Dems, unions agree on new plan to tax Cadillac plans

Under pressure from Barack Obama to come to terms with a Senate plan to tax high-value medical coverage, unions and Congressional Democrats have apparently agreed to accept some taxes that would impact their membership — but not right away.  The plan reported by the AP would exempt any plans created by collective bargaining prior to 2013, which means that unions won’t have to worry about the tax until at least 2015 or beyond, depending on the schedule for renegotiation:

The White House has reached a tentative agreement with union leaders to tax high-cost medical plans, one of the final obstacles in the way of President Barack Obama’s health care remake, officials said Thursday.

Details of the agreement were not immediately available. The tentative deal was expected to be presented to congressional leaders Thursday as negotiators try to wrap up an agreement on core elements of the sweeping legislation as early as Friday.

The proposed tax has been a major sticking point because early versions from the Senate would have hit union members, who have negotiated generous health benefits, sacrificing higher wages. House Democrats were strongly opposed, and did not include the tax in their bill. But Obama favored the tax, citing the consensus opinion of economists that it would help hold down costs by nudging workers into less pricey coverage.

But these concessions will mean less revenue, even theoretically:

Officials familiar with the negotiations said Wednesday that options being considered to lessen the impact on union members included raising the threshold at which the tax would be levied — it’s $23,000 for family plans in the Senate-passed bill — and exempting collective bargaining agreements negotiated before 2013 from the tax.

Under that scenario the tax wouldn’t hit until union contracts were renegotiated, delaying its impact on most union health plans until perhaps 2015 or 2016. There was also discussion of lessening the impact of the tax in high-cost regions of the country — where insurance premiums cost more — by imposing the tax on a sliding scale.

A sliding scale?  That would mean that the tax would not be applied universally to all citizens, which could run afoul of Article I, Section 8 of the US Constitution.  Specifically, that states that Congress has the power to levy taxes, “but all Duties, Imposts and Excises shall be uniform throughout the United States[.]“  The founders wrote that clause to ensure that the federal government did not overburden some states to favor others.  If the federal excise tax on health insurance gets applied with a “sliding scale” based on regional costs of living, that appears to be an explicit and clear violation of Article I, Section 8; it certainly will get challenged on that basis.

Of course, that’s not the only constitutional problem with the bill, and the bigger problem for Democrats in the short term will be what these concessions cost in terms of theoretical revenue.  Charlie Rangel (D-NY) told the AP that the conference could have terms ready for the CBO as soon as tomorrow, and the CBO will probably need a few days to analyze the proposal.  However, it will definitely cut into the revenues for ObamaCare, which already expands deficit spending, especially after Congress applies its “doctor fix” and rescinds the cuts to Medicare reimbursements.

It’s all academic in any case.  The only health-insurance plans that will still be offered under the heavy taxation proposed by ObamaCare will be the union plans, since it takes renegotiation to change their terms.  All other employers will move away from such plans, and health insurers will recast their plans to avoid the taxes.  The revenues were mainly illusory all along, and now that the unions have won a temporary exemption, there won’t be any plans left to tax.

In the end, this will make the fiscal structure of ObamaCare worse instead of better.  Expect the new compromise to create more problems in the Senate.

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