The solid front of Democratic Party progressives supporting the Senate’s health care form bill, has now cracked wide open with Howard Dean’s call to kill the Senate bill and start over in the House with reconciliation. Dean’s call hasn’t cracked open the floodgates among the Senate and House Democrats and in recent days people like Bernie Sanders and Anthony Weiner have indicated that even though they’re sympathetic, they’re not with Howard yet, while others like Ben Cardin, Jay Rockefeller, and a veritable hallelujah chorus of other Democratic Senators have registered strong disagreement with him, insisting that the bill should still be supported. Meanwhile, Harry Reid continues to oppose using reconciliation to pass a bill. Why?

The standard Washington excuse is that reconciliation would infuriate Republicans and the blue dog Democrats who have tremendous influence in the 60-vote frame, and would result in tying up all business in the Senate for the rest of this term. Here’s an example of this frame being used by Chris Matthews in his exchange with Howard Dean last night. I don’t know whether Washington insiders believe this or not, but it seems like another rationalization to me, since the ability to tie up business in the Senate is ultimately based on the filibuster and its derivatives. If Harry Reid were to use reconciliation to pass a bill, and the Republicans and blue dogs did respond afterwards by tying up future Senate business, all Harry would have to do to stop that is to let them know that he will end all the delaying tactics based on the filibuster by using the nuclear option and getting rid of the filibuster forever. Judging from how many of the same people reacted to for Republican Majority Leader Bill Frist’s threat to do this a few years ago, I seriously doubt whether the Republicans and blue dogs would persist in tying up Senate business.

So, if the threat to tie up business is really an empty one, why is Harry so set against using reconciliation? I think the real answer is that reconciliation would be a disaster for the insurance companies, and would result in shutting off company contributions to Democrats in 2010. To see just how much of a disaster reconciliation would be for the companies, we have to think about the constraints reconciliation places on legislation, and the possible sequence of legislative acts that might result from those constraints. Since only measures with major budgetary impact can be passed using reconciliation, those measures that are regulatory in some way can’t be passed, unless everyone agrees to waive the Byrd rule. So, regulatory and other financial measures have to be passed using regular order, either before of after reconciliation is used.

If the Senate’s bill is killed, and HCR efforts are taken up under reconciliation here are the kinds of things that might be considered: 1) extension of an option to buy into Medicare for age groupings under 65; 2) subsidies for various age and income groups having the option to buy in under 1), 3) a separate public option program using Medicare rates and providers, though it is hard to say why a separate PO would be either necessary or desirable if a Medicare option is provided to every age grouping, 4) a program for Medicare to negotiate drug pricing with the companies, 5) a measure closing the donut hole for Medicare enrollees, and 6) taxation to pay for expenditures to make the reconciliation bill revenue neutral. We don’t know whether a majority in both Houses would be available for the most expansive of the possibilities that reconciliation can address. But we do know that majorities most probably exist for extending a Medicare option to people in the 55 – 64 age group, and also for some form of PO program. What the eligibility restrictions would be on a PO program isn’t clear. The restrictions originally passed by the House and Senate committees may not be representative of majority sentiment since they were originally passed with an eye toward minimizing opposition from blue dogs. In the reconciliation situation the blue dog group is much weaker, and therefore the PO that might be passed is likely to have broader eligibility requirements.

Of course, reconciliation legislation would still be subject to threats in the House from abortion opponents. But this time around, the pressure on them will be far greater from pro-choice groups, and also, if extending a Medicare option to all is the direction the legislation takes, it will be very hard for opponents to make the case that the time-tested language already present in Medicare legislation should be changed.

