Policy Documents

White House Deal with Labor Clears Way for Health Care Bill

Thomas Cheplick –
January 13, 2014


After days of secret back-room meetings, labor leaders and White House staffers have agreed to a tentative deal to tax high-cost insurance plans—an arrangement that will effectively penalize younger union workers—eliminating a major barrier to the current health care legislation on Capitol Hill.

Union leaders and their allies in the House and Senate opposed the tax because many union members have high-cost, “Cadillac” insurance plans, gained through years of negotiations with management. The White House agreed to have the tax come into effect for union members only if the total value of the health care plan exceeds $8,900 for individuals and $24,000 for families, not including dental or vision coverage.

Obama’s negotiators also agreed not to phase in the tax until 2018, giving public sector unions enough time to renegotiate their contracts with state, local, and federal authorities to pay for the tax.

‘Hypocritical Behavior’

Diana Furchtgott-Roth, a health policy expert at the Hudson Institute, a nonpartisan think tank in Washington, DC, believes the unions have demonstrated irresponsible behavior in their negotiations with the White House.

“The union compromise with the White House means they have just exempted themselves from the Cadillac tax for now, for workers who collectively bargained their contracts, while the rest of us pay for it,” Furchtgott-Roth said. “It’s hypocritical behavior and just delays the problem, because in 2018, younger workers will have to pay the tax.”

Ed Haislmaier, a health care expert at the Heritage Foundation in Washington, DC, explains the Obama White House had to find a politically palatable way to pay for its expensive nationalized health care plan.

“The White House is trying to reconcile the two different versions of health care plans in the House of Representatives and the Senate. The major sticking point between the House and Senate versions is the financing, and they don’t have a politically convenient way to pay for it,” Haislmaier said. “During the 2008 campaign, Obama attacked Sen. McCain’s health proposal which included a taxation of plans to pay for reform. Now Obama is going far beyond that, without any apparent sense of hypocrisy. He’s essentially giving us unlimited taxation with exemptions for political allies, kicking the ball down the road in a deceptive and substandard way.”

Unfair Carve-Out for Unions

Dean Baker, co-director of the Center for Economic and Policy Research in Washington, DC, finds the labor unions’ special status fundamentally unfair.

“Take the case of a union family with a $24,000, high-cost health insurance plan,” Baker said. “We already subsidize them if they are in the 25 percent tax bracket, which a lot of union members are—none of them are poor, and many are earning more than the median income—by about $5,750 dollars per year.”

Baker points out that the Cadillac tax does not kick in until the insurance cost passes $24,500, and only the additional $500 is taxed.

“This is really a question of fairness. How can you ask taxpayers to subsidize those who are better off than average?” Baker said. “To my mind it is a question of how much we are going to subsidize union workers, and by how much. At the end of the day, someone will be paying the taxes to pay for health care reform.”

On-Demand Cadillac Plans

Furchtgott-Roth notes non-union Americans will have economic incentives to skirt this tax entirely, given that they can access “Cadillac” health care plans at will.

“The Congressional mandate of a ‘qualified benefit plan’—the plans that will only be allowed to be put on the national health insurance exchange—is for comprehensive and expensive plans,” Furchtgott-Roth said. “Yet the fine for not having a ‘qualified benefit plan’ is set at a relatively low $750 per year. Many people are going to just pay the cheaper fine, and when they get sick, apply for the Cadillac plan as insurance companies will be forbidden from denying coverage based on preexisting conditions.

“This is really akin to being able to buy top-dollar home insurance when the house is already on fire,” she added.

Thomas Cheplick (thomascheplick@yahoo.com) writes from Cambridge, Massachusetts.