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Obama Modifies "Cadillac" Health Insurance Tax

February 22, 2010 - by Eric Naing

The health care debate isn’t just between Democrats and Republicans. Liberals too have been fighting one another – particularly on the issue of the excise tax on so-called “Cadillac” health insurance policies.

A major funding mechanism for the Senate health care bill (H.R.3590) is an excise tax on health insurance plans costing more than $8,500 for individuals and $23,000 for families starting in 2013. The House bill (H.R.3962) contains no such tax.

Liberal activists have railed against the tax in part, because it would hurt unions. Firedoglake’s Michael Whitney explains:

The excise tax is a tax on more expensive insurance plans that is supposed to fund part of health care reform. It was branded the “Cadillac tax,” but that distorts the reality of who it will effect. This isn’t a tax on the rich; it’s a tax on the middle class, the old, and the sick with more expensive plans. And a good chunk of those plans are negotiated under collective bargaining agreements, i.e. under union contracts.

But more wonkish liberals, like the Washington Post’s Ezra Klein, argue that the excise tax wouldn’t harm the middle class and is needed to bring down the cost of health care:

The average family health-care plan costs about $13,500 — almost a full $10,000 less than the plans this policy taxes. If we don’t manage to slow the growth in health-care costs, this policy will, over time, hit plans that are less generous. But economists consider the excise tax, which functions as a tax on insurers who let premiums grow too quickly, one of the most effective cost-control mechanisms in the bill.

As Donny explains, Democrats had reached an agreement with unions over the tax just before Sen. Scott Brown [D, MA] blew up the debate. Under the agreement, the threshold for triggering the tax would be increased and collective bargaining plans would be be exempt from the tax for a few years.

As part of the White House health care plan, President Obama has further massaged the tax agreement. Under Obama’s blueprint, the threshold for individuals increases from $8,500 to $10,200 and the threshold for families increases from $23,000 to $27,500. Furthermore, the implementation of the tax is delayed to from 2013 to 2018 for everyone instead of just union plans.

So what do people think of the new plan?

Klein, already a proponent of the tax, is pleased.

Jon Walker over at Firedoglake, on the other hand, isn’t:

Delaying the excise tax might gain some support, but the excise tax is so politically toxic that it is hard to imagine simply delaying its implementation would change public opinion. Dropping it completely seems to be the only way to deal with it politically.

We’ll have to wait and see which side House Democrats will fall behind. At least for now House Majority Whip Jim Clyburn [D, SC-6] is predicting that the House will pass the compromise plan by a larger margin than before.

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