“Under the new FEC regulation, a Representative or Senator, or other congressional candidate, will be able to sit down with a corporate executive, draft an ad promoting his or her campaign and have the executive’s corporation pay for broadcasting the ad when and where the candidate wants—and none of this constitutes ‘coordination’ in the view of the FEC, so long as the ad is run after the candidate’s primary and more than 90 days before the election, and does not expressly say ‘vote for’ the candidate or its functional equivalent,” Wertheimer’s statement said. “The FEC’s regulation, in short, defies common sense.” [...]

The effect of the FEC rule is to leave a “donut hole” for coordination in congressional campaigns that “even the agency recognizes is inappropriate and impermissible for presidential elections,” Wertheimer said. “That distinction makes no sense and there is no legal rationale for authorizing coordination in congressional races that is made illegal in presidential races.”

Wertheimer stopped short of indicating that Democracy 21 would file a legal challenge, telling BNA that the group is keeping its options open. The new FEC rule won’t take effect until after the current election cycle, but it represents yet another setback for campaign finance groups in regulating election spending in the post-Citizens United world.

House Speaker Nancy Pelosi, with Majority Leader Steny Hoyer, discusses the health reform bill on Thursday. ( EPA/ZUMApress.com)

Democratic leaders pushing health care reform this year like to argue that a vast majority of the proposals represent uncontroversial changes backed by most Capitol Hill lawmakers. And while that might be true, it hasn’t prevented some sharp disagreements between House and Senate Democrats over a handful of high-profile reform provisions.

Indeed, the House-passed reform bill strayed from the Senate proposal on a number of key issues, from children’s coverage to Medicaid payments to the creation of a public health insurance plan. Here’s how the reconciliation bill — which House leaders unveiled today to address what they considered weaknesses in the Senate legislation — would tweak (or not) some of the most contentious provisions in the upper chamber’s bill.

[Congress1] Paying the Freight

A central disagreement between House and Senate Democrats has been over how to pay the substantial costs associated with covering tens of millions of uninsured Americans. The House paid much of the tab with a 5.4 percent tax on the nation’s highest earners — individuals making more than $500,000 per year, and families pulling in more than $1 million. The Senate, meanwhile, passed a 0.5 percent hike on Medicare’s payroll tax for individuals earning more than $200,000 and families earning more than $250,000. But a larger chunk of funding under the Senate bill would come from a 40 percent excise tax on high-cost insurance plans — a provision that’s wildly unpopular among a key Democratic constituency: Organized labor.

The reconciliation bill alters both funding mechanisms. First, it scales back the insurance excise tax by increasing the dollar thresholds triggering the tax — from $8,500 to $10,200 for single coverage, and from $23,000 to $27,500 for family plans. It also delays the application of that tax until 2018. To make up the revenues lost by changes to the excise tax, the reconciliation bill also expands the Medicare tax to include net investment income (i.e. unearned income).

Kids’ Care

After years of promoting the virtues of the Children’s Health Insurance Program, House Democrats did a strange thing: They proposed to eliminate CHIP altogether, instead moving those kids into either Medicaid or private plans on newly created insurance marketplaces, dubbed exchanges. The Senate bill took a different tack, reauthorizing CHIP through 2019, while funding it through 2015. Despite a more recent White House proposal to provide an extra year of funding (through 2016), the reconciliation bill doesn’t touch the issue, leaving the original Senate provision intact (and kids welfare advocates happy).

Pharma Deal

A behind-the-scenes deal cut last year between Sen. Max Baucus (D-Mont.) and the pharmaceutical lobby drew a good deal of attention: The nation’s drug makers, under that agreement, would dedicate $80 billion toward health care reform over the next decade if Democrats would oppose further industry reforms — including a proposal allowing Americans to buy their prescriptions from abroad, and another empowering states to negotiate directly with companies on behalf of their lowest-income seniors.

While the White House endorsed the deal, House Democrats didn’t. Instead, Rep. Henry Waxman (D-Calif.), chairman of the House Energy and Commerce Committee, included the state negotiation provision as part of the House-passed bill. While the reconciliation bill does tap the drug makers for $28 billion over 10 years ($5 billion more than the original Senate bill), it doesn’t dabble with the other terms of the Pharma deal.

Abortion

Always the hot-button issue, abortion has emerged as the one topic that still really threatens House passage of health care reform. Late last year, Speaker Nancy Pelosi (D-Calif.) had negotiated a delicate compromise designed to satisfy a number of anti-abortion Democrats — notably Rep. Bart Stupak (Mich.) — who were concerned that the reform bill would allow taxpayer dollars to subsidize abortions. The so-called Stupak amendment would ban exchange plans from offering abortion coverage, forcing women to buy a separate policy covering abortion services. The Senate bill is a bit less strict, allowing abortion coverage on the exchange, but requiring women to write a separate check for those services to ensure that no federal funds go toward them. It’s the Senate provision that’s going to the floor of the House early next week, leaving Stupak and roughly a dozen other House Democrats vowing their opposition.