A very big issue arising from reconciliation is whether it will produce a bill that will carry over the band-aid period between legislative enactment and the operational date of a competitive exchange, mandates, and subsidies for insurance. Both the House and Senate bills use a band-aid period to raise money from taxation before expenditures from subsidies are made in either 2013 or 2014, as the case may be. That’s how the bills in both Houses produce a 10-year forecast of deficit neutrality. If the reconciliation bill starts a public program and subsidies within one year, the cost of the program is likely to increase to $1.5 Trillion and tax increases will be necessary to pay for it. The President won’t like this. But if the bill is revenue neutral, as it must be, he can hardly justify a veto of the bill. And from the viewpoint of Congressional Democrats, the onset of the public program could be arranged to coincide with the 2010 elections, something that will greatly help them compared to the present bill.

The likely result of reconciliation-based legislation will be some combination of 1) to 6) above. If this legislation is taken up and passed first, the insurance industry will be faced with a fait accompli. Medicare extensions, subsidies, taxes to pay for them and perhaps a PO with eligibility rules will all exist, and perhaps will become operative by the 2010 elections, so the problem for the insurance companies is no longer defeating these things, but lessening their almost impact on the private insurance business. If insurance companies try to block further HCR regulatory legislation or an exchange to facilitate competition and choice, they then would be faced with a subsidized public program without a framework for competition with that program, and with every possibility that their competitive position would rapidly grow weaker within a few years as more and more people turned to the public program.

Once the reconciliation bill was passed, regulations for the insurance industry would be proposed. Ending denials of insurance due to preconditions, rescissions, price differentials based on age or illness groupings, and ending other abuses would be proposed. The 60-vote rule now applies so that the insurance companies will be in a position to block regulations that believe they cannot game. However, if a simple regulatory bill is proposed without all the complexity of the present “comprehensive bills” it will be harder for insurance company backers to oppose it. Also, the existence of the public program and its rapid implementation create a competitive situation where if the insurance companies continue their abuses, they will only hasten the flight of consumers to the public program, while if they support the legislation it will at least guarantee that private insurance companies will be on a level playing field with the public program and among themselves. Finally, to get the insurance companies to support such a regulatory bill, Congress could point out that until it is passed, a third bill, creating individual mandates, an exchange, including both private and public insurance, mandates for individuals, and permission for individuals to use Federal subsidies for all insurance offered on the exchange would not be passed. With all these as considerations, I suspect that opposition from the insurance companies to a regulatory bill would quickly vanish.

At that point, Congress would be left with individual mandates, a national insurance exchange, permission for Federal subsidies to be used, and a measure enabling individual states to enact Medicare for All legislation, if they choose to. That legislation would require regular order and 60 votes, but since it strengthens the ability of the private insurance companies to compete with the public program they will be begging for this last piece.

But, if the first two pieces of legislation are passed, one might ask, why do we need the third bill at all. My answer is that from my point of view, we don’t need the third bill. But that may not be the sentiment among a majority in Congress and promising the third bill may be a condition for getting cooperation needed to pass the first two.

Thinking about the scenario I’ve just described, one can see that the sequence of bill consideration implicit in the idea of using reconciliation is dangerous to the insurance companies. Once a public program, subsidies, and other beneficial changes are created under reconciliation, their ability to bargain for what they want is much reduced, and they get a lot less in the “compromise” emerging from the three bills together, than they are getting now from the comprehensive bills being considered by the two Houses. I think the insurance companies, and the Democratic leadership all know this, and that this, and the implicit insurance company threat of opening up their coffers only to Republicans in the Fall is the real reason why Harry Reid won’t use reconciliation.

Unfortunately for him, however, the answer to his own very serious electoral problems is not protecting the insurance companies, getting their money and flooding the air waves in Nevada in hpes of persuading people that he acted in their interest. This time people on both the right and the left, know that his is the responsibility for a bill that promises to do little or nothing for people in the short run. And when the election of 2010 rolls around people won’t care about his claims that he’s done great things for them beginning in 2014. Seriously, what planet does this guy and his political party live on? Don’t they remember Keynes’s admonition, particularly apt in the health care reform context, that “in the long run we’re all dead.”

(Also posted at the Alllifeisproblemsolving blog and Correntewire.com where there may be more comments)