White House, unions reach deal on taxing insurance coverage

White House, unions reach deal on taxing insurance coverage
By Lori Montgomery
Copyright by The Washington Post
January 14, 2010; 12:45 PM ET
http://voices.washingtonpost.com/44/2010/01/white-house-unions-reach-deal.html?wpisrc=nl_pmpolitics

The White House has reached a tentative agreement with labor leaders to tax high-cost health insurance policies, sources said Thursday. The agreement clears one of the last major obstacles on the path to final passage of comprehensive health care legislation.

The deal would temporarily exempt union health plans from a significant surtax on unusually generous health policies plans, giving union leaders time to negotiate new contracts, according to sources familiar with the talks. They spoke on condition of anonymity to avoid affecting ongoing negotiations. Additional details of the deal were not immediately available.

The so-called Cadillac tax is a key source of financing for a proposal to dramatically expand health coverage to the uninsured. But it is also an important tool for reining in skyrocketing health care costs, and President Obama has insisted that it be included in the package.

Labor leaders, nonetheless, had threatened to campaign against any health care bill that included the tax. By one analysis, as many as one in four union members could have been affected by the version of the tax approved by the Senate.

Under that proposal, family plans that cost more than $23,000 and individual policies that cost more than $8,500 would be subject to a 40 percent surtax. The tax would be imposed on the insurance company, but economists believe it would be passed on to workers. For years, many unions have negotiated more generous health benefits in lieu of higher wages.

Last year, the average family policy in America cost $13,375, according to a survey by the Kaiser Family Foundation.

The Senate bill would raise that tax threshold for people in high-cost states and for workers in high-risk professions. Nonetheless, the proposal has infuriated many House members as well as union leaders, who argue the tax could strike deeply into the middle class to affect small businesses and older workers as well. They also complained that the tax, which would raise nearly $150 billion over the next decade, was designed to strike an ever-growing number of health policies.

Advocates argued that few people would pay the tax, because they would be more likely to choose less costly health insurance policies, a choice that would help drive overall health costs lower. Instead, much of the revenue is projected to come from higher income tax collections as employers shifted resources away from health care and into wages. But skeptics argued that workers might never see the extra money, and insisted on adjustments.