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Unions Slam Proposed "Cadillac" Health Care Tax

Democrats in the Senate are on the verge of agreeing to a plan that would essentially extend federal employee health insurance options to the rest of the country. But just as the federal health insurance network could become the national model, labor unions are warning it could also be unreasonably taxed under the Senate plan.

A group of unions released a report (PDF) today showing that the so-called "Cadillac" tax on higher-cost health insurance plans would, after three years, begin to hit the most popular health care plan within the Federal Employees Health Benefits Program (FEHBP) -- ultimately impacting 48 percent of all federal employees and nearly 3.8 million people.

"I never really thought that our Chevy of a plan for federal employee health benefits would be a Cadillac plan," John Gage, president of the American Federation of Government Employees (AFGE), said on a conference call today.

Rep. Gerry Connolly (D-Va.) said the health benefits tax goes back on President Obama's promise not to tax the middle class.

"The Senate has gone into territory that most certainly will affect the middle class," he said.

Instead of offering a publicly-run insurance plan, or "public option," as part of their health care overhaul, Democrats in the Senate are now considering a plan to establish national private health insurance options, which would be administered by the Office of Personnel Management (OPM) -- the same bureaucratic office that administers the FEHBP.

Congressmen would be able to tell their constituents "you're going to get exactly what we have, and that every federal employee has, you can buy into it,'' Sen. Mark Begich (D-Alaska) said Monday, according to the Associated Press.

Yet after three years, according to labor unions, the most popular FEHBP plan, a Blue Cross/Blue Shield Standard plan, would be subject to the Senate Democrats' proposed 40 percent tax on high-premium insurance plans. The tax on so-called "Cadillac" plans is a key provision in the Senate bill that is expected to be a large revenue raiser.

Starting in 2013, the tax would hit health care plans that exceed $23,000 for a family and $8,500 for an individual. These thresholds would increase annually at the rate of general inflation plus one percentage point — roughly 3 percent a year. Meanwhile, the union report points out, the Blue Cross/Blue Shield Standard plan has increased at an average annual rate of around 9 percent over the last 11 years. At this rate, according to the report, the version of the Blue Cross/Blue Shield plan that includes vision and dental coverage would be subject to the tax starting in 2015.

Health Care Progress Report: December 7 Special Report: Health Care

Union leaders say that insurers will be compelled to pass on the cost of the tax to employees or cut benefits to avoid the tax.

"The Senate excise tax was intended to target luxurious plans, but ultimately... as currently drafted the tax will turn our Chevy plans into Yugo plans," said Fred Rolando, president of the National Association of Letter Carriers (NALC).

The union leaders who spoke with reporters today said they are unconvinced the cost containment measures currently in the Senate bill will keep costs from rising at the high rates they have seen for years.

Instead of subjecting so many federal health plans to the tax once their costs increase, Communications Workers of America President Larry Cohen said the Senate should take up the revenue raising methods adopted in the House.The surtax on wealthy Americans and the public option would be better ways to bring in funds and achieve cost savings, he said.

Connolly said the health benefits tax would be stripped of the legislation once the House and the Senate have to merge their bills -- a step that would come after the Senate passes its own bill.

"I'll make a flat out prediction," he said. "Once we sit down in conference, I can assure you the excise tax as currently contained in the Senate bill will not survive."

While the unions would like to see the measure stripped in that process, Cohen said he was not prepared to threaten to withdraw the CWA's support for the overall health care measure if the tax stays in place.

"We're confident with allies like Gerry [Connolly] and the House leadership," he said.

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