Unions may be exempt from health plan tax in deal with Congress

Posted on January 14, 2010

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Union leaders appear to have reached a tentative deal in wrangling over health care reform with Congress (I say “appear to” since these negotiations remain behind closed doors). They will drop their outright opposition to a tax on so-called “Cadillac” health insurance plans in exchange for a pretty handsome pay-off: the tax that everyone else pays won’t apply to union health care plans:

In a significant victory for unions, the 40 percent excise tax would not apply to policies covering workers in collective bargaining agreements, state and local workers and members of voluntary employee benefit associations through Dec. 31, 2017.

Rep. Joe Courtney, D-Conn., and others said the tax would apply to fewer plans than was the case in the Senate-passed bill and would exclude the value of dental and vision coverage. They added it would provide an exemption for residents of states where the cost of health care is particularly high, as well as for employees of high-risk professions.

Courtney, who had led opposition to the tax, said he wanted to see final details before deciding whether he would support the agreement.

A union official familiar with the details said the tentative agreement would raise the threshold on insurance policies subject to tax from $8,500 in the Senate-passed bill to $8,900 for singles and from $23,000 to $24,000 for family coverage. Even the new thresholds would be subject to adjustment if unexpected rises in health care occur by the time the plan is effective, this official said.

The exemption is only temporary, lasting until 2017, but the effect is the same – a voting bloc amenable to Democrats will be shielded from harmful effects of the legislation. It may get the unions off Congress’ back but it illustrates how willing the Democrats are to shield political allies from the costs others will have to bear.

But what’s most interesting is that it doesn’t say much for the bill itself since Senators and unions have to essentially be protected from the negative blowback from the bill’s passage. Think about it – in exchange for his vote, Sen. Ben Nelson got Nebraska exempt from any new future Medicare costs for his state, costs which other states will have to pick up. Unions get exempt for several years from a tax which others will have to pay. It has nothing to do with reform and everything to do with getting disgruntled supporters onboard so a piece of legislation can be signed and trumpets can sound (never mind how good or bad the legislation is, as long as we’re making progress!)

Ed Morrissey is correct when he says that the exemption removes a major revenue source for the government’s new health care bureaucracy, and a new excise tax will cause others to drop the plans below the threshold, gradually decreasing the amount of money generated to support the government programs being created. That’s going to negatively affect the CBO score (or it should anyway) and cause taxes of others kinds to be levied to pay for all this.

Quite frankly, it’s deals like this that make me skeptical of the entire effort, which seems more concerned at appeasing interest groups to get something passed than achieving a decrease in health care costs. Health care reform is needed, and it will still be needed even after this bill passes.

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Posted in: News, Politics