Home » Blog » Breakthrough!

Breakthrough!

The White House reached an agreement with Labor leaders today over the controversial excise tax. Unions had major concerns with the tax on high-cost plans, as collective bargaining agreements have historically resulted in more generous benefits as opposed to an increase in wages. In addition, these agreements are often multi-year deals (as opposed to year-to-year agreements in non-union firms) and as a result labor advocates felt that the tax would unfairly hit many middle-class families for years to come. Below are the changes, and now that the revenue provision is supported by groups like the SEIU and AFL-CIO the House should similarly follow suit:

-Excise tax threshold INCREASED from $8,500/$23,000 for individuals/families to $8,9000/$24,000, begins in 2013.
-Indexing of threshold UNCHANGED at CPI (inflation)+1% (important cost-containment mechanism as health inflation is comparatively greater)
-After 2015, tax threshold EXCLUDES dental and vision plans for ALL Americans (around a $2,000 value)
-INCREASED threshold adjustments for plans with high number of older workers, women, high risk individuals and qualified retirees.
-Delay of tax until 2018 for unions and state/local employee plans to be able to re-negotiate their collective bargaining agreements
-Open the Exchange to ALL employer plans by 2017

The final clause is extremely significant, as it establishes validity that the future Exchange will not just be another high-risk pool subject to adverse selection for those outside the group market. When large companies enter the Exchange, new-found bargaining power can better hold insurers to adequate consumer protections and high-value care. Insurers will want to go after the increased market share, and more customers in a regulated market means more effective innovation and competition. When companies that have been successful at holding down health care costs (like Safeway) are able to quickly enter the Exchange, transparency mechanisms within can translate these effective practices across organizations and industries.

The compromise sacrifices $60B of revenue over 10 years, so lawmakers will have to include another source (most likely the increased Medicare payroll/investment tax). This was the snowball-at-the peak though, as the rest of the spending differences couldn’t be addressed until the financing was there. As such, a bill may be score-able enough to be sent to CBO by tomorrow while Congress works out non-budgetary differences (that Obama will be sure to address in today’s Issues Conference {Obama’s remarks at 7:30 in the video} with the House Democratic Caucus). The CBO may need as many as 10 days to score the bill, though, and some reports indicate that the President’s Signature/State of the Union Address combo may even get pushed back to February 9th.

Tags: