White House Ethics Fix: Expand Backroom Union Health Deal to Everyone

DoctorsPresident Barack Obama is a man who remembers his allies, especially in preparation for a showdown. This Monday, three days before today’s all-day televised bipartisan health care summit, the president unveiled his latest plan for a health care policy overhaul. The measure, 11 pages long, resembles the Senate bill passed on Christmas Eve by a 60-39 margin. Obama knows the prospects for passage are uphill. The plan is costly and its burden will fall on a great many Americans, not just “the rich.” Among its more controversial features, the White House proposal retains, in scaled-down form, a key Senate provision: a 40 percent excise tax on high-cost (“Cadillac” or “gold-plated”) health insurance plans originally scheduled to go into effect in 2013. This January, the White House and top labor officials negotiated a special five-year delay for enrollees in union-sponsored plans. Backroom deals on many other features can’t be counted out this time either. 

Like the substantially different House and Senate bills (the House version passed by 220-215), the latest manifestation of Obamacare radically expands the public sector’s presence. The measure would extend coverage to an estimated 31 million people currently lacking insurance and would impose highly detailed regulations upon insurers. Like the House and Senate bills, the White House plan would require almost all households and large numbers of small businesses to buy insurance or face a fine. It also would create a new means-tested subsidy for those who can’t afford insurance. Further, it would raise ceilings on: Medicaid payments to low- and moderate-income employees; Medicaid grants to fiscally-troubled states; and Medicare drug benefits for seniors. While the proposal is too new to have been undergone a cost-revenue analysis by the nonpartisan Congressional Budget Office, observers say the tab will be $950 billion over the first 10 years – and most likely something around $1.5 trillion if certain off-the-books expenses are factored in. The Senate measure costs $871 billion.

Finding ways to pay for this won’t be easy. That’s why the Obama administration is pulling out all stops to find the most politically palatable options. One supposedly attractive revenue source is the Senate excise tax on high-cost insurance policies. Supporters of the plan say that not only would the provision raise revenues, it also would hold down costs. On paper, the argument is appealing. Typically, expensive health plans require no co-payments or deductibles either for doctor or hospital visits, thus creating disincentives to economize. Being subject to an excise tax presumably makes consumers more price-conscious and induces doctors to think twice about ordering tests or conducting surgeries of dubious necessity.

In reality, however, the tax is likely to harm the very middle class on whose behalf Obama professes to speak. While insurers rather than customers would forward all tax payments to the government, inevitably they will pass this extra cost onto plan enrollees in the form of higher premiums. It’s hard to see how middle-class families would avoid getting slammed, despite the president’s assurances to the contrary. Indeed, Congress’s Joint Committee on Taxation, in evaluating the Senate bill last year, concluded that 84 percent of the total tax burden by 2019 would be borne by households making less than $200,000.

The Senate bill, unlike the very different (and even more expensive) House measure, included this feature in its overhaul. Scheduled to go into effect in 2013, the 40 percent tax would cover employer-purchased individual policies costing in excess of $8,500 a year and family policies in excess of $23,000. Estimated revenue: $150 billion over the first decade. Union officials were among those objecting the loudest. But it was hardly a libertarian impulse that lay behind their misgivings. Many unions over the years had negotiated gold-plated plans on behalf of roughly one in four members, who generally prefer extra benefits (untaxed) to extra wages (taxed). So in classic closed-doors fashion, White House and union negotiators spent three days in mid-January hammering out a deal to exempt union plans from the tax until 2018. To sweeten the deal, the White House raised annual individual and family minimum thresholds, respectively, to $8,900 and $24,000.

The new Obama excise tax, like the Senate version, is set at 40 percent. And it would be delayed until 2018. But here the delay would apply to all high-end plans, not just union ones. It would bring in only $30 billion rather than $150 billion over the first 10 years. The tax would kick in for individual policies starting at $10,200 and family policies starting at $27,500. The extra $120 billion would come mainly or exclusively from: 1) raising the Medicare payroll tax to 2.9 percent on upper-income wage earners; and 2) expanding its applicability to non-wage income, such as interest and dividends, for wealthier households.

Supporters, at least, are happy. The reduced tax liability on high-end plans, “is going to make it much easier to pass a bill in the House a second time,” said Ron Pollack, director of Families USA, a Washington, D.C.-based nonprofit group that supports universal (i.e., government-sponsored) health care. Union officials likewise are satisfied. “This is a vast improvement over the Senate version,” remarked Steve Kreisberg, a spokesman for the American Federation of State, County and Municipal Employees (AFSCME). “We don’t think it’s the best way to fund health care, but in the context of what the bill is and the compromises the president has had to make, we’re supportive.” But don’t think AFSCME or many other unions won’t fight to obtain the best possible outcome for their members. There are plenty of areas of negotiation beyond an excise tax.

The real scandal, mystifying as it is, is how the Obama administration came to believe that an even more expensive version of the Senate bill is going to fly. For one thing, the Democratic majority in the Senate is no longer filibuster-proof, thanks to the recent Senate election victory by Republican Scott Brown over Democrat Martha Coakley in Massachusetts last month. Second, even a number of Democrats may not sign on. Sen. Ben Nelson, D-Neb., for example, has been gun-shy since his highly-publicized capitulation to Obama’s health plan in return for extra Medicaid subsidies to his home state (i.e., the “Cornhusker kickback”). Finally, GOP leaders are more determined than ever in their opposition. House Minority Leader John Boehner, R-Ohio, puts it this way: “The president has crippled the credibility of this (past) week’s summit by proposing the same massive government takeover of health care, based on a partisan bill the American people have already rejected. This new Democrats-only backroom deal doubles down on the same failed approach that will drive up premiums, destroy jobs, raise taxes and slash Medicare benefits.”

Even supporters of an expanded federal role in the health care sector are puzzled by the size and scope of the proposal. “It doesn’t strike you as a scaled-down thing that’s not supposed to have enemies,” said Urban Institute health care specialist John Holahan. “They just went all out.” But that’s the way Obama and his people do things – going “all out” for aggressive government expansion through backdoor favoritism toward key Democratic Party constituencies. Unions aren’t likely to complain much.


Unions, Obama Cut Backroom Deal on Health Care Tax Exemption.