By Lori Montgomery and Ceci Connolly
Washington Post Staff Writers
Thursday, October 1, 2009

Democrats on a key Senate panel backed off a plan to impose billions of dollars in new taxes on senior citizens with catastrophic medical expenses Wednesday and defeated Republican amendments on abortion, immigration and other divisive issues, aiming to bring a comprehensive health-care overhaul before the full Senate within two weeks.

On the sixth day of a marathon debate in the Senate Finance Committee, Chairman Max Baucus (D-Mont.) declared that his panel has the votes to approve a package of reforms that would extend coverage to more than 30 million Americans who lack insurance. He and Sen. Charles E. Grassley (Iowa), the ranking Republican on the panel, said they expect to finish the bill by Friday.

"We're coming to closure," Baucus told reporters. "It's clear to me we're going to get this passed."

To help defray the cost of the approximately $900 billion package, the panel agreed to modify a financing provision that would make it harder to deduct medical expenses on personal tax returns. After congressional tax analysts reported that the proposal would be hard on the elderly, whose medical expenses tend to be higher, the committee voted 14 to 9 to exempt people older than 65.

But younger taxpayers would still have to shell out more than $15 billion in new taxes over the next decade under the plan. Republicans assailed it as unfair and called it a violation of President Obama's pledge to protect families making less than $250,000 a year.

"I think this is the worst idea in an ocean of bad ideas," said Sen. Orrin G. Hatch (R-Utah). Making it harder to deduct medical bills "would badly hurt millions of Americans who are already struggling with medical expenses."

The Finance Committee also defeated GOP amendments aimed at strengthening limits on abortion coverage and medical services for illegal immigrants, emotional issues that could complicate final passage of a bill, particularly in the House.

An influential group of conservative House Democrats threatened to hold up the legislation if it does not guarantee that no government money is spent on abortion. The head of the House Pro-Choice Caucus, meanwhile, said her group has already compromised by maintaining current abortion restrictions.

In two amendments, Republicans on the Finance Committee tried to set new rules requiring proof of citizenship to receive government health benefits.

While Baucus hopes to finalize his bill by Friday, he said a vote will be delayed until early next week to give congressional budget analysts time to determine how their changes would affect the cost of the measure, aides said. Obama has vowed that health-care reform will not increase federal budget deficits by "one dime," and several Finance Committee members have said they want to be sure the package meets that requirement before they vote on it.

Baucus declined Wednesday to say whether he expects to have any GOP support for the measure. Sen. Olympia J. Snowe (Maine) is the only one of 10 Republicans on the panel whose vote is in doubt.

The Finance Committee measure is likely to form the foundation of a compromise bill that Senate Majority Leader Harry M. Reid (D-Nev.) hopes to craft next week and, he said Wednesday, take to the Senate floor shortly after Columbus Day. With guidance from the White House, Reid plans to combine the finance panel's measure with a bill approved by the Senate health committee, an effort aimed at uniting Democrats and producing a package that can avoid a Republican filibuster.

Among the most contentious issues to be resolved is whether to include a government-run insurance plan that would compete with private insurance companies, something many liberals argue should be a cornerstone of reform. The Senate health committee bill includes a government plan, while the Finance Committee this week rejected proposals to create a public option. Instead, the panel's measure would authorize the creation of nonprofit, consumer-run cooperatives as an alternative to private coverage.

Advocates of a government plan are vowing to press their case, however, and are already shifting their attention from the Finance Committee to Reid's office.

Sen. Christopher J. Dodd (D-Conn.), who shepherded the health committee's bill to a vote for its former chairman, the late senator Edward M. Kennedy (D-Mass.), laughed Wednesday when asked how Democrats plan to resolve the matter. "It won't be easy," he said, "but we'll get there."

Another key point of contention is how to make insurance affordable for people who would be required for the first time to purchase coverage. Baucus's efforts to resolve the issue led him last week to add the provision that would make it harder to deduct medical expenses.

After tacking on $45 billion in new subsidies for uninsured middle-income families and individuals, Baucus needed a new funding source, and he turned to the deductibility of medical bills. His original proposal would have raised about $22 billion over 10 years by changing a provision in current law that permits people to deduct expenses that exceed 7.5 percent of their income. Baucus proposed to increase that threshold to 10 percent of income in 2013, reasoning that insurance reforms would limit out-of-pocket expenses for many people, leaving fewer people with catastrophic medical bills.

But more than half of the cash would have come from people older than 65, many of whom rely on Medicare, which has no out-of-pocket cap. So the committee voted 14 to 9 to exempt them through 2017. A Republican proposal that would have kept the deduction threshold at 7.5 percent for all taxpayers failed by the same margin.

Staff writer Ben Pershing contributed to this report.