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Dems, Unions Agree to Scale Back the "Cadillac Tax"

January 14, 2010 - by Donny Shaw

The White House, congressional Democrats and union leaders appear to have reached an agreement on those so-called “cadillac” health care plan taxes.

Bloomberg reports:

The White House and labor leaders reached an agreement to resolve a dispute over taxing health benefits, an AFL-CIO official said, a deal that would overcome one of the biggest hurdles to passing health-care legislation.

The agreement, which must be approved by House and Senate Democrats, raises the threshold at which the tax would be applied to the most-expensive employer-provided health plans, said Gerry Shea, the chief health-care negotiator for the AFL- CIO, the nation’s largest labor union organization.

“We wanted to knock out the excise tax entirely, but we weren’t able to do that,” Shea said.

The Senate’s bill (H.R. 3590) would have taxed all health care plans with costs exceeding $8,500 for individuals and $23,000 for families. The tax would be levied on the insurance companies, but it’s generally assumed that they will simply pass it on to consumers by raising premiums. The deal reported today will probably raise the tax threshold to something like $13,000 for individuals and $28,000 for families, which is getting closer to how the Obama Administration has been talking about this whole “cadillac” tax idea — taxing plans “like the ones that the executives at Goldman Sachs have, the $40,000 policies.”

That sounds more reasonable than the “tentative deal” reported yesterday that would have created a special exemption for “collectively bargained plans” from the tax.

Still, raising the threshold for the tax is mainly going to affect unions. I doubt there is a significant amount of non-union people who are earning less than $200,000 annually and have family health care plans that cost more than $23,000.

It’s also going to mean a lot less revenue for paying for health care. Rep. Charles Rangel [D, NY-15] said today that the revenue provisions are almost complete and that details could be released as early as tomorrow. It will be interesting to see what’s happening here as a result of this deal with the unions. Have new revenue plans been introduced? Are subsidy levels being lowered?

UPDATE: Brian Beutler at TPM DC provides more details of the deal:

Under the terms of the proposed deal, the threshold for families would be raised to $24,000, and would exempt certain benefits like vision and dental, according to a Democratic source.

Collectively bargained plans would be exempted until 2017, to provide workers with a real opportunity to renegotiate their benefits packages, which were designed under current law and excluded from taxation.

The White House appears to have stood its ground, though, on the question of how to index the tax. By indexing it just above the consumer price index, the provision generates a great deal of cost-savings, which are crucial to getting a passing score from CBO.

Labor officials and progressives had suggested the index would have to be raised to keep pace with medical inflation—a tweak that would prevent the tax from ensnaring middle class people over time, but that would also eliminate the measure’s savings potential. But they seem to have lost that fight.
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