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Here are the latest updates on the GOP shutdown/default:

- The action continues to be in the US Senate. The House has been kicked to the curb.  The WH is also hanging around in the background but has let the Senate Democratic majority work this out on its terms.

- Senator Reid and Senator McConnell worked through the day to get the outlines of a deal.  Both Senators seem fairly satisfied with what they have accomplished, but for different reasons. There are some remaining sticking points at this hour, but it seems as if this bill when presented to the full Senate will get the support of a substantial majority of the members.  

For Reid, he is very close to shutting down the shutdown, eliminating the threat of extortion in this congressional term, providing certainty to the markets and setting up a fight to undo the sequester (a fight which he believes his side can win). For McConnell, he gets his party out of a mess that he helped to create, looks like an elder statesman to the folks back home, and preserves some leverage for his party in the budget negotiations with respect to the sequester (leverage which I believe is illusory).  

http://www.nytimes.com/...

http://www.washingtonpost.com/...

http://www.slate.com/...

So here is the deal in a nutshell:

- Continuing Resolution Re-opening the Government to last until Jan. 15, 2014.  

Reid wanted this short term CR timed to when the next round of sequester cuts go into effect. He wants to be able to have a deal to end the sequester by then.

- Debt ceiling will be raised until Feb. 7, 2014.

At issue is whether Treasury will be empowered to use extra measures (as it is currently doing now) to extend the debt ceiling effectively through the summer of 2014.  Republicans are trying to tie Treasury's hands. Democrats are pushing back. If the GOP does not relent, this could be a deal breaker as tying Treasury's hands is the functional equivalent of telling a fireman to fight a fire without a hose.  

- Bi-cameral conference committee would be convened right away to reach agreement on a budget deal by December 13, 2013.  

This is the budget conference committee meeting that Democrats have been looking to have for several months but which Paul Ryan, Ted Cruz and other right wing extremists repeatedly sabotaged in order to use the debt ceiling/shutdown as hostages to extract concessions from the Democrats.  Reid won the right to have this fight with the GOP over the budget this fall and through the holidays.

There are other smaller issues involved relating to the ACA:

- (Additional (read: superfluous)) Income verification - HHS will have to independently certify that Obamacare recipients meet the income thresholds to receive subsidies. The department’s inspector will have to conduct an audit on the matter at some point in the future.

This seems like a very loosely construed requirement, the ideal fig leaf which someone like Darrell Issa would use to summon HHS to committee hearings for several weeks.  However, there is no way for HHS to provide additional income verification (other than what IRS will do under the bill) without a major IT upgrade, which means more money to support Obamacare. In other words, I am doubtful that this proposal has a significant impact on those who qualify for subsidies and join the exchanges.  Given that Reid worked over this provision of the original Collins proposal, I think it is additional income verification in name only.

- 1 year delay in the reinsurance tax:  This is a tax that is levied on all larger health plans for a 3 year period from 2014-2016 (it decreases each year) in order to provide subsidies to insurance companies that operate plans in the exchange in order to defray potential costs if the initial exchange participants skew towards the higher cost customers (e.g. those with pre-existing conditions and those in the 55-64 age group).

It was first reported that organized labor would be the sole beneficiary of the exemption.  NYT/WAPO now suggest (but it isn't clear) that the delay would apply to all health plans subject to the tax. After reading a bit more about it, I think Democrats wanted to avoid imposing a tax that would ultimately be paid by employers who provide health insurance to their employees, and perhaps to eliminate a subsidy to the Anthem Blue Cross' and Aetna's of the world, because they don't need it. There are many people who are going into the exchange who are not high users of the system or high cost customers (me for example).

To put this in context, Democrats rejected the repeal of the tax on the medical device industry and have opted to delay a tax and perhaps take a subsidy away from the insurance companies. The medical device tax provides a bigger base of revenue to support the ACA and the lost revenue from the re-insurance tax does not appear to be as significant.

So where does all of this leave us?  Here are my initial observations based on what I've been able to read:

Senate Republicans Bend the Knee to the Democrats and to the American people:  

McCain and others are not afraid to say it.  The Democrats are winning this battle.  They are just trying to preserve some face.  This is significant because the Senate GOP made the decision to end this fight and put some limits on the tea party and the Ryan wing of the House GOP.  

This bill, once presented, will get more than 70 votes, probably as high as 85 or 90 votes.  Cruz and Lee might try to grandstand, but there will be little patience for it among Senate Republicans.

What will Boehner do?

Though Huffington Post and others print defiant, alarmist quotes from every reporter's favorite teabagger (Huelskamp, Cruz, Bachmann, Labrador, anyone from Texas), Robert Costa of the conservative National Review has reported that many House GOPers are pressing Boehner to have an up or down vote on the Senate proposal.  Although the tea party barks the loudest, they do not have dominant numbers.  Their power lies in their ability to scare other members into fearing primary challenges and grass roots anger.
Republicans are sufficiently convinced that any delay at this point would have serious consequences that they are not sure that further defiance is worth the price.  McConnell and others have essentially told the House GOP that they will own the default and the price for getting out of it will be substantially higher if they reject the Senate plan.

Boehner may try to add conditions and lob the ball back into the Senate/WH's court (a favorite tactic of his), but President Obama doesn't seem to be in any mood for it.  We'll stay tuned, but my guess is that Boehner will do what McConnell tells him to.

Paul Ryan is still working an alternative proposal (with more ransom demands) that is going nowhere. I believe he will try to undermine Boehner in any floor vote, but Ryan's position is weak and he knows it. I detect less of a willingness on the part of other Republicans to blindly trust and follow him.  

What about the Sequester fight?

Harry Reid changed the focus of this fight from Obamacare to the sequester.  He wants this fight.  He thinks he can win this fight.  The Republicans, for their part, are coalescing around the idea that the sequester represents their one big 'win' over Obama and their one piece of leverage. They think they will be able to hold the line on spending and put limits on Obama's domestic agenda while chipping away at aspects of the ACA.

If that's what Republicans need to believe to end the shutdown/default saga, that's fine.  However, I do not believe the Republicans have the power and leverage that they claim. First, most of the year 2 sequester cuts fall on the military. Domestic spending increases. Republicans are not going to like those cuts, particularly southern Republicans, and they don't have the ability to move or bully the Democrats without compromising. Second, after expending so much political capital on this shutdown/default, many Republicans will need to make amends with their constituencies and getting more money to their districts will be how they try to achieve it. They can't do it without negotiating with the Democrats to end the sequester. Third, Republicans will not have hostages with which to extort ransom. They burned that bridge to the ground. They are crazy enough to try this again, and Democrats would welcome them to do so.

Fourth, I don't really believe that rank and file Republicans want to cut big entitlement programs because their base depends on them. Paul Ryan has gotten away with it because he argues (falsely) that Obama cut medicare to pay for Obamacare and that his changes to medicare do not affect current beneficiaries (another lie). I think Republicans want to cut spending just to screw over Obama and not because they are philosophically committed to the idea. Their shallowness will be exposed in these discussions.

At this point, the only issue holding up passage in the US Senate is the Treasury's right to use extraordinary measures to keep the government from defaulting. In the House, many Republicans will protest loudly, but the GOP seems to have grown weary of it all and wants to put this chapter behind them. We'll have to see if the House chooses to fall in line and bend the knee or play more games and damage the country's credit worthiness in the process.  Stay tuned.

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