With House members returning to town, negotiations continue between House and Senate Democrats over differences in the two chambers’ health care bills. Key differences include financing, the level of subsidies provided to help people afford coverage and whether or not to include a tax on high-cost health insurance plans.

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JACKIE JUDD: Good day. I am Jackie Judd with Health on the Hill. Closed door negotiations continue this week between Senate and House Democratic leaders about the final form a health overhaul Bill will take. Here to discuss what is ahead and what happened last week, Mary Agnes Carey of Kaiser Health News and Drew Armstrong of Congressional Quarterly. Welcome to you both.

The hot topic at the moment seems to be the financing of the Bills. In the House, the idea is to raise taxes on the wealthiest Americans. In the Senate, it is to tax what is commonly called the Cadillac health care plans or the high end health care plans, where do things stand?

MARY AGNES CAREY: Well, those differences are very apparent and I think they will be a key part in the negotiations as we move on. Members of the Administration have talked, the Obama Administration have talked a lot about wanting to keep this tax on some of the high cost plans, they are called the Cadillac plans. Here we are talking about health insurance plans that are worth about $8,500 for an individual or $23,000 for families.

Unions are very upset about this because they say in many cases their workers have not gotten a raise in exchange for a better benefits package. They are worried about those benefits falling prey to this tax.

And then you also have some members of the Senate and the House is very concerned about this high cost tax, Cadillac tax, rather, because they don’t like the idea of not only the Union plans, but for members who represent high cost health insurance states, they may say a fair number of their constituents could fall into these plans just because they cost a lot, not necessarily that their benefits are so generous.

JACKIE JUDD: As you mentioned, Mary Agnes, the President seems very determined to get behind the tax on the high end health care plans, so Drew where is the wiggle room?

DREW ARMSTRONG: Well, I think what we are going to see in the end of this is some sort of modified Cadillac tax. I mean, the political constituency backing the Cadillac tax is really limited to the White House, members of the Finance Committee, and health care economists. There isn’t a huge national political constituency out there pushing for this thing.

So in some way or another I do think it is going to end up in the Bill, but I think it is going to be substantially weakened. There are a couple of ways that they can do that. Currently, the tax starts kicking in on insurance plans that cost $23,000 a year or more for a family and I believe it is $8,500 for an individual. What you can do is raise that threshold so it hits fewer plans. That makes the Unions a little bit more comfortable if fewer people get hit with it.

JACKIE JUDD: But then it doesn’t raise enough revenue.

DREW ARMSTRONG: Well, so there’s a way around that as well. So it doesn’t raise enough revenue, then to make up for that you go back and you incorporate parts of this Millionaire’s Tax, the tax on rich people. So basically you keep the sort of economic effects or at least the shell of the policy effects of this high cost plan tax, the idea obviously being preferred by economists, it’s going to put downward pressure on expensive premiums.

So you keep the shell of those effects so you can say that they are in there, even though maybe they aren’t as strong. You replace that lost revenue. Right now it raised about $150 billion over 10 years, you replace that with some of the revenue by maybe taxing rich people using a portion of those House tax proceeds. So basically dial back the Cadillac Tax and insert some of the Millionaire’s Tax or dial up the Millionaire’s Tax a little bit, you know, borrow a little bit from each one. Somehow the math comes out and you’ve got all the money you need.

JACKIE JUDD: President Obama is meeting this afternoon, Monday afternoon, with labor leaders. Tough meeting over this issue?

MARY AGNES CAREY: I think it’s going to be a very tough meeting over this issue. They are very concerned about it. Many of them campaigned for President Obama and they are disappointed in where he is. But as Drew is mentioning, there is a big issue of course in the health reform debate is how do you control health care costs?

Many economists, as you talked about, health care economists, the President believes this as well and his economic team said this is a key factor in trying to drive down health care costs, so I think they are very much wanted in the Bill, but the threshold of plans that would hit this tax is probably, like Drew said, where they are going to make a change.

JACKIE JUDD: This time last week, when we were recording Health on the Health, the topic we were focusing on so much was the public option, but in the last seven days or so, that seems to have gone farther back in line. What has happened with that?

