Senate Finance Committee chairman Max Baucus might be cracking open the champagne tonight, now that the Congressional Budget Office (CBO) has released its preliminary analysis* of the health-care bill he slaved over for months. The numbers look good for Democrats. The CBO estimates that Baucus’s bill will actually reduce the deficit by $81 billion over 10 years, and will cost about $829 billion over that period. That’s  a deeper deficit reduction than previously anticipated, and the total falls well within the president’s parameters. Score one for Baucus, who probably needs an ego boost after being roundly trashed for his bipartisan efforts.

The CBO expects the bill will extend coverage to an additional 29 million Americans, bringing the total proportion of Americans with health insurance to 94 percent, which is an impressive increase over the current 83 percent. As such, it also meets Obama’s other goal of significantly decreasing the number of uninsured Americans. By 2019, about 5 million people will remain uninsured. About one third of those are expected to be illegal immigrants. The cost of the bill will be offset by cuts in payments to Medicare providers and an excise tax on so-called Cadillac insurance plans, among other measures.

According to CBO analysts, the insurance co-ops—Baucus’s much-ballyhooed alternative to a public plan—will have a negligible impact. The letter to Baucus states that they “seem unlikely to establish a significant market presence in many areas of the country or to noticeably affect federal subsidy payments.” The estimated cost of the co-ops is just $3 billion.

Why is this CBO analysis so significant? First, it likely means that the bill will have no problems passing out of the Finance Committee. Democrats already have enough votes to pass it without Republican support, and now that the bill looks to be reducing the deficit, it will ameliorate some concerns held by those wavering moderate Dems—Blanche Lincoln, Bill Nelson, and Kent Conrad. They may not be entirely satisfied with the bill, but they’ll have little reason not to let it go to the Senate floor, where a colorful debate is sure to ensue. Baucus may even pick up the vote of Republican Olympia Snowe, who so far has held her cards close to the vest. This revised version of Baucus’s bill includes several measures designed to placate Snowe, including more generous subsidies to help low-income people purchase insurance. The new price tag will likely put her mind at ease, but it wouldn't be entirely surprising if she decided to withhold judgment until the final Senate vote.

Once the Finance Committee votes (probably early next week), Senate Majority Leader Harry Reid will work with Baucus, health-committee chair Chris Dodd, and White House staffers including Rahm Emanuel, health adviser Nancy Ann De Parle, and OMB director Peter Orszag to combine the bills offered by Dodd and Baucus, and present his own leadership bill to the Senate. Reid could do this as early as next week. This is where the debate gets tricky.

Liberal Democrats will likely use the paltry assessment of the impact of co-ops as a way to revive debate on a public option. After all, the president has stressed the importance of competition in lowering the cost of health care, and now an independent authority suggests that co-ops fail to meet that goal. Democrats will probably push for a floor vote on the public option—which will no doubt be shrouded in heated debate—so that even if it fails, liberals can demonstrate to their base that they tried. Regardless of what the Senate passes with regard to a public option, Reid will still have to contend with House Speaker Nancy Pelosi in the conference process, and it’s almost a foregone conclusion that her bill will contain some form of public plan. It’s in that conference process that the public option will live or die.

Realistically, the CBO assessment represents the low end of what a health-care bill will ultimately cost. The House bill is already more expensive: it covers more Americans and is more generous. The process of merging the two bills will bring the price tag up, not down. But, fortunately for Democrats, Baucus have given them a decent amount of wiggle room.

* It's important to note that this is not the CBO's official report or "score," as it's called in Washington. That will come when Baucus's chairman's mark is translated into legislative language.