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Unions Cut Special Deal on Health Taxes

The Wall Street Journal

Unions Cut Special Deal on Health Taxes

Negotiators Agree to Delay Levies on Workers’ High-End Policies Until 2018 Amid Push to Finalize Legislation by the Weekend

Democratic negotiators acceded to union demands for a scaled-back tax on high-end health-insurance plans, exempting union contracts from the tax until 2018, five years beyond the start date for other workers.

The deal helped Democrats clear a key hurdle, but the break for organized labor added to the pressure to find new revenue to pay for their health bill, which is designed to give coverage to tens of millions of uninsured Americans. Negotiators were considering increasing the financial hit on drug makers, nursing homes and medical-device makers, according to people familiar with the discussions.

The tax on high-value insurance plans was included in the Senate’s version of the bill but not the House’s, and has been one of the main unresolved issues as Democrats work to combine measures passed by the two chambers late last year.

Unions, as well as many House Democrats, are fiercely opposed to the tax on "Cadillac" insurance plans, which they say will hit many middle-class workers and undermine benefits won by unions.

President Barack Obama has supported the measure as a way to pay for the legislation and control overall health-care spending. The changes mean that the tax will raise about $90 billion over 10 years, down from $149 billion in the Senate bill, labor officials said.

Mr. Obama traveled to Capitol Hill to reassure House Democrats who feared a vote for the bill would be politically damaging. "I know how big a lift this has been. I see the polls," Mr. Obama said. He promised to wage a "great campaign from one end of the country to the other" to sell the legislation to the public should it become law.

Republicans seized on the delay for unionized workers to say the deal was unfair to workers not in unions, who would be forced to pay the tax five years earlier, starting in 2013.

"The White House and congressional Democrats are picking one group of workers over another," said Antonia Ferrier, spokeswoman for House Minority Leader John Boehner. "If this sounds discriminatory, well it is."

J.P. Fielder, a spokesman for the U.S. Chamber of Commerce, said that like the unions, the business community didn’t like the tax and supported scaling it back. But he said it seemed unfair for unionized workers to be exempted for five years when others were not.

In addition to softening the tax on high-end plans, Democrats plan to increase subsidies for lower earners to buy health insurance. To pay for such changes, Democrats are considering levying an additional $10 billion in fees on medical-device makers, for a total of $30 billion over 10 years. But it wasn’t a done deal as the House was showing resistance.

Congressional negotiators have also told drug makers they were considering decreasing reimbursements under government health programs or increasing fees by an additional $10 billion over a decade, beyond the $80 billion in concessions the industry agreed last year, according to people familiar with the negotiations.

The union deal comes as the White House and congressional leaders pressed to reach a final agreement on key parts of health-care legislation by the weekend.

Top congressional Democrats negotiated with the president into the night Thursday, the second consecutive day of lengthy talks. They hoped to have an agreement ready for assessment by the Congressional Budget Office as soon as Friday.

Issues that have yet to be resolved, aides said, included how to structure the new exchanges where Americans would buy coverage, how much to increase the Medicare payroll tax, and how to handle restrictions on abortion coverage.

Union leaders pressed their case for the changes on the high-end insurance tax at two White House meetings this week, including a two-hour session with Mr. Obama.

The dispute threatened to drive a wedge between the White House and unions, which strongly backed Mr. Obama’s presidential campaign. The president of the AFL-CIO, Richard Trumka, this week suggested that without changes to this provision, unions might be less likely to help Democrats on the ballot this fall and Republicans could take back the House. Another union threatened to pull support for the health bill, Mr. Obama’s top legislative priority.

After Thursday’s agreement, labor leaders had warmer words for the president and said they would promote the deal among Democrats.

Under the Senate bill, health insurers would have paid a 40% tax on premiums that exceed $8,500 annually for individuals, or $23,000 for family plans. The agreement reached Thursday raises those thresholds slightly, to $8,900 for individuals and $24,000 for families, with annual increases tied to one point above the Consumer Price Index, labor and White House officials said.

The threshold increases further if health-care costs rise faster than predicted between now and 2013, when the tax takes effect, officials said.

In addition, the value of dental and vision benefits wouldn’t count toward the thresholds, and the threshold would rise further for plans where premiums were higher because the work force was older or had more women. There were also adjustments for 17 states with particularly high health costs.

"We think we’ve done a great job for all working Americans out there and that includes union members," Mr. Trumka said.

—Jonathan D. Rockoff and Janet Adamy contributed to this article.

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