A deal cut at 1:30 this morning between House Energy and Commerce Chairman Henry Waxman (D-Calif.), Blue Dog Democrats and liberal lawmakers on his committee looks to put the squeeze on insurance companies while trying to protect low- and middle-income Americans.

The deal includes a provision that would authorize direct negotiations with drug companies for lower prices under Medicare Part D, with any savings funneled back into aid for low- and middle-income Americans to buy health insurance.

That aid had been larger under the original bill, but was scaled to meet Blue Dogs demand to slash $100 billion from the measure.

And insurance companies participating in a new national exchange would also have to get permission from the government in order to increase their premiums beyond the rate of medical inflation.

Waxman had hoped to finish marking up the health care package by 2 p.m., but the committee was continuing to meet this afternoon.

A number of other provisions will be included in two amendments that would accompany the Blue Dog agreement, with savings offsetting the proposed cut to subsidies.

That cut had infuriated liberal Members, who were already upset with Blue Dogs for requiring that the new public insurance option be used to negotiate reimbursement rates rather than doing so under Medicare. The liberals had threatened to derail the bill.

With a markup expected to end later this afternoon, negotiations continued throughout the morning on additional amendments.

Rep. Jane Harman (D-Calif.) said she wanted an amendment that would require drug companies to double the rebates they provide the government under Medicaid if they raise their prices faster than inflation.