“I think a bill that passes the Senate will have some version of a public option,” Baucus said.

That’s music to the ears of liberal lawmakers and many patient advocates, who argue that the public plan option would prevent private insurers from dictating all the terms of cost and coverage, as they do now. But Republicans have lined up in near unanimity against the idea, contending that public plans would skew the market with artificially low costs, eventually putting private insurers out of business altogether.

Democrats, including President Obama, have stressed the importance of producing a bipartisan agreement on health reform, but with the inclusion of a public plan, that wish could be shot.

Leaving the same gathering where reporters caught Baucus, Sen. Charles Grassley (Iowa), the senior Republican on the Finance panel, was none too pleased that his counterpart is now leaning toward inclusion of a government-sponsored plan.

“Our caucus is very much against [a public plan.] It’s kind of a litmus test,” Grassley said. “That’s all you can say. There’s no follow-up question that you can ask me. There’s no further statement I can make about it.”

Not much room for compromise there, although Joseph Antos, health analyst at the American Enterprise Institute, did offer one suggestion about how Democrats could include their public plan and still get Republicans on board: Water it down and then name it something else.

We’ll know more next week, when Baucus is expected to unveil his proposal.

Today Grassley all but eliminated the possibility that he would support such a plan, warning that it would be the first step toward a health care system controlled entirely by the government.

From a speech today on the Senate floor:

[S]ome say that we can avoid these [payment] problems by putting the government-run plan on a level playing field with private insurers.  They say Congress could setup a system so that the government-run health insurance plan has to follow the same rules as private insurers.  They say it would have to pay the same rates, form networks and be independently solvent.  So my question is this – when this new government-run health insurance plans starts to cost too much, is Congress going to start breaking its promises?  Will it change the rules? [...]

[M]aybe at first Congress repeals the requirement that the government-run plan has to form a network.  Next, Congress might allow the government plan to start paying lower rates than private insurers – just like Medicare and Medicaid. At that point, Congress might let the government-run plan dip into the treasury from time to time to keep the government plan solvent.  This would increase government costs for everyone.

As the government takes more and more control over the plan, providers would get paid less and taxpayers would end up paying more.  Rates for the government-run health insurance plan would be lower than private insurers because the government can impose lower rates by law – also known as price-fixing.  This is a common talking point for supporters of the government run plan.  They say the government can use its influence to lower costs.  But as the government cuts payments to providers, costs will go up for everyone in the private market.

Slowly but surely the government plan would take over the market.  Eventually, all the promises about creating a level playing field have been broken, and we would be left with a single-payer, government-run health insurance program. The simple truth is supporters of a government plan absolutely intend for this to be the outcome.

The question is, can Grassley convince Baucus of the same thing?