How Good Is the White House Deal With Labor Over the “Cadillac Tax”?

Richard Eskow

Labor leaders met with the White House last week to hammer out a deal on the health excise tax.  Depending on the outcome of today’s Senate race in Massachusetts, that deal is likely to become law.  So how good is it?  Here’s an overview:

The ceiling – the point after which benefits become taxed – was raised from $23,000 to $24,000 for family plans and from $8,500 to $8,900 for individual plans.  That’s negligible. It’s an increase of less than 5%, even though health premiums go up much more than that every year. And the tax’s growth rate is still pegged to the general — and much lower — rate of inflation, rather than the rate at which health insurance premiums are increasing. That will cause increasing harm as years go by.

Other concessions are potentially more significant. Depending on how they’re calculated (details are still being worked out), adjusting the tax to account for the age and gender mix of plan members could reduce much of the tax’s most discriminatory effects. And it’s a real gain that dental and vision plans were exempted.

It’s very unfortunate that regional differences weren’t taken into effect, however. As always, the pro-tax ideologues at the table refused to recognize that employers and patients don’t control these differences. As pointed out in the New England Journal of Medicine, doctors do. Medicare costs $2,500 more per person in East Long Island than it does in San Francisco, for example, and that’s not because Long Island is “Cadillac country.” Sadly, people in some parts of the country will continue to be penalized unfairly for forces beyond their control – including higher costs of living in more urban areas.

What about the five-year exemption for union plans? Did the unions “sell out” non-unionized working Americans? On balance, they won a number of concessions that will help everyone. Given the position they were put in by the White House, I find it difficult to fault them for obtaining some concessions for their members. And there’s logic that says it’s fair to give them a negotiating cycle or two before the tax affects their members. That gives them time to try winning back the wages that they’ve traded off for these benefits in the past under different rules.

The union leaders were going to be criticized, whatever the outcome. If they only won concessions for their members they’d be accused of selling out. If they didn’t represent their members at all, they’d probably be voted out. Under the circumstances, I think they did quite well.

Do we finally have a sound health tax policy? No. It’s still trickle-down economics, Democratic-style. It’s still predicated on the belief that taxing costlier plans will lead to as yet undreamed-of innovations (though it hasn’t
happened through years of double-digit premium growth), which will then trickle down do other plans and “bend the cost curve” for everybody.

That ain’t gonna happen. This is just a health benefit cut masquerading and a tax increase all at once. The union leaders contained the damage, which is good, but the theory behind the tax is still unsound. The only area where discussions might have actually led to a good policy was in the tax’s design, perhaps by targeting actual cost drivers and those who control them – the Medical/Industrial Complex, not individual consumers who have neither the power nor the information to overrule the judgments of medical professionals.. In the end, sadly, the Administration allowed economic ideology to win out over fairness and facts.

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