Democrats Reach Deal with Labor on Health Taxes

The White House has reportedly cemented a deal with labor union leaders scaling back the tax on so-called “Cadillac” health insurance plans.

The tax, which was included in the Senate version of the health insurance legislation, would levy a 40 percent tax on employer-sponsored health insurance policies of over $8,500 per year for individuals and $23,000 for families starting in 2013. The tax is intended to help pay for the costs of the legislation, and to discourage companies from providing high-ranking executives with “gold-plated” health insurance policies, while controlling the rising costs of health care.

However, labor unions have complained that the tax would fall on many middle-class workers whose unions have agreed to increases in benefits rather than wage increases in contract negotiations with employers, and also hit older workers whose health care expenses are high. They met with President Obama at the White House last week to discuss their concerns (see Obama Meets with Union Leaders on Health Taxes).

Under the new agreement hammered out by the White House and congressional leaders in a marathon negotiating session Thursday with labor leaders, the salary threshold for the tax will increase to $8,900 for individuals and $24,000 for families, according to The New York Times. Workers in high-risk occupations, such as police and construction workers, would have a higher threshold of $27,000 for family policies. The tax would not be imposed on state and local government employees and union members with collectively bargained health care plans until 2018, rather than 2013. Beginning in 2015, the price of dental and vision coverage would not be included in calculations of the threshold.

However, the changes will mean less revenue generated by the tax, $90 billion over 10 years as opposed to $149 billion. The White House and congressional negotiators intend to make up for the difference by including other revenue generators in the final bill. The House version of the bill includes a surtax on individuals who earn over $500,000 a year and couples earning over $1 million annually, but it is not clear if a modified version of this tax will be included in the final legislation.

Democrats and the White House hope to get the final bill passed before the President’s State of the Union address, or by early February, but the possibility of a Republican win in the race next Tuesday to fill the late Sen. Edward Kennedy’s seat has added extra urgency to efforts to put together a final bill. Republicans have remained united in opposition to the health care reform bill, and 60 votes would still be needed to pass the final bill in the Senate.