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Working In These Times

Monday, Oct 19, 2009, 2:25 pm

Unions, House Dems vs. Rahm Emanuel, Policy Wonks on So-Called “Cadillac Plans”

BY Art Levine

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Unions are leading the charge against the 40% excise tax on insurers that offer so-called "Cadillac plans," the relatively costly plans that unions have often bargained for in exchange for lower wages. The concern: that it would lead to raised premiums and taxes and reduced benefits for middle-class families -- and that the money could be better raised by taxing the wealthy earning over $250,000 a year, as a House bill proposes.

In making that case, unions, many House Democrats and the findings of the Congressional Joint Committee on Taxation are challenging support for the excise tax by Rahm Emanuel and some influential reformist journalists, including The Washington Post's Ezra Klein.

The Health Care for America Now coalition has launched a new ad campaign that has irked some White House officials and a few generally progressive policy experts, such as Klein.

The ad announces:

"We all know America needs real health care reform, but there’s a right way and a wrong way to pay for it.

"Some Senators say they want to tax so-called “Cadillac” health care plans, but those proposals will also tax the benefits of millions of middle class workers.

"There’s a better way. Let’s ask individuals making more than $250,000 to pay their fair share"  Take a look:

Rahm Emanuel has a different perspective, as he told CNN on Sunday:

“This is basically one of the ways in which you basically put downward pressure on health care costs,” the top Obama aide said Sunday on CNN’s State of the Union. “The president believes . . . it is helpful in getting costs under control and it hits the insurance companies and the high expansive and expensive plans.”

"This is a tax on the middle class and will lead to even more cost shifting to workers,"  Communications Workers of America President Larry Cohen responds. His union has analyzed the projected impact of the tax, which could raise costs onr nearly 40% of all family health plans within five years, according the Joint Committee on Taxation. "It is simply wrong to make those employers who already are paying, pay even more by hitting them with a 40 percent excise tax while not requiring anything from employers who don't provide health care to employees."

This new dispute doubtless will add to the growing tensions between outspoken AFSCME president Gerry McEntee and the White House over his aggressive push for the public option and demands that Obama keep all his health care promises. The center-right Politico reported:

McEntee led workers in chanting a barnyard epithet to describe Senate Finance Committee chairman Max Baucus’s health care bill, which would levy a new tax on expensive health care plans. He published an op-ed in U.S.A. Today warning, in terms that could be used against Democrats in the midterms, that the plan could tax the middle class and cost workers their health care. And he blew off a plea from White House Chief of Staff Rahm Emanuel and published an open letter promising to “oppose” legislation that contained the tax – published over the objections, several labor officials said, of other union presidents whose names appeared on the letter.

"We have had just about enough of his gratuitous slaps,” said a senior White House official Friday, calling the politically charged language “outrageous and unacceptable” from an ally — even from one that had, the official noted, devoted substantial resources to health care efforts...

But a spokesman for AFL-CIO President Richard Trumka stood by McEntee.


"We work closely with the White House and count ourselves among their strongest supporters,” said the spokesman, Eddie Vale. “Sometimes being supportive means staking out a tough position, and nobody understands that better than President McEntee."


Now, the pressure for pro-worker health care reform is being ramped up. Adding to an ad campaign launched by 27 unions last week (SEIU agrees with the view but didn't join the ads) are those new ads sponsored by the influential Health Care for America Now coalition. As the group  announced last week:

HCAN says rather than taxing the health care benefits of middle-income families, we should ask those making more than $250,000 a year to pay their fair share and ask all but the smallest businesses to contribute...

The Senate Finance bill passed Tuesday would pay for reform by taxing higher premium - or so-called “Cadillac” - plans. The 40% tax that kicks in after a plan exceeds $8,000 for an individual or $21,000 for a family will get passed down from insurance companies to consumers. The tax is projected to affect up to 40% of health plans by 2019 – just six years after it takes effect – according to a preliminary analysis by the Joint Committee on Taxation (JCT) and will fall on workers who live in high-cost states, who live in states with few insurers, or who are a part of an older workforce. Health Care for America Now instead is urging Congress to raise revenues from people making more than $250,000 a year.

“We’re now at a crossroads, and there is a very clear distinction between the right way and wrong way to pay for health care reform,” said Richard Kirsch, National Campaign Manager, Health Care For America Now (HCAN). “We believe it’s right to ask those making more than $250,000 a year to pay their fair share and wrong to tax the benefits of middle-income families.”

The respected Klein has argued that unions are being alarmist by claiming that it would lead to higher taxes or cost-shifting.

But Kirsch and others, pointing to the new Joint Committee on Taxation research, contend that the excise tax could hike taxes and employee health costs several ways: by forcing employers to cut back on spending on health care and raise wages to compensate, leading to higher taxes; and prompt insurers and employers to hike premiums, reduce benefits and jack up out-of-pocket expenses.

As Kirsch counters Klein:

The Communications Workers of America, using data from the Joint Committee on Taxation (JCT) and an analysis by Citizens for Tax Justice (CTJ), concluded that 40% of health care plans will be hit by this excise tax by 2019.

Second, as Ezra notes, the excise tax "isn't as progressive as a tax on millionaires. " Yup. Health Care for America Now is for progressive financing, which is why our new ads push for having people who earn more than $250,000 pay their fair share. That's what the House bill does and it's what the President's initial proposal to fund health care through lowering tax deductions for people who earn more than $250,000 does too.

Ezra goes on to support employers buying less generous health care plans for their employees...

I don't. The problem here is confusing cutting costs with shifting costs. Cutting costs means finding ways to make health care more efficient and to provide better care for the same or less money. But shifting costs is different. By incentivizing employers to offer less generous health care benefits, which means higher deductibles and the like, "costs" may go down, but in reality the policy simply transfers these costs to the worker. Moreover, higher out-of-pocket costs can discourage people from getting the care they need.

As Amaya Tune, a spokesperson for the AFL-CIO points out, "These are good benefits, but it's a decent plan, not a Goldman Sachs plan that gives you physicals out the wazoo. The problem is that a 'high cost plan' doesn't really reflect the health care you're going to need," citing the health care needs of older workers and retirees.

"There's a myth of the Cadillac plan that somehow working families are getting too much health care," she observes. And citing the 40% of family plans that could face this excise tax, "This could turn into a monster devouring middle-class plans."


Art Levine, a contributing editor of The Washington Monthly, has written for Mother Jones, The American Prospect, The New Republic, The Atlantic,, and numerous other publications.

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