passed yet: enhanced FMAP funding — paid for; a comprehensive jobs bill — paid for; assistance for teachers – paid for.” She argued:

America’s state legislators and governors have been clear that one of the best ways Congress can help the budgetary crises our states are facing is enhanced FMAP funding.  That’s because it is fungible and flexible. Enhanced FMAP has been both an opportunity and a challenge for you. When Congress included $87 billion in enhanced FMAP investments in the Recovery Act, it helped keep cops on the beat and teachers in the classroom and helped address the health needs of your constituents.  Many of your state budgets have been predicated on continued enhanced FMAP funding.

As you all know, the House passed an extension of FMAP last December in our comprehensive jobs bill. And now, FMAP is stalled in the Senate, even though it has a majority of support in that body.  In order to pass, it must have bipartisan support. You are the most eloquent and persuasive voices on this subject; you know best why this is necessary.  I urge you to tell Republicans in the Senate about the real cost to your communities of their opposition — cuts to hospitals, nursing homes, and public safety, elimination of domestic violence and homelessness initiatives, and slashed budgets for mental health and child welfare services.

She also pushed for edujobs funding, passed by the House and dropped from the Senate supplemental war-funding bill.

The wrangling comes as local government say they might slash as many as 500,000 workers in the next year if Congress does not provide Medicaid, TANF and education-jobs funding for states. A report released yesterday by the National League of Cities, the National Association of Counties and United States Conference of Mayors says that local governments might slash up to 9 percent of their workforces due to congress reneging on promised funds.

“Local governments across the country are now facing the combined impact of decreased tax revenues, a falloff in state and federal aid and increased demand for social services,” the report says. “In this current climate of fiscal distress, local governments are forced to eliminate both jobs and services.”

The health reform bill moving through the finance panel this week would create private health care cooperatives, but it excludes a public plan to compete with private companies, a high priority for many Democrats.

Baucus said he still needs to work out the order, and some substantial issues, surrounding those amendments.

“We don’t have time today to bring that up,” Baucus said.

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Described as “a framework of a plan for consideration” by the Gang of Six, the plan proposes to tax private insurers for high-cost plans (an idea that’s anathema to the insurance industry and many Republicans), but would also create regional non-profit health care cooperatives in lieu of a public plan — a win for the industry, which is fighting tooth and nail to kill House legislation that pushes the public option. Stay tuned….

Bipartisan progress continues. The Finance Committee is on track to reach a bipartisan agreement on comprehensive health care reform that can pass the Senate.  Our group will be meeting tomorrow and our staffs continue to meet as well.  I am confident we will continue our steady progress toward health care reform that will lower costs and provide quality, affordable coverage to all Americans.

The statement came just a few hours after White House spokesman Robert Gibbs made a similar commitment to bipartisanship. But with GOP leaders threatening to vote against health reforms that don’t include their priorities — including tort reform and the elimination of an employer-sponsored coverage mandate — it’s tough to see how the party’s positions are reconcilable.

Here’s how the senator put it in a statement:

“I have long said that to be a Supreme Court justice, a person must meet three main criteria: personal integrity, professional competence, and a view of important issues that is within the mainstream of contemporary judicial thought. After personally meeting Judge Sotomayor, thoroughly analyzing her judicial record, and reviewing her nomination hearing before the Senate Judiciary Committee, Judge Sotomayor unquestionably meets each of these criteria,” he said. “Thus, I am proud to support her nomination and will vote to confirm her as a justice to the United States Supreme Court.”

The plans you are discussing embody my core belief that Americans should have better choices for health insurance, building on the principle that if they like the coverage they have now, they can keep it, while seeing their costs lowered as our reforms take hold. But for those who don’t have such options, I agree that we should create a health insurance exchange – a market where Americans can one-stop shop for a health care plan, compare benefits and prices, and choose the plan that’s best for them, in the same way that Members of Congress and their families can.  None of these plans should deny coverage on the basis of a preexisting condition, and all of these plans should include an affordable basic benefit package that includes prevention, and protection against catastrophic costs. I strongly believe that Americans should have the choice of a public health insurance option operating alongside private plans. (Emphasis mine). This will give them a better range of choices, make the health care market more competitive, and keep insurance companies honest.

