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April 10, 2013 / Paul Levy

Back to the insurance tax issue

Wednesday, October 14, 2009, 4:03am

Watch the House-Senate reconciliation process closely after the Senate acts and the health care bills move to conference committee. As I mentioned weeks ago, the scope of the so-called “Cadillac” tax on insurance premiums will be a key issue.

Why? Because many insurance plans adopted as part of collective bargaining agreements would be covered by the Senate-proposed tax. There will be no such provision in the House bill.

As reported by the Commonwealth Fund, members of the House are already gearing up on this issue.

It would be a odd policy choice, indeed, if the Democratic majority gives a special exemption to union health plans while taxing non-union benefits.

A more democratic approach and one that takes advantage of the existing progressivity of the US tax system would be to eliminate or scale back the current tax exemption for all employer sponsored insurance plans. Higher income taxpayers (whether union members or not) with higher marginal tax rates would pay proportionately more under that kind of proposal.

But I predict that you will not see a real public debate on this issue. It will be decided in the closed door sessions of the conference committee and placed before both houses as an understated component of the final bill. It will be a bargaining chip that the House uses in returning for giving up the public option insurance plan. The Obama administration, which feels it owes its existence to major financial and organizational support from the SEIU and other unions but has been unable to deliver on explicit pro-labor bills, will be quietly lobbying in this manner.

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