Dems Enhance Cadillac Tax–Will Labor Unions Defect From Health Care Reform?

March 18, 2010 7:14 a.m.

Yesterday, Rep. Rob Andrews (D-NJ) told me and several other reporters that the long wait for CBO numbers had a lot to do with making sure the final language would survive the constraints of the budget reconciliation process–and that required tweaking some of President Obama’s proposed changes to the Senate health care bill. One of the tweaks Democrats have had to make, according to lawmakers, has to do with the excise tax on high-end health care plans–the so-called “Cadillac tax.”

The change is technical, but important, particularly because labor unions still don’t like the Cadillac tax and don’t want to see it enhanced. In the Obama proposal, the Cadillac tax was designed to impact high-end health insurance policies–$27,500 per year policies for families, and $10,200 per year policies for individuals. Those thresholds were to be indexed to the Consumer Price Index plus one percent. In order to get the CBO scoring right, Democrats had to drop the additional one percent, meaning the threshold for those insurance plans subject to the Cadillac tax will rise more slowly over time.Why is that important? Because health care inflation is so high, insurance premiums tend to rise more quickly than CPI-plus-one-percent, meaning that, over time, more and more high-end plans would be subject to this tax. That results in major cost savings, but it also means more employer-provided benefits will be taxed as time goes on. Now that they’ve lowered the index to general CPI, the incidence (and the savings) will be even greater still.

That’s part of the reason why AFL-CIO President Richard Trumka went to the White House yesterday for an unscheduled meeting, and why he’s meeting with his AFL’s executive council later today. However, this change is not expected to upend AFL’s support for the legislation.

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