Unions agree to compromise on ‘Cadillac tax’ for healthcare

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The White House and labor leaders agreed Thursday on a formula to tax high-cost insurance plans, removing one of the last obstacles to President Obama’s healthcare overhaul, officials said.

Under the agreement, reached after an intense round of negotiations this week, union leaders dropped their opposition to the so-called Cadillac tax in exchange for concessions to limit its scope. Organized labor had bitterly opposed the healthcare tax, arguing that union members had negotiated generous benefits in lieu of pay increases.

The compromise would raise the threshold for family plans subject to the tax from $23,000 to $24,000 and exempt the cost of dental and vision plans.

It also would postpone the tax’s application to healthcare plans negotiated under union contracts.

“This is a milestone,” said AFL-CIO President Richard Trumka, who helped lead the negotiations.

Senior Democrats must now take the proposed financing package to rank-and-file lawmakers in the House and Senate -- and find revenue sources to offset reductions in the Cadillac tax. Late Thursday night, Democratic leaders returned to the White House to try to reconcile differences between the House and Senate healthcare bills.

Labor leaders also will have to convince their members that the watered-down Cadillac tax is not a betrayal of Obama’s campaign promise to oppose new taxes on their benefits.

Addressing the House Democratic Caucus at the Capitol on Thursday, Obama candidly acknowledged the political challenges the healthcare overhaul would pose for lawmakers ahead of November’s midterm elections.

“Believe me, I know how big a lift this has been; I see the polls,” Obama said. But he reassured party lawmakers that the climate would shift once voters learned more about the bill’s effect.

“If Republicans want to campaign against what we’ve done, by standing up for the status quo and for insurance companies over American families and businesses, that is a fight I want to have,” Obama said.

Republicans immediately criticized the Cadillac-tax compromise, especially the provision postponing its application to union health plans until 2018. Labor leaders said that transition time was needed to accommodate unions and employers with multiyear agreements.

Antonia Ferrier, a spokeswoman for House Republican leader John A. Boehner of Ohio, said: “This union kickback is the latest in a long line of backroom payoffs and sweetheart deals on a healthcare bill that the American people overwhelmingly do not support. A lot of people across the country will be angry, and who can blame them.”

But several leading labor supporters in the House hailed the deal between the White House and a coalition of powerful unions, including the AFL-CIO, the Service Employees International Union and the National Education Assn.

“We should be congratulating organized labor for working so hard for all working Americans,” Rep. Lynn Woolsey (D-Petaluma) said Thursday evening.

Democrats across the party’s ideological spectrum are eager to wrap up the healthcare debate quickly. They hope to complete work on the legislation in time for Obama’s State of the Union address, expected to take place early next month.

“No issue will put in jeopardy the passage of health reform,” said Rep. Rosa DeLauro (D-Conn.), a leading champion of abortion rights. The question of how the healthcare overhaul will deal with abortion services is still on the table.

Under Thursday’s compromise, individual healthcare plans valued at $8,900 or more and family plans worth $24,000 or more would be subject to a 40% excise tax. There would be higher thresholds for plans covering people in high-risk professions and high-cost areas, and for plans with large numbers of older people and women -- whose care tends to be more expensive.

The Senate bill that passed last month put the thresholds at $8,500 for an individual plan and $23,000 for family plans, with fewer exemptions.

In a bid to encourage employers not to drop supplemental benefits, the compromise would allow the cost of dental and vision coverage to be excluded from the calculation beginning in 2015.

The biggest victory for unions came in provisions that would exempt policies covering workers in collective-bargaining agreements, as well as state and local employees, until 2018.

Labor leaders said that another element of the compromise would allow unions to buy plans in the new insurance exchanges, where providers will face more stringent regulation.

The exchanges originally were envisioned for individuals who do not get coverage through their jobs and for small businesses. White House officials said that issue still was being negotiated.

House Democratic leaders and administration officials on Thursday would not discuss how they would make up for revenue lost as a result of the Cadillac tax compromise. In its original version, the tax would have generated an estimated $149 billion over the next decade. Union leaders said the scaled-back version would yield approximately $60 billion.

Democrats familiar with the negotiations said a leading option was to go along with a Senate proposal to hike the Medicare payroll tax on upper-income earners -- and possibly expand it to cover investment income rather than wages alone.

While declining to comment on specifics, White House spokesman Dan Pfeiffer said: “Rest assured. . . . The president’s commitment to having a bill that reduces the deficit, that doesn’t add a penny to the deficit, remains consistent.”