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Business, leading Democrats, labor united against 'Cadillac' tax on some health insurance plans

This article first appeared in the St. Louis Beacon, Jan. 12, 2010 - It isn't often that the Missouri Chamber of Commerce sees eye to eye with some Democratic members of the Missouri congressional delegation on health-care reform. But the business group and U.S. Reps. William Lacy Clay and Russ Carnahan, both of St. Louis, agree on this much: The Senate's effort to tax some health-insurance plans is a bad idea.

As Senate Democrats searched last fall for ways to pay for health reforms, the prospect of taxing so-called Cadillac health plans emerged. The inference was that many business and union executives got benefit packages that were so generous that they should be subjected to an excise tax to help cover the cost of health benefits for the uninsured.

The plan, endorsed by President Barack Obama, would impose a 40 percent excise tax on employer-sponsored health insurance plans that exceed about $8,000 for individual plans and $23,000 for family coverage. But many House Democrats are alarmed because the penalties would affect many middle-income workers who had given up pay hikes in exchange for better insurance.

As economist Josh Bivens noted at a conference last week, Senate proponents say their tax "is a Cadillac, but in reality they're about as likely to hit a Chevy."

Protecting the Chevy is the key reason Clay and Carnahan joined 178 other House members last October to urge House Speaker Nancy Pelosi to stand firm against the proposed tax. She heeded the advice, but that didn't stop the Senate from including the tax in its bill.

The issue faded by late December as Obama and congressional leaders rejoiced over meeting a Christmas Eve deadline for passage of the Senate's bill. (The House bill had passed earlier.) But the Cadillac tax issue is heating up again as labor unions and business groups rail against it.

In an interview with the Beacon today, Carnahan told Jo Mannies that he didn't out of hand reject the Senate bill. While emphasizing that he prefers the House approach, which would tax high earners, Carnahan say she is mindful of the fact that supporters of health-care reform have to have a bill that will have the support of 60 senators.

Daniel P. Mehan, president and CEO of the Missouri Chamber of Commerce, says the so-called Cadillac tax is just one of many flaws in the health legislation. He says the bill is flawed mainly because it will mandate an 8 percent payroll tax on businesses not offering health insurance to employees.

He says the tax is a disincentive for companies to offer health insurance on their own because it might be cheaper for them to pay the tax rather than offer health insurance.

"Many (companies) will just drop health insurance," he said, adding that the value of the excise tax is a "false case" in Missouri. "We did a survey and found that only a small number (16 percent) of businesses in Missouri offered this (Cadillac) plan. So if (lawmakers) tell you they are going to tax those plans, with so few people offering them, the remedy is not there. What it will do is soak somebody who's offering these plans. Mostly small businesses offer this (plan), so it's going to hurt them more acutely than others."

In addition, Mehan says, "The proposition that insurance will be more affordable is completely negated. The cost is going to go up and the revenue is going to decline."

At a call-in press conference in Washington last week, economist Bivens, along with former Labor Secretary Robert Reich and Rep. Joe Courtney, D-Conn., weighed in with more ammunition against the proposed tax.

Bivens argued that a better solution would be to tax high incomes rather than high premiums.

"The excise tax is not a progressive levy on lavish plans," he said. "Instead it's a tax that will hit small businesses, older workers and those most in need of health the hardest."

Union leaders argue that the benefits that would be taxed would affect more and more health insurance plans over time. They cite a Congressional Budget Office study that the tax would affect 19 percent of workers with employer-provided coverage -- about 31 million people -- by 2016. The unions also point to another study by Citizens for Tax Justice that predicts that the excise tax would affect households involving 58 million Americans by 2019.

Labor officials say it's misleading to characterize the Senate's proposal as a tax on Cadillac or exceptionally generous plans because the tax would hit a wide range of plans, covering millions and millions of workers.

President Obama met Monday afternoon with laborleaders. The White House called the meeting "productive," but didn't indicate whether the president had beenswayed by union opposition to taxing high-cost health insurance plans.

It's unclear how many Missourians would be affected by the proposed tax. Some Missouri Democrats have yet to say how many of their constituents would be affected. They apparently want to avoid adding fuel to what could become a volatile issue as the House and Senate negotiators try to craft a plan that unites the party.

This report also contains information from Dow Jones and the Wall Steet Journal.

Robert Joiner has carved a niche in providing informed reporting about a range of medical issues. He won a Dennis A. Hunt Journalism Award for the Beacon’s "Worlds Apart" series on health-care disparities. His journalism experience includes working at the St. Louis American and the St. Louis Post-Dispatch, where he was a beat reporter, wire editor, editorial writer, columnist, and member of the Washington bureau.

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