Anti-Trust Exemption

For 64 years, the health insurance industry has reaped the benefits of a rare exemption to federal anti-trust laws, which allows companies to share cost and coverage information without scrutiny from Washington. And for a number of years, Democrats have had their eyes on repealing it. The House bill would have done just that, but the provision didn’t make the cut in the Senate, due largely to the opposition of Sen. Ben Nelson (Neb.), the moderate Democrat whose close ties to the insurance industry include a stint as CEO of the Omaha-based Central National Insurance Group.

Like many other insurance reforms, this provision is one of those non-budget related items not eligible to move under the reconciliation process. The Democrats, though, are hoping to repeal the exemption later this year through separate legislation. Indeed, the House already passed such a bill last month.

Medicaid Rates

The headlines today will likely focus on the plan to eliminate the sweetheart Medicaid deal that Senate leaders cut with Nebraska’s Nelson — a deal so unpopular that even Nelson himself claims now to oppose it. But much more significant for purposes of ensuring care is a provision of the reconciliation bill that hikes Medicaid rates to primary care physicians to at least the level of what Medicare pays for those same services. That provision was contained in the House bill, but not the Senate proposal.

The issue isn’t trivial. Medicaid rates are so low that many doctors refuse to see Medicaid patients. Only about 40 percent of physicians accept all new Medicaid patients, versus 58 percent for Medicare patients, according to a September study from the Center for Studying Health System Change, which randomly surveyed more than 4,700 physicians. And that number drops to about 31 percent among family doctors and general practitioners.

For dental care, the numbers are even worse. Only 27 percent of the nation’s dentists will treat Medicaid-insured patients, according to a 2007 survey conducted by the American Dental Association. Those trends raise important questions about the value of an insurance program that nobody accepts — and led directly to the Democrats’ decision to hike Medicaid rates.

Closing the Doughnut Hole

Though seniors participating in Medicare’s prescription drug program are generally happy with their benefits, a painful thorn plagues the program: Seniors are forced to pay the full cost of drugs when annual expenses hit $2,700, and the subsidies don’t return until total costs hit $6,154 — a coverage gap known (not endearingly) as the doughnut hole. The Senate bill took steps to reduce the size of that gap, relying mostly on the pharmaceutical companies, who offered a 50 percent discount on brand-name drugs through the doughnut hole as part of their $80 billion deal with Democrats.

The reconciliation bill expands on that plan, offering seniors an additional $250 rebate in 2010, then squeezing the gap incrementally so that, by 2020, the doughnut hole would disappear entirely.

Illegal Immigrants

While both the Senate and House bills would prohibit illegal immigrants from receiving federal subsidies on the exchanges, the Senate took the restriction a long step further by preventing those folks from buying insurance from the exchanges at all — even if they paid the full price of coverage using their own money. (The House bill would allow such unsubsidized purchases.) Although some members of the House Hispanic caucus have advocated for the House language in the reconciliation bill, it didn’t make its way in.

Public Option

The House bill included the creation of a government-backed insurance plan to compete with private companies on a national exchange, while the Senate bill contained no such thing. Despite a late push from liberal groups to include the House provision in the reconciliation bill, House Speaker Nancy Pelosi (D-Calif.) declined, citing a lack of support in the Senate.

House Majority Leader Steny Hoyer (D-Md.) said today that the lower chamber hopes to vote on the reconciliation bill Sunday afternoon.

Sure, there are House Democrats who are choking on that very thought — folks like Rep. Anthony Weiner (N.Y.), who thinks parts of the bill are too conservative, and Rep. Bart Stupak (Mich.), who thinks other parts are too liberal. But the alternative is to have Democrats take to the campaign trail this year with the following message: “Yes, Congress spent most of 2009 haggling over health care as unemployment leapt, but it was just too hard to get the thing passed.” Not exactly the inspirational bulletin that wins elections.

Which leaves the question: What exactly would House Democrats be forced to swallow if they agree to adopt the Senate bill as it stands? A few biggies:

Funding: A central disagreement between House and Senate Democrats has been how to pay the tab of covering tens of millions of uninsured Americans. House leaders proposed a 5.4-percent tax hike on those earning more than $500,000 per year, while the Senate bill proposed a 40-percent tax on high-cost insurance plans. The loser here is the labor movement, which had recently negotiated a deal with Democratic leaders of both chambers to exempt union-negotiated plans from being hit by that tax for another eight years — a deal that would be nullified if the existing Senate bill becomes the final word. Even so, some of the labor leaders who pushed for that deal are already urging the House to pass the Senate proposal.

