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Compromise on Excise Tax Moves Democrats Toward Health Care Deal

y Drew Armstrong and Alex Wayne, CQ Staff

January 14, 2010 -- A compromise version of an excise tax on high-cost health insurance plans has won support from organized labor, pushing Democrats a giant step closer to a final deal on a health care overhaul.

Richard Trumka, president of the AFL-CIO, said during an afternoon conference call with reporters that union leaders approached negotiations with the White House and congressional leaders with one overriding goal in mind—getting a bill signed into law.

They were operating, he said, under "difficult restraints"—budgetary concerns that permeated discussions about the mix of revenue-raisers and coverage improvements that form the crux of the legislation.

"We have seen tremendous progress over the last couple of days," Trumka said. "We're continuing to fight to increase our priorities in the health care reform bill. It's a long fight, and it's not over yet, but we'll continue to encourage Democrats to fight for a bill."

A senior White House official said Thursday that resolving the excise tax question removed what the Obama administration viewed as the largest obstacle to getting a deal on a final package.

"We think that by dealing with this issue, which many had speculated would be the most potentially troubling issue . . . everyone thinks we've taken a big step," said the senior official.

Democratic leaders were hoping to seal a deal on the broad outlines of a final bill by sometime Friday. A number of issues apart from the financing provisions still remained to be resolved.

The Hill negotiators planned to return to the White House later Thursday, after President Obama addressed a House Democratic Caucus meeting at the Capitol Visitor Center to appeal to lawmakers to support the emerging final bill.

House Majority Leader Steny H. Hoyer, D-Md., said a final agreement by Friday is "a goal, not a deadline. We're going to work until we get thus done. We get closer every time we meet. I'm very optimistic about our ability to get this done soon."

Rep. Robert E. Andrews, D-N.J., a labor ally, said Thursday that the breakthrough on the excise tax was crucial to completing work on the bill, since both Obama and the Senate insisted such a levy had to be part of the financing package.

"There's clear momentum. This issue's pivotal, and the apparent agreement on this issue is very, very encouraging."

Adjusting the Tax
Earlier in the day, Gerald McEntee, president of the American Federation of State, County and Municipal Employees (AFSCME), said, "We do like the way it's shaping up, but it's still not finished. We've got to see a final product."

McEntee said a "committee" of seven labor leaders negotiated the agreement. "We were all on the same page, at the end—after some people got hit over the head."

Other unions that were party to the agreement include the American Federation of Teachers, National Education Association, United Auto Workers, Communications Workers of America, International Brotherhood of Electrical Workers and Service Employees International Union.

Labor leaders spent much of Wednesday at the White House, where aides shuttled back and forth between them and top Democratic leaders from the House and Senate who were working with President Obama all day on resolving key elements of the health care overhaul.

The Senate's health care bill (HR 3590) would draw much of its revenue from an excise tax starting in 2013 on employer-provided insurance plans costing more than $8,500 for individuals or $23,000 for family coverage. The House bill (HR 3962) instead would impose an income surtax of 5.4 percent on individuals earning more than $500,000 or couples with incomes above $1 million.

Under the compromise struck with the labor leaders, the tax would kick in for health plans costing $8,900 for individuals and $24,000 or more for family coverage beginning in 2013. That threshold would still rise at inflation plus 1 percentage point, as in the Senate bill. Unions with collective bargaining agreements would have a five-year grace period before their insurance plans would become subject to the tax, in 2018.

There would be higher thresholds for plans that have high costs because of the age or gender of their employees. Various groups at high risk because of their occupations already receive special treatment under the Senate bill.

The agreement would allow the tax threshold to be adjusted upwards if medical costs grow at unexpected rates before 2013, when the tax kicks in. If, for example, medical costs rise unexpectedly and drive up insurance premiums beyond the amount projected by policy makers writing the tax provision, the initial threshold of $24,000 for a family and $8,900 for an individual would go up by a corresponding amount.

Dental and vision benefits would be removed from the calculation of the threshold costs, and insurance plans offered by state and local governments, as well as plans covered by collective bargaining agreements, would be exempted from the tax until 2018—long enough for current agreements to expire and to permit negotiation of new contracts.

Starting in 2018, state and local government employers—but not private companies with collective bargaining pacts—could shop for insurance on the new exchanges that the legislation would create.

The White House was able to preserve what it called an important priority—the rate of inflation by which the threshold grows. Because the tax threshold for plans will be grow at inflation plus 1 percent each year, a rate well below the historical growth of insurance premiums, more and more plans will eventually fall under the tax if health care spending continues to rise.

There are various carveouts in the deal, as well. Seventeen state that have high insurance costs will get a three-year transition period where they have a higher threshold than other states. The higher threshold will phase out by 2016, however.

Trumka said the changes in the excise tax would reduce the projected revenue it would yield over 10 years, from an estimated $150 billion to $90 billion.

That money will have to be made up with additional revenue from other sources, to keep costs down for the final bill. The pharmaceutical industry has already agreed to accept a hit bigger than the $80 billion it originally negotiated in early talks with the White House. Medical device makers could also face additional fees.

And lawmakers could adjust the details of an increased Medicare payroll tax on the wealthiest Americans that is part of the Senate-passed bill.

The union leaders said that the compromise revenue measures set them on the path to endorsing the final bill.

"If continued improvements are made, we will, and proudly," Trumka said.

It will also make a difference in union support for Democrats during the coming 2010 mid-term elections. "We think it will help us," Trumka said.

Trumka said that the grace period for plans subject to collective bargaining agreements would let unions adjust. "It's a transition period . . . akin to the period that the insurance companies got."

By 2018, union leaders hope cost-control measures elsewhere in the bill will drive down overall health care costs so that even the more expensive plans are not bumping up against the tax threshold.

"We're hoping the bill will do what it's designed to do between now and 2018 and all the cost containment measures will start to ratchet down on health care costs . . . Hopefully no American will bump up against the excise tax," Trumka said.

Kathleen Hunter contributed to this story.

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