Unions Get Concessions Over Health Plan Tax

Published: Mon 03 May 2010

Larry Roth

American union leaders have reached an agreement with the Obama administration that drops their challenge to the so-called "Cadillac" tax on pricey medical plans that is included in the health care reform legislation.

But the White House didn't get all of that it wanted from the unions. For example, the 40 percent excise tax would not be charged through the end of 2017 on policies for workers covered by collective bargaining contracts, municipal and state employees, and voluntary employee benefit association members.

One union source said the White House agreed to increase the threshold on health insurance coverage subject to tax from the $8,500 for singles and $23,000 for families included in the Senate version of the health bill. Instead the amounts will become $8,900 for individuals and $24,000 for families. Those amounts could be adjusted if health care costs change by the time the plan is in effect.

AFL-CIO President Richard Trumka added that in 2017 health plans that are part of collective bargaining deals would be allowed to use insurance exchanges created through the legislation. This would permit people to seek coverage according to government guidelines, he said.

Under the version of the bill passed by the Senate, the tax was expected to generate $149 billion through 2019. Trumka said the changes would decrease that amount to $89 billion. To make it up, negotiators of the bill's final version would have to recover the $60 billion another way or decrease the amount of coverage designated in the final legislation.

The president had pushed the tax on the more expensive medical coverage plans as a way to keep health care costs down. But the union leaders were concerned such a measure would cause their members to face higher taxes. Event the House Democrats didn't include the tax in their final version of the plan.

The Congressional Budget Office has indicated the tax would encourage people to buy lower-value coverage despite the levy affecting costlier plans. Under that scenario, those people would have to pay more income tax because they would be decreasing their health care deductions.