Obama lays out demands on healthcare reform bill

President Obama came off the sidelines Wednesday and laid out his healthcare reform requirements in a letter to key lawmakers.

He told Democratic Sens. Edward Kennedy (Mass.) and Max BaucusMax Sieben BaucusCryptocurrency industry lobbies Washington for 'regulatory clarity' Bottom line Bottom line MORE (Mont.) that their legislation must include a government-run insurance option that would compete against the private sector. He also reaffirmed his support for a Massachusetts-style insurance exchange.

By plunging into the details of the reform rather than cheering from the sidelines, as he has done for months, Obama raises the political stakes for the summer’s big legislative battle, and will hearten liberals who have yearned for his intervention to put a public-sector option on the table.

“I strongly believe that Americans should have the choice of a public health insurance option operating alongside private plans,” Obama wrote in the two-page letter.

With the insurance exchange, consumers could choose among health insurance plans, including the public option. Obama also made it plain that low-income people should not have to buy insurance they cannot afford, and that small businesses should be exempt from any mandate that employers offer health benefits or pay a tax to finance government subsidies.

Obama’s letter gives liberals much to cheer and provides conservatives stronger fodder for claims that his plan gives the government too much control over the healthcare system.

Obama’s letter signals that he and his administration are ready to actively use his clout to shape healthcare reform. It was sent a day after Obama hosted Baucus and more than 20 Democratic senators for a session on healthcare.

The two-page letter to Kennedy, the Health, Education, Labor and Pensions Committee chairman, and Baucus, the Finance Committee chairman, is mostly a restatement of Obama’s 2008 campaign platform and his budget request.

It leaves Congress a significant amount of wiggle room. The president, for example, does not specify what form the public plan must take.

Senate Finance Committee ranking member Chuck GrassleyChuck GrassleyFive takeaways on the Supreme Court's Obamacare decision On The Money: Yellen, Powell brush off inflation fears | Fed keeps rates steady, upgrades growth projections Overnight Health Care: US buying additional 200M Moderna vaccine doses | CureVac's COVID-19 vaccine failed in preliminary trial results | Grassley meets with House Dems on drug prices MORE (R-Iowa) appeared to take some solace from this, despite his strong opposition to the public plan. “Having the president engaged in the legislative debate with yesterday’s meeting and today’s letter, which doesn’t draw lines in the sand, is helpful,” he said in a statement.

Baucus said Obama’s letter shows he and the president are in lockstep on the need to act quickly to provide all Americans with affordable healthcare coverage.

Obama is “hopeful” of GOP support for his initiative, but most Republicans view the public plan as a deal-breaker and the first step down a path toward complete government control over the healthcare system.

Obama’s letter “completely ignored Sen. McConnell’s concerns about a government-run plan,” said a spokesman for Senate Minority Leader Mitch McConnellAddison (Mitch) Mitchell McConnellGraham quips key to working with Trump: We both 'like him' The Hill's Morning Report - ObamaCare here to stay Democrats scramble to unify before election bill brawl MORE (R-Ky.), noting that no Republican senators attended Tuesday’s White House meeting. “Those are not bipartisan actions.”

In the House, centrist Blue Dog Democrats issued a set of principles for a public plan. While they were careful not to endorse the concept, the move indicates they recognize House leaders are determined to include a public plan in the House bill. When the Blue Dogs released their principles on healthcare last month, they were silent on a public plan.

According to a copy of the document obtained by The Hill, Blue Dogs are demanding that the public plan not rely on taxpayers for its operations, and should be available only as a fallback.

Two Democrats on Kennedy’s HELP Committee said they would unveil draft healthcare legislation by next week.

“We’re going to show you a bill that we’ll go forward with -- with the full understanding that that’s only one step in the process,” said Sen. Chris Dodd (Conn.), who will introduce the legislation with Sen. Barbara MikulskiBarbara Ann MikulskiHarris invites every female senator to dinner next week Will the real Lee Hamiltons and Olympia Snowes please stand up? Bottom line MORE (D-Md.).

HELP Committee Democrats met behind closed doors for the second consecutive day on Wednesday and planned to work into the night on the nuts and bolts of their legislation. Dodd said that Republicans on the panel would be briefed later this week.

The HELP Committee is weighing “four of five” different models for the public option, Dodd said.

Obama introduced a few new items to the mix in his letter.

One of them, borrowed from Sen. Jay RockefellerJohn (Jay) Davison RockefellerBottom Line World Health Day: It's time to fight preventable disease Lobbying World MORE (D-W.Va.), is certain to draw Republican fire: imbuing a federal panel with the power to make Medicare payment recommendations that Congress must either accept or reject in their entirety.

Obama likens this proposal, based on the current Medicare Payment Advisory Commission, to the way military base closure decisions are made. To Republicans, however, the notion smacks of the kind of “rationing” dictated by government-run healthcare programs in Europe and Canada.

The letter also reminds senators that Obama’s budget offered $635 billion in spending cuts and tax increases as a “down payment” to cover the expected $1 trillion-plus cost of the bill.

In his letter, Obama goes one step further, vowing to work with Congress to find $200 billion to $300 billion in additional Medicare and Medicaid cuts and to come up with additional tax increases.

On a few areas where congressional Democrats appear to be moving in directions contrary to his own campaign positions, Obama attempts a delicate balance between abandoning his previous positions while not ruling out reforms that could end up in the bill.

Foremost among those is the so-called individual mandate that all Americans obtain health coverage. Any such mandate would have to come with a “hardship waiver to exempt Americans who cannot afford” the coverage, Obama wrote.

During the presidential campaign, Obama called only for mandating that children are covered and sharply criticized the universal mandate favored by his primary opponent, then-New York Sen. and current Secretary of State Hillary Rodham Clinton.

The letter does not address whether to tax health insurance benefits, an issue that could prove a major sticking point among Democratic lawmakers and between Congress and the White House.

Obama campaigned hard against taxing health benefits, but Baucus and other Democrats see limiting the tax exclusion as a key to lowering healthcare costs — and generating revenue to pay for reform.

Obama’s letter reminds the senators that he offered an alternative tax increase worth $336 billion over 10 years to pay for healthcare: limiting itemized deductions for upper-income earners. That proposal landed on Capitol Hill with a dull thud when Obama presented his budget this year.

Mike Soraghan contributed to this article.