'Cadillac tax' on health plans would hit union and nonunion jobs equally

By Alec MacGillis
Washington Post Staff Writer
Monday, February 22, 2010

It happens often in Washington: A perception emerges and soon hardens into fact. Take the proposed tax on high-cost insurance plans in the Senate's health-care legislation. Because organized labor took the lead in opposing the tax, the assumption took hold that it would hit unions the hardest.

Both sides made use of this perception. Opponents of the tax could argue that it would hurt a lot of hardworking factory workers or teachers who had traded wage gains in return for good health benefits. Proponents of the tax portrayed opposition to it largely as a special-interest issue driven by self-protective unions.

But according to a new analysis, the conventional wisdom about the tax is wrong: The tax would actually fall equally on nonunion plans. At least 80 percent of the workers whose plans would be subject to the tax in 2019 would be in nonunion jobs, according to the analysis by Ken Jacobs of the University of California at Berkeley Labor Center and William H. Dow, a professor of health economics at Berkeley who was a member of President George W. Bush's Council of Economic Advisers.

This impact is roughly in line with the overall breakdown of nonunion vs. union workers with employer-provided plans. And it would be true under both the version of the tax passed by the Senate and a more labor-friendly one the White House agreed to last month.

The excise tax on "Cadillac" health plans has emerged as one of the most contentious elements of the proposal that congressional Democrats are cobbling together from bills passed by the House and Senate. The tax will probably be included in the health-care proposal the White House is expected to release Monday in advance of the health-care summit President Obama has called.

The bill passed by the Senate would raise $150 billion over 10 years by taxing plans worth more than $23,000 for families and $8,500 for individuals. Any value that exceeds those thresholds would be taxed at 40 percent. Proponents say the tax would slow the growth in health-care costs, as employers and employees shift to less generous plans to avoid it. The savings from switching to lower-cost plans, proponents say, would go into higher wages.

Opponents of the tax, including many House Democrats, doubt that it would slow the growth in costs, arguing that consumers have a limited role in driving health-care spending. They also point to research suggesting that the tax would hit not only lavish plans but also those that are costly because they are in expensive regions or in businesses that have many older workers. And they warn about the political risk of taxing middle-class voters' health benefits, noting that Sen. Scott Brown (R-Mass.) made hay of the tax in his campaign.

The House bill instead relies on a surtax on the wealthy. But Obama has made plain his preference for the tax on high-cost plans. To mitigate its impact, the White House and union leaders last month negotiated revisions, including slightly raising the tax threshold, limiting the tax for businesses with many female or older workers, and exempting government workers and union plans until 2018.

Congressional Republicans have attacked the deal as a carve-out for labor, but according to the analysis, the revisions would also benefit many nonunion workers. The authors, whose work was funded by the California Endowment and the liberal Institute for America's Future, estimate that the revisions would reduce the tax's revenue by $41 billion, of which 71 percent would accrue to nonunion workers.

If employers remained with their current plans, the researchers estimate that 23 percent of plans would be subject to the tax by 2019 in the Senate version, while 14 percent of plans would be hit under the revised deal.

The fate of the tax in the Democratic discussions is unclear. If the labor-friendly revisions are jettisoned, there will be a call to find other ways to minimize the impact on middle-class families.

Rep. Joe Courtney (D-Conn.), a leading opponent of the tax, said the analysis "confirmed what I've been saying all along -- this is a much bigger issue than labor-union households."

"The momentum in the House against it has gotten even worse," he said. "The more this thing has sunk in, it's become politically dangerous in the minds of a lot of members."

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