Illegal Immigrants: Members of the Hispanic Caucus lose big here. While both chambers have proposed to ban illegal immigrants from receiving subsidies on the exchanges, the Senate bill takes the strange step of also prohibiting those folks from paying full price for exchange coverage through U.S. companies using U.S. dollars. (The House bill would allow those unsubsidized purchases). The result? There will probably be more uninsured illegals making the emergency room their primary care stop — the very type of behavior that health reform was supposed to discourage.

Kids’ Care: At issue here has been the fate of the Children’s Health Insurance Program, the state-federal partnership that covers roughly 9 million low-income kids nationwide. The House has proposed to do away with CHIP at the end of 2013, while the Senate proposal would keep it alive and provide new funding through 2015. Many children’s welfare advocates, concerned that kids would lose coverage if they’re shifted to more expensive private plans on the exchange, prefer the Senate provision.

Abortion: Both the House and Senate bills include new restrictions on coverage of abortion among plans operating on the exchanges. The House provision, sponsored by Stupak, would prohibit such coverage on exchanges altogether; the Senate bill is a touch less strict, allowing abortion coverage but requiring women to write a separate check for those services to ensure that no federal funds go toward them. This allegedly leniency is the reason Stupak is threatening to vote against the Senate bill.

Anti-Trust: For more than six decades, the nation’s insurance companies have enjoyed an exemption to federal anti-trust laws, justifying the perk with the argument that sharing information encourages smaller companies to enter otherwise unknowable new markets. But critics say the exemption simply allows the companies to collude on pricing at the expense of competition. The House bill eliminates the anti-trust exemption; Senate leaders — bowing to Sen. Ben Nelson (D-Neb.), a former insurance company CEO — stripped that provision from their bill. Advantage: insurance industry.

That $80 Billion Pharmaceutical Deal: Hoping to get the nation’s drug makers to support health reform before the heavy negotiating began, Sen. Max Baucus (D-Mont.) made a pact last summer with the pharmaceutical lobby: If the drug makers put up $80 billion toward reform over the next decade, the deal went, Democrats would withhold support for a proposal allowing states to negotiate drug prices on behalf of their lowest income seniors. The White House quickly signed on, but House Democrats didn’t. Instead, Rep. Henry Waxman (D-Calif.) went ahead and included in the House bill the very provision that Baucus and Obama vowed to oppose. Adopting the Senate bill leaves the deal with Big Pharma intact. Advantage: Pfizer.

The Public Option: House liberals, behind Speaker Nancy Pelosi (D-Calif.), won a major victory in the lower-chamber bill by including a provision to create a national, not-for-profit insurance plan to compete with private companies. The Senate bill contains no such thing. This, on the surface, appears to be a big loss for House Democrats. But in reality, the merged bill would likely have dropped the provision anyways, because it doesn’t have the support of 60 senators.

All of this, of course, could change as the years go by and Congress dabbles at the edges of these provisions. But for the time being, it’s looking like the more industry-friendly Senate bill will form the backbone of health care reform.

Rep. Henry Waxman (D-Calif.) (WDCpix)

Senate Democratic leaders won quick praise from seniors this week when they vowed to close the nettlesome coverage gap in Medicare’s prescription drug benefit.

“I am committed to fully closing it, once and for all,” Senate Majority Leader Harry Reid (D-Nev.) said Monday. “We will do so in our conference committee with the House, whose bill already closes the gap.”

[Congress] Left unmentioned, however, was how they plan to pay for that promise without unraveling a friendly deal struck earlier in the year between the pharmaceutical lobby and Democratic leaders in the White House and Senate. Though the House bill does indeed close the coverage gap, known disapprovingly as the “doughnut hole,” lower-chamber leaders chose to offset that provision by allowing states to negotiate drug prices for millions of low-income seniors, which is prohibited under current law. Such negotiations would save the government tens of billions of dollars, but would also undermine the deal with Big Pharma.

The decision to kick the issue to the conference negotiations, rather than taking it up on the Senate floor, could lead to a clash between Democratic leaders in each chamber over whether the government should be empowered to use its bulk-buying advantage to secure lower prices for both the government and the nation’s lowest-income seniors — something House leaders support, but Democrats in the Senate and White House oppose because of the pharmaceutical deal.

Senate Democrat leaders have already shown zero willingness this year to break the agreement with Big Pharma, under which the nation’s largest drug companies have pledged up to $80 billion to subsidize health-care reform over the next decade in return for assurance that Democrats wouldn’t seek further concessions. Fearing the industry’s opposition to the underlying reform bill, Senate Democrats, behind Finance Committee Chairman Max Baucus (D-Mont.), have already shot down several proposals in recent weeks that would have broken the deal — including legislation making it easier for Americans to buy their prescription drugs from abroad, as well as the very provision that the House used to close the doughnut hole.

