In an effort to unify the divergent health care reform bills passed by the Senate and House of Representatives in December 2009, the White House reached a deal with health care negotiators, including labor unions, on taxing high cost health insurance policies also known as "Cadillac" plans. Before the deal, the legislation passed by the Senate placed a 40 percent tax on family plans above $23,000 and individual plans above $8,500. House Democrats, however, preferred increasing taxes on high income earners instead of taxing Cadillac plans.
While reports regarding the compromise vary slightly, many indicate that the agreement calls for a 40 percent tax on policies that cost more than $24,000 for family coverage and $8,900 for individuals, a slight increase over the levels in the Senate's bill. Dental and vision benefits would be exempt from the threshold requirements, and the threshold levels would be raised by at least $3,000 in high-cost states, for high-cost professions and for workers whose policies cost more because of their age or their gender.
Many House Democrats opposed the Cadillac tax, arguing that it would fall most heavily on the middle class. Similarly, unions were upset over the Cadillac tax, arguing that as many as one in four union members would be impacted, even though they have foregone higher wages in exchange for better benefits. However, the White House deal exempts state and local workers and union members from the tax until 2018. This modification quickly caused unions and the American Federation of State, County and Municipal Employees to throw their support behind the legislation.
The Cadillac tax was expected to be a major source of financing for the overall bill generating more than $150 billion to go towards extending health coverage to the uninsured. But with far fewer union members and state and municipal workers paying the tax, revenue generated by it is estimated to shrink to $90 billion. How this shortfall of $60 billion will be made up is uncertain.
If the deal makes it into the final bill, the exemption of collectively bargained health insurance plans from the Cadillac tax is problematic for a number of reasons. First, the union exemption provides unions with another argument to persuade non-union employees that unionization is in their best interest. Second, with health care costs already skyrocketing, an additional 40 percent tax on non-union employees with Cadillac health plans could drive employees who are not otherwise predisposed to unionization to seek out union representation to bring down their health care costs.
It is uncertain whether this latest health care "deal" will make it into the final health care bill. Only around 7.5 percent of the private work force is in a union, so the collectively bargained health care exemption could serve to alienate (and exclude) approximately 92 percent of the private work force. In addition, it is possible that this union "deal," if enacted, could face constitutional challenges.