In advance of what Obama hopes will be a game-changing speech to lawmakers, the one idea that most appeals to the Democrats' liberal base lost ground in Congress. Prospects for a government-run plan to compete with private insurers sank as a leading moderate said he could no longer support the idea.
The fast-moving developments put Obama in a box. As a candidate, he opposed fines to force individuals to buy health insurance, and he supported setting up a government insurance plan.
Democratic leaders put on a bold front as they left the White House after their meeting with the president.
"We're re-energized; we're ready to do health care reform," said Senate Majority Leader Harry Reid of Nevada.
House Speaker Nancy Pelosi (D-Calif.) insisted the public plan is still politically viable. "I believe that a public option will be essential to our passing a bill in the House of Representatives," she said.
After a month of contentious forums, Americans were seeking specifics from the president in his speech to a joint session of Congress tonight. So were his fellow Democrats, divided on how best to solve the problem of the nation's nearly 50 million uninsured.
The latest proposal: a bipartisan compromise that Sen. Max Baucus (D-Mont.), a moderate who heads the influential Finance Committee, was trying to broker.
Baucus, meeting with a small group of fellow senators, promoted a plan that would guarantee coverage for nearly all Americans at a cost to taxpayers of under $900 billion over 10 years.
Some experts consider that a relative bargain because the country now spends about $2.5 trillion a year on health care. But it would require hefty fees on insurers, drug companies and others in the health care industry to help pay for it.
Just as auto coverage is now mandatory in most states, Baucus would a require that all Americans get health insurance once the system is overhauled. Penalties for failing to get insurance would start at $750 a year for individuals and $1,500 for families. Households making more than three times the federal poverty level - about $66,000 for a family of four - would face the maximum fines. For families, it would be $3,800, and for individuals, $950.
Baucus would offer tax credits to help pay premiums for households making up to three times the poverty level, and for small employers paying about average middle-class wages. People working for companies that offer coverage could avoid the fines by signing up.
The fines pose a dilemma for Obama. As a candidate, the president campaigned hard against making health insurance a requirement, and fining people for not getting it.
"Punishing families who can't afford health care to begin with just doesn't make sense," he said during his party's primaries. At the time, he proposed mandatory insurance only for children.
White House officials have since backed away somewhat from Obama's opposition to mandated coverage for all, but there's no indication that Obama would support fines.
One idea that Obama championed during and since the campaign - a government insurance option - appeared to be sinking fast.
House Majority Leader Steny Hoyer, D-Md., told reporters a Medicare-like plan for middle-class Americans and their families isn't an essential part of legislation for him. Hoyer's comments came shortly after a key Democratic moderate said he could no longer back a bill that includes a new government plan.
The fast-moving developments left liberals in a quandary. They've drawn a line, saying they won't vote for legislation if it doesn't include a public plan to compete with private insurance companies and force them to lower costs.
Rep. Mike Ross, D-Ark., who once supported a public option, said Tuesday that after hearing from constituents during the August recess, he's changed his mind.
"If House leadership presents a final bill that contains a government-run public option, I will oppose it," Ross said.
Obama's commitment to a public plan has been in question and lawmakers hoped his speech to Congress would make his position on that clear.
He's called a public plan an important tool to help check the excesses of private industry. But his aides suggested on the weekend that he could sign legislation even if it does not include a public option.
In the Senate, the public plan is not part of Baucus' proposal. He's calling for nonprofit co-ops to compete in the marketplace instead.
An 18-page summary of the Baucus proposal was obtained by The Associated Press. The complex plan would make dozens of changes in the health care system, many of them contentious. For example, it includes new fees on insurers, drug companies, medical device manufacturers and clinical labs.
It would require insurers to take all applicants, regardless of age or health. But smokers could be charged higher premiums. And 60-year-olds could be charged five times as much for a policy as 20-year-olds.
People working for major employers would probably not see big changes. The plan is geared to helping those who now have the hardest time getting and keeping coverage: the self-employed and small business owners. New purchasing pools would be set up in each state, allowing them to band together and get some of the advantages big companies now have.