That means that Democrats, if they intend to keep that deal intact, will be forced to find additional money to close the doughnut hole — estimated at one time by the Congressional Budget Office to cost the federal government more than $42 billion $56 billion over the next decade. That’s no simple task for Democratic leaders who have already struggled to find offsets for legislation tickling $900 billion. So far, they’re giving no clues how they might do it.

“It’s something that we will have to deal with in conference,” Reid spokesman Jim Manley wrote in an email this week.

Karen Lightfoot, spokeswoman for Rep. Henry Waxman (D-Calif.), a long-time champion of the controversial offset provision, echoed that uncertainty Tuesday. With the Senate bill not yet finalized, she said, it’s too early to begin speculating about conference specifics.

The doughnut hole has been controversial since Medicare’s prescription drug benefit, called Part D, was rammed through Congress by the Republican majority in 2003. Under that benefit, the government pays 75 percent of seniors’ drug costs up to $2,700, when patients must begin paying full price. After those expenses hit $6,154, the government picks up 95 percent of the tab, meaning the doughnut hole is $3,454.

The gap has created serious health concerns. Indeed, in 2007 roughly 3.4 million Medicare beneficiaries reached the doughnut hole, of which about 15 percent stopped taking their prescriptions as a result, according to the Kaiser Family Foundation.

As part of their $80 billion deal, drug makers agreed to cover half the cost of name-brand drugs for seniors stuck in the doughnut hole, beginning in 2010. The House bill builds on that foundation, cutting the doughnut hole by an additional $500 per person in 2010, and incrementally shrinking the gap further until 2019, when it would close altogether.

The controversy is not over the proposal itself, but how it’s funded. House leaders decided to allow states to negotiate prescription prices on behalf of the nearly 9 million seniors who qualify for both Medicare and Medicaid — the so-called dual eligibles — as they do for regular Medicaid patients. Such a system allows the states to use the bulk-buying advantage of the large Medicaid pool to negotiate lower costs on prescription drugs.

Prior to enactment of the Medicare prescription drug benefit, dual eligibles also got their drugs through Medicaid. With passage of Part D, however, drug purchasing for duals shifted to Medicare, which was explicitly prohibited from negotiating prices with pharmaceutical companies. As a result, the government currently pays about 30 percent more for dual eligibles’ drugs under Medicare than it would under Medicaid, according to a 2008 study from the House Oversight and Government Reform Committee, then chaired by Waxman.

Indeed, it was Waxman, now chairman of the Energy and Commerce Committee, who inserted the dual-eligible provision into the House bill.

Some upper chamber lawmakers have tried to do the same. During debate over health reform in the Senate Finance Committee, Sen. Bill Nelson (D-Fla.) proposed a similar amendment. The proposal would have no effect on the drug coverage of dual eligibles, but simply shift which federal program would pick up the tab. Nelson said it would save the government $106 billion over the next decade.

The Finance Committee killed it, 13 to 10.

“We have to find some other time, some other way [to close the doughnut hole],” Baucus said after voting against the measure. “The White House did reach an agreement.”

As it is, Medicare patients are forced to pay the full cost for their prescription drugs when annual expenses fall between $2,700 and $6,154. Under the new agreement, drug companies would pick of 50 percent of the tab for some of those patients falling into Medicare’s so-called doughnut hole.

“This gap in coverage has been placing a crushing burden on many older Americans who live on fixed incomes and can’t afford thousands of dollars in out-of-pocket expenses,” Obama said today, with key Democratic lawmakers and the head of AARP by his side.

Our goal, our imperative, is to reduce the punishing inflation in health care costs while improving patient care. And to do that, we’re going to have to work together to root out waste and inefficiencies that may pad the bottom line of the insurance industry, but add nothing to the health of our nation. To that end, the pharmaceutical industry has committed to reduce its draw on the health care system by $80 billion over the next 10 years as part of overall health care reform.

For the industry, it’s not quite the sacrifice it appears to be. Big Pharma has already profited handsomely from the creation of the prescription drug program. And, as The Hill’s Jeffrey Young points out today, their $80 billion commitment could pay dividends in the end.

Drug makers may be seen as forfeiting $80 billion but the reality is not so simple. Many seniors who would avail themselves of half-price medicines would simply have done without in the absence of discounts.

Indeed, the Kaiser Family Foundation reported last year that about 3.4 million Medicare beneficiaries hit the doughnut hole in 2007, of which roughly 15 percent stopped taking their medicines as a result.

“Moreover,” Young adds, “PhRMA’s collaboration with [Senate Finance Committee Chairman Max Baucus (D-Mont.)] also could shield them from legislative proposals that would cut deeper into their revenue.”

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