Of note, there are no details here about what form Obama has in mind for his public plan. Strategies occupy a spectrum — everything from a single-payer Medicare-type system being pushed by the most liberal members of Congress to a fallback system that would trigger the option of a public plan only in regions where private plans didn’t meet certain requirements for coverage and cost.

Kennedy, who chairs the Senate health committee, has already indicated that he wants a public plan to be part of his proposal, but Baucus has been more cautious, touting the desire to craft something that Republicans would support. If nothing else, Obama’s letter is a signal to Baucus that the White House plans to put its full weight behind the public option, and perhaps he should, too.

Sen. Max Baucus (D-Mont.) and Sen. Charles Grassley (D-Iowa) (WDCpix)

Liberals love it. Conservatives hate it. Moderates have proposed some compromises, and the Obama administration is weighing ways to appease all camps. Whatever battles are brewing in this year’s looming health care reform debate, none is likely to reach the intensity of that over a government-sponsored insurance plan.

Supporters of adopting a public plan, a national insurance program anyone could opt into, argue that it’s an indispensable component of the Democrats’ soon-to-be-unveiled health care overhaul proposals, providing an affordable option to patients and keeping private insurers honest through increased competition. But critics contend that a federal plan is the first step to a single-payer system, tipping the scales unfairly with government subsidies and threatening the very existence of the private insurance market.

Illustration by: Matt Mahurin

Aside from aligning Democrats against Republicans, the young debate is also threatening to put liberal Democrats at odds with moderates, incite another intra-party rift between Democratic leaders in the House and Senate, and leave President Barack Obama — who wants to pass reforms supported by all parties — struggling to find some middle ground.

The episode highlights the difficulties facing Democrats in Congress and the White House as they try this year to make good on one of their very highest legislative priorities: revamping the nation’s health care delivery system in an effort to cover the 46 million uninsured Americans and slow the skyrocketing growth in medical costs. The debate will be a test of the political skill and will of party leaders, who are trumpeting the urgency of health reforms at the same time they’re urging caution in enacting them; who are hoping to trim the fat in the health care system at the same time they don’t want to eliminate jobs in the middle of a recession; and who are proposing enormously expensive reforms at a time of record deficits.

Lawmakers will also have to contend with the powerful insurance industry, which opposes the adoption of a public plan — and is lobbying furiously to keep it out of the Democrats’ proposal.

On Friday, the debate over public plans was launched in full after news leaked that Sen. Edward Kennedy (D-Mass.), chairman of the Senate health committee, intends to include the government-sponsored option as part of his sweeping reform proposal, expected to be unveiled next week. The leak inspired thoughts that Kennedy’s bill would be much more liberal than that being drafted by Senate Finance Committee Chairman Max Baucus (D-Mont.), who works closely with Sen. Charles Grassley (R-Iowa), a fierce opponent of the public option.

Kennedy and Baucus insist they remain on the same page, issuing a rare Saturday statement vowing to craft “complementary legislation that can be quickly merged into one bill for consideration on the Senate floor before the August recess.”

Joseph Antos, a health-policy analyst at the conservative American Enterprise Institute, said the leak — probably intentional — was likely intended to send a message to liberal Democrats that Kennedy’s on their side. It might also have been a message to Baucus that he’d better be prepared to nudge his proposal left — a situation that puts the Senate Finance Committee chairman in a squeeze between an allegiance to party and the promise to find bipartisan consensus on health care reform.

“He wants to be left of the 50-yard line, but he doesn’t want to be too far left of the 50-yard line,” Antos said of Baucus. “It’s the sort of thing we’ve seen often out of the Finance Committee … There’s a lot of game-playing going on here.”

The same dilemma faces Obama, who appears torn between his support for a public plan and a desire to have a bipartisan bill. The White House did not return requests for comment Wednesday.

