As first reported by the Associated Press, the White House and labor leaders have reached agreement on the so-called Cadillac tax. And while the deal's impact on the rest of health care reform is not yet clear, the agreement should move negotiations forward while preserving, in some form, an idea the administration and many experts think is essential for successful reform.
The centerpiece of the deal is a temporary exemption for union health plans: Until 2017, the new tax on the most expensive health insurance policies wouldn't apply to policies that were the result of collective bargaining agreements. Labor leaders and supporters have argued that unions would need time to renegotiate their contracts, which often span many years, in order to account for the imposition of the tax.
Other elements of the plan include:
-- Exempting vision and dental benefits from the calculations of plan value
-- Raising the threshold at which the tax kicks in, from $23,000 a year for a family plan to $24,000 a year. (The threshold for individuals goes from $8,500 to $8,900.)
-- Making additional adjustments to the formula based on age and gender
-- Allowing unions to shop for health plans through the new insurance exchanges
The argument for temporarily exempting union plans makes sense, at least in principle. Many unions really did accept generous health benefits, in lieu of wage increases, on the theory it was worth more to their members.
On the other hand, the tax--as originally written--wouldn't have started until 2013 anyway. And exempting union health benefits from the tax, even for a few more years, would mean collecting substantially less revenue.
As currently written in the Senate bill, the tax is expected to generate around $150 billion. With this new changes, labor leaders say, it will raise approximately $90 billion. If that figure is correct--and it may not be, as administration officials said they were waiting to see how the Joint Committee on Taxation scored it--it would the administration and its allies would have to find another $60 billion in offsetting revenue just to make up for the loss.
To be sure, is not hard to find such money. Expanding the Medicare payroll tax, so that wealthy taxpayers pay a levy on their investment income, is one possibility. Asking the drug, hospital, and insurance industries to give up more revenue is another.
But the more such monies must replace revenue lost in this agreement, the less they can help make the overall bill more generous.
The exemption of vision care is not so easy to justify. Generally speaking, scaling back vision coverage is thought to be an easy way to cut insurance costs without imposing serious harm on beneficiaries. (It's safe to assume a lot of union plans offer that.)
By contrast, allowing unions to shop for coverage through the exchanges would seem, on the surface, to be a win-win idea--one that will open up new insurance options for union members while fostering more competition among insurers. (The details of how this would work still aren't clear to me.)
As for the adjustments to the tax based on age and gender, that's a response to arguments--fairly persuasive, in my view--that a tax without adjustments might penalize groups that have high insurance premiums simply because they are in groups that insurers judge as high risk.
Republicans are already pouncing on this agreement as classic special interest group politics--which, clearly, it is. On the other hand, the administration did manage to preserve what's arguably the tax's most important feature: The fact that, as it grows over time, it will put downward pressure on health care costs.
And whatever you think about labor's fight against the Cadillac tax, the fact is that it comes in the midst of a much broader fight for health care reform. Simply put, if it were not for labor's organizing and campaigning, health care reform wouldn't even be on the agenda--let alone on the verge of passage.
For more, read David Herszenhorn, Ezra Klein, Igor Volsky, plus Laura Meckler and Jonathan Rockoff.