Newest hurdle to how to pay for healthcare reform: unions

President Obama meets with union leaders Monday. Unions worry that the Senate healthcare reform bill's 'Cadillac tax' on expensive health-insurance policies could affect its members.

Any final healthcare bill that emerges from Congress will almost certainly contain a tax on high-cost insurance plans. But will that levy only apply to truly expensive, "Cadillac" policies? Or will it hit some Chevrolet-level plans, as well?

That’s the question facing the administration today as union leaders visit the White House to talk healthcare with President Obama. Unions – a key source of support for Obama – argue that a tax on insurance plans costing more than $23,000 a year could affect a significant number of their workers.

Such a tax “taxes the middle class, by taxing their health plans,” said Richard Trumka, AFL-CIO president, in a Monday appearance at the National Press Club.

Obama favors tax

The problem for the unions is that the president appears open to negotiations on a tax on expensive health policies as a means of paying for a healthcare overhaul.

“The president has said that he thinks that this excise tax on ‘Cadillac plans’ is important. He’s been convinced by experts across the ideological spectrum that say this is one of those things that genuinely slows the growth rate of costs,” said Christina Romer, chair of the White House Council of Economic Advisers, in a Sunday ABC broadcast interview.

The so-called “Cadillac tax” is a key financing component of the Senate version of healthcare reform legislation. Under this tax, insurers would have to pay a 40 percent levy on policies they issue that cost more than $8,500 a year for an individual or $23,000 for a family.

In contrast, the House version of the healthcare bill relies on a surtax on high-income individuals and families for a large share of its cash.

The economic argument

Many economists support the Cadillac tax as a sound means of healthcare reform finance and a means of slowing the growth of health expenses.

“The proposed excise tax would make a major contribution to slowing the growth of healthcare costs by discouraging insurers from offering, and firms from purchasing, extremely generous health insurance coverage that can encourage excess healthcare utilization,” concludes Paul N. Van de Water, a budget expert at the Center on Budget and Policy Priorities, in a recent analysis of the issue.

But the Cadillac tax is unpopular among the House Democratic rank-and-file. Some 190 House Democrats have signed a letter expressing their opposition to this targeted levy.

Opposition in the House

Why don’t they like it? One big reason is that many unions don’t like it, either – and organized labor remains a bulwark of the Democratic party.

Unions argue that the health policies of too many of their workers would be hit by a Cadillac levy. Older workers in particular, whose health premums are more expensive, could be affected, they say.

The Congressional Budget Office estimates that about 19 percent of workers would be subject to the tax in 2016. According to the Kaiser Family Foundation, the current average cost of a family health policy offered by employers is $13,375.

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