STEVE INSKEEP, host:

It's MORNING EDITION from NPR News. I'm Steve Inskeep.

RENEE MONTAGNE, host:

And I'm Renee Montagne. Good morning.

Here's one of the developing stories we will be following this morning: the latest winner of the Nobel Peace Prize is President Barack Obama. The Nobel Committee awarded the honor to the new president for his efforts to reduce the world's stockpile of nuclear weapons. He also gets credit for working for world peace. This has happened in the last few minutes, and we'll hear a great deal about this development throughout the morning.

INSKEEP: It is not clear what effect, if any, that honor may have on the president's domestic agenda. The president's allies are still working to get a health care bill through a key Senate committee, and you could think of that bill like a giant brick house. Having built it, lawmakers are pulling out a few bricks here, a few bricks there, hoping to save some money and hoping the whole thing doesn't collapse.

NPR's Julie Rovner reports.

JULIE ROVNER: The good news for the Finance Committee is that the overall cost of the bill, according to the CBO, is $829 billion over 10 years. That's well under the $900 billion limit set by President Obama. But the committee had to scramble to keep its bill under that total. It would require that everyone have insurance, a so-called individual mandate. But there was only enough money to help the poor and lower-middle class who don't already have insurance pay for their new coverage. That lack of help for more solidly middle class families in turn made a lot of senators like Maine Republican Olympia Snowe squeamish about imposing financial penalties on those who didn't or couldn't buy coverage.

Senator OLYMPIA SNOWE (Republican, Maine): I think until we have been able to demonstrate that we have accomplished the goal of achieving the level of affordability for average Americans, that we should withhold the idea of penalties. It's one thing to suggest an individual mandate. It's quite another on the penalty.

ROVNER: So as one of its last changes, the committee voted to eliminate financial penalties for those who fail to buy required insurance for the first year the bill would be in effect. The amendment also lowered subsequent penalties and phased them in more slowly over several years. That move may give politicians some protection, but it could end up backfiring in a big way, says the health insurance industry.

Ms. ALYSSA FOX (Senior Vice President, Blue Cross Blue Shield Association): Having a mandate with no penalties is not a requirement. It's an aspirational goal.

ROVNER: Alyssa Fox is a senior vice president with the Blue Cross and Blue Shield Association.

Ms. FOX: Bring everybody in the insurance pool to make sure the premiums are affordable, and lowering the penalty will mean that people will find it more advantageous to pay a very small penalty than buy insurance.

ROVNER: Particularly young, healthy people, who are most likely to be uninsured and most likely to prefer to pay a penalty of a few hundred dollars a year rather than buy health insurance that could cost several thousand. So if those young, healthy people sit out, premiums go up for everyone else.

And it's not just the health insurance industry that says making the penalties too low could threaten the entire health overhaul effort, so does MIT economist Jonathan Gruber. He sits on the board that oversees Massachusetts' mandated insurance plan and has been advising the Obama administration.

Professor JONATHAN GRUBER (Economist, Massachusetts Institute of Technology): Think about the political dynamic. It's the end of 2013.

ROVNER: Which is the first year the mandate takes effect.

Prof. GRUBER: Since there's no mandate penalty, only the sick have signed up for the exchange. The exchange premium, as a result, is very high. Politicians say how can we possibly mandate people to buy insurance when it's this expensive, and the whole law gets killed.

ROVNER: The exchange is the marketplace where individuals and small businesses will go to buy coverage. Gruber says there's already plenty of evidence that you can't require insurers to accept sick people without also requiring everyone to buy coverage. Five states have already tried it.

Prof. GRUBER: And they are now five of the most expensive places in the country to buy non-group insurance.

ROVNER: So how do you fix the problem? One way would be for the committee to increase the subsidies to help people pay their premiums, says Jacob Hacker, a political science professor at Yale.

Professor JACOB HACKER (Political Science, Yale University): But they don't feel that they can come up with the amount of money needed to make coverage affordable for the middle class.

ROVNER: At least not without going over their budget limit of $900 billion. So Hacker has another proposal.

Prof. HACKER: Provide an affordable insurance option, a public insurance plan. The Congressional Budget Office says it would be about 10 percent less expensive for consumers than would a private insurance plan, and that means that you don't have to spend as much on subsidies to make sure that people have affordable coverage. And ultimately, that's what we're trying to do.

ROVNER: Now a public plan competitor is about the last thing the insurance industry wants as a solution to the problem of penalties for the insurance mandate being too small. But it demonstrates, yet again, the delicate balancing act lawmakers face as they try to find both the right political and policy pieces to make the health overhaul puzzle fit together.

Julie Rovner, NPR News, Washington.

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