June 15 (Bloomberg) -- Don’t blink: The fate of the world’s most costly health-care system will be shaped in the next six weeks. A leading indicator will be reactions to a report in a few days by people who have no vote on it.

If a major overhaul of the U.S. health-care system, now President Barack Obama’s top priority, doesn’t clear the House or Senate -- the two bodies are jockeying over who goes first - - by the early August congressional recess, prospects of anything happening are dim.

“The probabilities are not great,” says Donna Shalala, who was secretary of the Department of Health and Human Services during the ill-fated Clinton health-care effort 15 years ago and is now president of the University of Miami. “But they are good.”

On Wednesday, a bipartisan study group headed by former Senate leaders Tom Daschle, a Democrat, and Republicans Bob Dole and Howard Baker will release recommendations. These will displease interest groups on all sides, and may also form a realistic basis for any final compromise.

Barring snags, the committee will call for universal coverage and a radical change in the system of reimbursements, while offering only a minimal, perhaps fallback, plan for a public insurance entity, and spelling out ways to pay for it. These would include taxing employer-provided health benefits that exceed the generous federal health plan. That would raise more than $400 billion over the next decade, or one-third of the cost.

Laying Out Options

The group will espouse other tax increases, such as those on sugary drinks, and savings of about $350 billion. That would achieve about two-thirds of the cost of the health-care reform. The panel will simply lay out options to consider for the difficult, final $400 billion.

If liberals, unions and industry interest groups pronounce this unacceptable, the prospects for the whole enterprise may blow up. If these groups offer conditional support, it may be a catalyst for the political and policy tradeoffs that will ensue.

There are reasons to be pessimistic: A six-decade-long history of failure; a sharp partisan divide; the need to enact tax and cost-control measures that will force some pain before any gain; the inevitable peeling-off of various interest groups that have been part of private deliberations, and the inherent difficulty of changing something that is 17 percent of the American economy and of personal concern to most citizens.

Failure No Option

Yet failure is an option the Obama White House can ill afford. The president believes reforming health care will be his legacy. White House Chief of Staff Rahm Emanuel, a former top House legislator who will be critical in cutting deals, knows the political consequences might be even more grave than they were in 1994 for Bill Clinton, whom he also served.

Shalala, uniquely suited to analyze the issue both from her previous post and her current one, where she is both the largest private employer in Miami and, with the university’s medical center, the largest health-care provider, notes many myths that keep circulating.

“You can’t get to health care primarily by trimming back Medicare and eliminating waste, fraud and abuse,” she says. “There are all kinds of public options that don’t endanger the private sector, like when government defines the benefits but it’s totally administered privately.” And an incremental approach just doesn’t work: “You can’t bring down costs enough unless you cover everyone.”

Public Plan Phobia

Although almost half of Americans are already covered by a public health plan, inclusion of a government option is a deal- killer for most Republicans and enough Democrats that Obama would accept a minimal government role. That issue may not prove that difficult to navigate.

Finding the estimated $1.2 trillion that will be needed over the next decade to pay for the plan is tougher. Look for the president to do a 180-degree turn on his campaign rhetoric against eliminating tax deductibility for the most-expensive employer health plans and pressure his labor allies to go along.

Other specifics, particularly on reimbursements, will require enormous skill to enact. The current reimbursement system rewards quantity, not quality or outcomes, and encourages entrepreneurial activities by physicians that often are antithetical to affordable health care.

An unusual coalition, from labor unions to corporations like Wal-Mart Stores, is engaged in deliberations over a bill. Some groups such as health insurers, which led the fight against the Clinton plan, may stay involved along with perhaps the drug industry and the American Medical Association, which may get a sop from Obama on changing malpractice liability.

Waxman’s Key Role

Other groups such as hospitals and the National Federation of Independent Businesses will abandon pretense and oppose reform. So will Republican leaders in Congress. The House will probably pass a Democratic bill largely crafted by Energy and Commerce Committee Chairman Henry Waxman.

The real action will be in the Senate. Iowa’s maverick Republican Charles Grassley, senior member of the Finance Committee, is engaged in deliberations, though most Democrats expect he’ll ultimately bow to party pressure. Democratic strategists see one of two scenarios: passing a bill under a procedure that forbids filibusters -- probably more threat than reality -- or picking up a handful of Republicans like Maine Senator Olympia Snowe, who last week refused to join her party colleagues in blasting any plan that has a public component, and clearing the Senate with a little more than 60 votes, including almost all Democrats.

Kennedy’s Giant Shadow

Senate Finance Committee Chairman Max Baucus, never considered a legislative heavyweight, has gained respect for his devotion to the issue. Still, the White House and health- care-reform advocates feel a void with the absence of Senator Edward Kennedy, one of the great dealmakers in the history of the Senate.

Whether Kennedy is there or not, the presence of the liberal lion will be felt in the crucial weeks ahead. That will counter some of the many obstacles.

(Albert R. Hunt is the executive editor for Washington at Bloomberg News. The opinions expressed are his own.)

To contact the writer of this column: Albert R. Hunt in Washington at ahunt1@bloomberg.net.

Last Updated: June 14, 2009 08:08 EDT