Last month, we discussed the stunning turnabout from leaders of prominent labor unions, who stated that "unintended consequences" from Obamacare were "causing nightmare scenarios" that would "shatter not only our hard-earned health benefits, but destroy the foundation of the 40 hour work week that is the backbone of the American middle class." But those were the complaints from private-sector unions. Now, we learn that public-sector unions, representing government employees, are hopping mad about a different aspect of our health law: its steep excise tax on costly health insurance plans, also known as the "Cadillac tax."
Economists of all stripes have long argued that the original sin of the U.S. health-care system was a World War II decision to exempt health benefits from wartime wage controls. That exemption was later incorporated into the tax code, whereby health benefits did not count as taxable income. A dollar in normal wages might turn into 50 cents after you take out federal income taxes, local income taxes, and payroll taxes. But a dollar in health benefits is still a dollar, giving workers a huge incentive to get health insurance from their employers, but making them insensitive to the cost of that coverage, since they dont shop for it themselves.
Obamacares Cadillac tax is a clumsy attempt to address this problem. And its clumsy for one principal reason: labor unions were adamantly hostile to it.
Employer-sponsored insurance is health cares original sin
For decades, labor unions main selling point is that they did a great job negotiating gold-plated health benefits for their members. Because of the tax subsidies associated with health benefits, employers were more willing to offer more generous health benefits than higher wages.
When Sen. Max Baucus (D., Mont.), chairman of the Senate Finance Committee, first outlined his vision for Obamacare in 2008, capping the employer tax exclusion for health insurance was a big part of how he planned to achieve a coverage expansion for the poor. "In 2007, the total value in foregone revenue for health tax benefits was more than $300 billion," he noted in his 98-page white paper, Call to Action: Health Reform 2009.
"One option for reform is to cap the amount of health care premiums that can be excluded from employee wages for income and payroll tax purposes," said Baucus, echoing the reform suggested by George W. Bush the prior year. "Alternatively, the exclusion could be available on a sliding scale based on income: people with low wages could be allowed to exclude 100 percent of the premiums offered through their employers, with the percent allowed phasing down or out with income."
Eventually, this evolved into Obamacares "Cadillac tax," which imposes a 40 percent excise tax on premiums above a certain threshold: in 2018, $10,200 for individual coverage and $27,500 for family coverage.
Unions carved out exemptions from the Cadillac tax
But it turned out that the employer tax exclusion didnt only benefit wealthy bankers and lawyers, whose high salaries"and high tax brackets"amplified the benefit from gold-plated insurance plans. The exclusion also benefited labor unions and their members.
So unions went to work watering down Baucus Cadillac tax. First, they insisted that the tax be delayed, to 2018, unlike most of the other taxes in the law. They claimed that a postponement gave them time to adjust multi-year collective bargaining contracts; cynics believed that unions would use a delay to attempt to quash the tax altogether.
Unions then carved out all sorts of exceptions to the tax, establishing a higher tax threshold for "law enforcement officers"employees in fire protection activities"individuals who provide out-of-hospital emergency medical care (including emergency medical technicians, paramedics, and first-responders), individuals whose primary work is longshore work"and indviduals engaged in the construction, mining, agriculture (not including food processing), forestry and fishing industries." Coincidentally, workers in these areas tend to be heavily unionized.
All these carve-outs and delays forced Democrats to raise taxes in myriad other ways in order to bring Obamacare closer to deficit neutrality. So if theres a tax you dont like in Obamacare, theres a good chance that its in there because unions delayed the Cadillac tax.
Public-employee health plans are "going to be hit"steeply
The thresholds that trigger the Cadillac tax grow slowly"at the rate of general inflation, not health inflation. As a result, they will ensnare more and more people over time. If the tax stays in place, unions will eventually face their bite. Hence Mondays piece by Kate Taylor of the New York Times reporting that municipal governments are asking their employees unions to let them renegotiate their health benefits.
The impressively-named Caswell F. Holloway IV, New York Citys deputy mayor of operations, has projected that if current city employee health benefits remain in place, Gotham will pay more than a half-billion dollars in Cadillac taxes in 2022. "We know that, on the current trajectory, were going to be hit with that tax and it would increase very steeply," he wrote in a letter to Harry Nespoli, chairman of the citys Municipal Labor Committee.
Nespoli was nonplussed, to say the least. "Were not going to turn around and do a $7 billion contract that affects our members for the next 10 years out without looking at it very carefully," he told the Times.
New York is not alone. "The tax is going to be a hit, and, if youre not expecting it, its going to be very shocking," said Bostons chief financial officer, Meredith Weenick. "In the end, its the taxpayer thats going to bear that burden," said Jim Finley, executive director of the Connecticut Conference of Municipalities.
Obamacare hitting union benefits harder than Scott Walker did
Remember the near-riots that broke out in Wisconsin when Gov. Scott Walker (R.) made modest reforms to state employees health benefits? Walker has got nothing on Obamacare. In dollar terms, Obamacares Cadillac tax is a far bigger whack to public union benefits than anything Walker did.
Thats why state and local governments all over the country are rapidly discovering the value of dumping workers health coverage onto Obamacares exchanges. Detroit is hoping to use its bankruptcy proceedings to offload retiree health benefits onto the exchanges, saving $27 to $40 million a year in the process.
Unions had almost nothing to gain from Obamacare, given that their members usually enjoy gold-plated health coverage already. Nonetheless, unions were good team players, fighting hard for the laws passage, and for the Democratic electoral victories that made it possible. Itll be interesting to see how much the rank-and-file union members hold their leaders accountable for what theyre experiencing.
Original Source: http://www.forbes.com/sites/theapothecary/2013/08/06/labor-unions-latest-problem-obamacares-cadillac-tax-harms-their-gold-plated-health-insurance-plans/