Cadillac health care tax is closer to law

An excise tax targeting so-called Cadillac health care plans appears to be closer to becoming law, despite intense opposition from labor groups, including those representing federal workers.

The Senate's health care bill, approved on Christmas Eve, would levy a 40 percent tax to be paid by insurers on the amount a health care plan's total annual premiums increase above certain threshold levels -- $8,500 for individual plans, and $23,000 for family plans.

Supporters of the tax argue it will help pay for the overall bill's costs while curbing spiraling medical expenses. But critics, including federal employee unions such as the American Federation of Government Employees and the National Treasury Employees Union, claim the tax could hurt middle-class policyholders by reducing benefits and increasing out-of-pocket costs. The House version of the health care legislation doesn't include the excise tax, but instead pays for the bill's costs with a surcharge on incomes above $1 million.

According to several news outlets, including Government Executive's sister publication CongressDaily, President Obama has pushed House Democratic leaders to adopt the excise tax included in the Senate bill.

Daniel Adcock, legislative director for the National Active and Retired Federal Employees Association, said it is unlikely lawmakers will remove the excise tax from the final version of the legislation, but it's possible the House is considering how to mitigate its effect on seniors. One alternative would be to increase the annual premium threshold on plans enrolling several retirees, Adcock said, although he wasn't sure if the Federal Employees Health Benefits Program, which covers retirees as well as current government workers, would qualify.

Adcock said he was still concerned the excise tax could hurt federal employees in the future.

"What today might seem like Cadillac coverage might tomorrow seem like Ford or Chevy coverage," Adcock said. "Cost has been an inexact proxy for determining whether a plan has been overly generous."

Colleen Kelley, president of the National Treasury Employees Union, also opposes the idea.

"[The tax] is just going to end up passed back down to the insured," Kelley said. "It will just end up being an additional cost, an increased premium that enrollees have to pay."

During the debate on the Senate floor, the White House defended the excise tax, claiming it would affect only a small portion of Americans. In a Dec. 16 post on the White House blog, Deputy Director of the National Economic Council Jason Furman said the tax would affect few policyholders. Those who are affected could see higher wages, Furman said, as insurers find ways to make their plans more efficient and employees see less money deducted from their paychecks for health care costs.

"Getting a pay raise is not what most people would call a tax increase," Furman wrote.

Rather than use a conference committee to reconcile the different versions passed by both chambers, the House is expected to alter and adopt the Senate's version, with the expectation that the Senate will pass the updated version and send it to the president during the next few weeks.