This is encouraging, because untying the public option to Medicare virtually guaranteed no significant cost savings:

Speaker Pelosi is nixing a deal she cut with centrists to advance health reform, said a source familiar with negotiations.

Pelosi’s decision to abandon the agreement that was made with a group of Blue Dogs to get the bill out of committee would steer the healthcare legislation back to the left as she prepares for a floor vote.

Pelosi is planning to include a government-run public option in the House version of the healthcare bill. She wants to model it on Medicare, with providers getting reimbursed on a scale pegged to Medicare rates.

"The speaker is full-steam-ahead," said a senior Democratic aide.

Blue Dog Democrats, many of whom represent rural districts where Medicare reimbursement rates are low, vehemently oppose tying the public option to Medicare.

Rep. Mike Ross (D-Ark.) and a group of fellow Blue Dogs had negotiated a deal with Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) in July that would remove the link to Medicare. Under that plan, officials with the government-run plan would negotiate individually with providers.

That move, which drew howls of protest from liberal members, prevented the bill from getting stuck in committee. But Ross returned from the August break saying he couldn't support a public option under any circumstances, essentially withdrawing his support for the deal.

Pelosi is now effectively withdrawing her support. In leadership meetings last week, she said the public option in the House bill should be linked to Medicare.

Other Blue Dogs involved in the deal have said they realized the public option they negotiated was likely to change before it went to the floor.

Pelosi has also told her fellow leaders she still wants an income surtax on the wealthy, rather than a tax on "Cadillac" health plans, as a means to help pay the $1 trillion cost of the bill. The rest is to be made up with savings in Medicare by eliminating wasteful spending.