Tom Daschle’s decision to withdraw his nomination as Secretary of Health and Human Services after revelations that he had failed to pay more than $120,000 in back taxes will not only embarrass President Obama in the short term, but it will be a major setback in his administration’s push for universal health care.

The former Senate majority leader earned Obama’s loyalty when he backed the junior senator from Illinois over Hillary Clinton way back in February 2007, when Obama was considered by many to be long-shot candidate and could claim few prominent endorsements.

Daschle advised Obama, provided him with fundraising lists, and helped him staff his campaign. After Obama won the election, Daschle could have asked for just about any position in the administration, but he made it clear that he was interested in the HHS slot.

While Daschle wasn’t particularly known as being an expert on health policy during his time in Congress, he began to develop a passion for the issue after being ousted from office in 2004. His interest culminated with the release of his book last year, Critical: What We Can Do About the Health-Care Crisis, in which, among other proposals, he advocated the establishment of a Federal Health Board that would oversee the health-care system as the Federal Reserve Board oversees the banking system.

When President Obama nominated Daschle to lead HHS, he gave him the additional role of director of the White House Office of Health Reform. This was a symbolic position, but one that carried a clear message: health-care reform was going to be a top priority for the new administration. Daschle would be not only running the bureaucracy of HHS, but leading the effort to craft a health-care proposal, and, most importantly, using his vast legislative experience to shepherd the plan through Congress.

“Tom brings more than just great expertise to this task, he brings the respect he earned during his years of leadership in Congress,” Obama said in announcing the pick in December. “He knows how to reach across the aisle and bridge partisan divides. And he has the trust of folks from every angle of this issue: doctors, nurses and patients; unions and businesses; hospitals and advocacy groups — all of whom will have a seat at the table as we craft our plan.”

Obama’s choice of Daschle was cheered in liberal circles, raising hopes that this time the outcome would be different from Bill Clinton’s failed effort at health-care reform in 1994. That effort was famously led by then-First Lady Hillary Clinton and business consultant Ira Magaziner, neither of whom had any legislative background.

With Daschle out of the picture, Obama will be hard-pressed to find somebody who combines the passion for the health-care issue with practical legislative talents. It is unclear whether Obama will decide to split up the role of HHS Secretary from the new White House Office of Health Reform position.

“It really sets us back a step,” Sen. Dick Durbin said, according to the AP. “Because he was such a talent. I mean he understood Congress, serving in the House and Senate he certainly had the confidence of the president.”

Sen. John Kerry echoed Durbin’s comments. “This was no ordinary appointment and today is not a good day for the cause of health care reform,” Kerry said, according to the Washington Post. “Tom brought a unique level of legislative skill and experience to this position, in addition to his passion to achieve affordable health care for every American.”

Even if Obama finds a suitable replacement for Daschle, this debacle will mean a potentially costly delay for health-care legislation.

Daschle has been spending the last few months laying the groundwork for health-care reform. Before being officially announced as Obama’s pick for HHS, Daschle gave a high-profile talk in Denver about his health-care vision and he was already in touch with some of the major players in the industry. Nancy Nielsen, president of the American Medical Association, told TAS that Daschle had reached out to the leading physicians’ group shortly after the election.

When he was officially announced as Obama’s choice for HHS, Daschle quickly emerged as the public face of the health-care reform effort. He traveled around the country to host health-care discussions aimed at generating grassroots support, and recorded videos for the change.gov transition website.

As things were, it was going to be difficult to make a comprehensive overhaul of the health-care system a part of the agenda for the first 100 days. Rep. Pete Stark (D-CA), who serves as chairman of the health subcommittee of the House Ways and Means Committee, said on a December conference call that realistically, Democrats were unlikely to vote on a comprehensive health-care reform proposal until early in 2010.

If the process gets delayed much beyond that, then the Obama administration will start having to worry about Democrats who want to avoid a tough vote during an election year. That could push things into 2011, and nobody knows what the political climate will be like then.

To be sure, proponents of national universal health care still have a lot going for them. President Obama remains popular, Democrats hold substantial majorities in both chambers of Congress, and businesses and industry groups are much more amenable to reform than they were the last time around.

But there’s no doubt that Daschle’s withdrawal complicates the Obama administration’s ability to strike while the iron’s hot, thus adding an extra layer of uncertainty to a cause that has eluded liberals since Harry Truman was president.