DREW ARMSTRONG: What public option? I mean, I know that has been such a huge political point. Heading into the debate, it was a big debate in the Senate where the HELP committee included it, the Finance Committee didn’t. Max Baucus famously said the public option can’t get 60 votes in the Senate. The House included it. They fought hard for it. They made it a central tenant of the way they were trying to sell their Bill, and now we are not really hearing much about it.

The reason is Baucus was right, it can’t get 60 votes in the Senate and when it comes down to it, when we are done playing all the political games, putting the pressure tactics on, these negotiations going back and forth, if it doesn’t have 60 votes in the Senate it doesn’t matter.

JACKIE JUDD: Is Nancy Pelosi ready to wave the white flag on this issue?

DREW ARMSTRONG: A little bit, yeah. She had a meeting last week with her House Democrats, the top. Democrats there, and someone asked her if there was going to be a public plan in the Bill. And she said we are going to have something that does the job of the public plan, it’s just as effective as the public plan, you know, lowering costs, making things affordable and all that, which says to me that if she is not saying there is going to be a public plan in there at this very early stage of the game, it’s out.

JACKIE JUDD: Mary Agnes, bring us up to date on another controversy that erupted last week, and that has to do with the special deal that was cut to get the vote of Senator Ben Nelson of Nebraska, and it was to exempt Nebraska taxpayers essentially, from many extra costs incurred by expanding Medicaid. A lot of blow back, what’s the status?

MARY AGNES CAREY: Well, Senator Nelson is now saying in, as you mentioned, the deal that he negotiated was that for the expanded Medicaid population that the federal government would pick up the extra cost forever for Nebraska, and so a lot of governors, Arnold Schwarzenegger of California for example has complained about this, a lot of governors have complained about it.

Senator Nelson has faced some pressure in his state because there are some people that say it seems kind of unseemly that he could cut this deal, so Senator Nelson has now said well I think every state should have this deal. It shouldn’t just be Nebraska. And there have been news reports that he is negotiating with Senator Reid to try to get the same deal for every state, but again that costs money.

JACKIE JUDD: Right. How do you reach the bottom line if that happens?

DREW ARMSTRONG: One of the things that is sort of important to note here, it’s an interesting political dynamic, Nelson made himself really the center of attention, in a lot of ways the center of power in the Senate by making himself the last 60th vote in the Senate. He was the guy who they had to broker all these final deals with to finally get 60 votes to pass it in the Senate.

The downside of that is that when you do that, all those deals are under intense scrutiny. I mean, everything you do and everything that you are involved in that process, all of a sudden people are going to be asking a lot of questions, why did he get all this special treatment? Keep in mind, Mary Landrieu got several hundred million dollars for Louisiana.

MARY AGNES CAREY: Right, and nobody’s talking about it. Vermont got more money, I mean there were some limits placed on that. I think when people look at the Nebraska deal, they say now wait a minute, forever the federal government picks this up? Is that fair? But it gets to the heart of how difficult it is to get consensus on this Bill.

Ben Nelson kept those talks going. The pressure was on him. All the attention was on him, and we are going to see this revisited, just because the Senate passed its package with 60 votes, to get that again could be tougher and it could be tougher in the House as well where it passed, depending upon what they come up with in this conference package.

JACKIE JUDD: One final question, having to do with Senate Majority Leader, Harry Reid. There was a juggernaut of criticism over the weekend when a new political book came out, Game Change, in which he was quoted as making some racially insensitive comments about then candidate Barack Obama. Drew, does this weaken his position on Capitol Hill or does it simply weaken him further in his reelection bid back home?

DREW ARMSTRONG: I think it probably does a little bit of both, but I think it probably hurts him more back home. I mean, this is obviously a serious issue that has to deal with some racial comments that he made, but in a lot of ways it is one of these fiery, kind of cable news Washington stories.

I mean we are seeing this flurry of activity, it’s going to be a really big headline for awhile, but he has apologized to Obama. Obama has accepted his apology. The people who he needed to work this out with, at least on Capitol Hill, it has probably been worked out with back home.

Now, I wouldn’t want to see what the campaign ads are going to be like and what the stories back home are going to be like, he’s already in trouble back there and it’s going to be ugly. I don’t think it is going to stop him from getting health care reform done when it comes down to it, but it is not going to help his political career or the legacy he comes out of there with.

JACKIE JUDD: Okay, thank you very much. Thank you Mary Agnes, and thank you for joining us. I’m Jackie Judd.