Supporters of the public plan option argue that it’s vital if Democrats hope to slow the growth of health care spending, which is skyrocketing at a rate well above that of the rest of the economy. A government-sponsored plan, they say, could provide cheaper coverage because it wouldn’t have to pay the marketing and outreach costs that burden private insurers; it would cater to more people, lowering costs for reasons of sheer volume, and it wouldn’t be bound to produce profits for shareholders.

There are other advantages to the public option. Ron Pollack, executive director of Families USA, a consumer health care group, pointed out that private insurers operating under Medicare have been known to alter the terms of coverage, leaving patients without necessary treatments. A public plan, Pollack argued, “provides some stability” to patients. The government option would also create an enormous database of health coverage information that could inform future policy decisions, Pollack said — information private insurers often won’t disclose for proprietary reasons.

Conservatives and the insurance industry have other thoughts. Summing up the criticisms of the public plan option, Senate Minority Leader Mitch McConnell (R-Ky.) on Tuesday argued that a federally subsidized plan could offer “artificially lower prices” that would quickly attract interest from individuals and businesses alike. The result, McConnell contended, would be the death of the private insurance market.

“The very concept of a government ‘option’ is itself misleading,” McConnell said on the Senate floor. “What starts out as an option could quickly become the only option.”

Sen. Judd Gregg (R-N.H.), who floated his own health reform proposal this week, said the public option would eventually lead to “delays and rationing” for patients.

“The first rule of health care is, do no harm,” Gregg told MSNBC Tuesday. “Well, one thing which would do serious harm would be if the federal government came in and stood between you and your doctor or created a system which led to delays and rationing, which is what a public plan would.”

Several proposals floated on Capitol Hill in recent weeks seek to satisfy both supporters and critics of the public plan option. Under one measure, sponsored by Sen. Charles Schumer (D-N.Y.), the government would administer, but not be permitted to subsidize, the public plan. Instead the plan would have to rely on premiums and co-payments to cover claims, like any other insurer. The Schumer plan would also force the public plan to pay health care providers at rates higher than Medicare pays.

Another proposal would offer private plans the opportunity to expand coverage and reduce rates on their own, with the public option kicking in only in regions of the country where the private market failed to meet certain minimum thresholds of coverage and cost. Opponents of that strategy, including Schumer, argue that the nation’s 46 million uninsured residents are evidence enough that those thresholds have already been met.

Antos, of AEI, said one of those compromises could work, but first the language surrounding the debate would have to change so that the Republicans who’ve so adamantly opposed the public option wouldn’t be seen going back on their word.

“You’ve got to find a face-saving way,” Antos said. “So the first thing you do, you don’t call it a public plan.”

Douglas Holtz-Eakin, former head of the Congressional Budget Office, said that, without any details, it’s still too early to speculate about the fate of public plans in the coming debate. “There are many different flavors of a public option,” said Holtz-Eakin, the chief economist for the 2008 presidential campaign of Sen. John McCain (R-Ariz.). “We’ve got to see a specific proposal.”

Robert Blendon, a professor of health policy at Harvard University, pointed out that, even if the Senate isn’t able to pass the public plan provision, House Democrats will almost certainly include that option in their version of the bill, which is currently being drafted by Reps. Henry Waxman (D-Calif.), Charles Rangel (D-N.Y.) and George Miller (D-Calif.). For all the controversy swirling around public plans, Blendon added, there’s a larger barrier to the Democrats’ push for health care reform this year.

“This is very contentious, but not as contentious as how they plan to pay for it,” said Blendon, an expert on the Clinton administration’s failed attempt to pass comprehensive health care reform in 1993. “If they can find savings someplace, they would not stop the train for this issue. They would find some Sen. Schumer-like compromise and push the thing on through.”

David Cutler, a health economist at Harvard University who’s advised the Obama administration, downplayed the significance of the partisan griping over public plans, arguing on Tuesday that overall support for health care reform this year remains as strong as ever.

“You see these sorts of splinters,” Cutler said, “but you don’t see anyone walking out yet … We are in so much better shape than 16 years ago.”