Health Reform’s Union Problem

Tim Fernholz observes that the Senate version of health reform has a big problem with Big Labor:

But there is a broader political problem: The single largest source of revenue to fund health care reform — $215 billion — is an excise tax on insurers for health-care plans that cost more than $8,000 for individuals or $21,000 for families, which is in turn linked to inflation. The average cost of an employer-provided family health care plan is $13,375; according to The Center for Budget and Policy Priorities, 90 percent of family plans in 2013 will have premiums below $21,000. But A significant bloc of Congressional Democrats — 156 representatives — and their allies in the labor movement are opposed to this provision, largely because unions have often forgone wage increases in favor of protecting their workers’ benefits, leaving them more vulnerable to any costs passed on to employers by insurance companies. Here is the letter [PDF] they sent to Speaker Nancy Pelosi. […]

One thing is for certain: Labor is serious about stopping the excise tax — so much so that new AFL-CIO President Richard Trumka has made leaving it out a necessary condition for his coalition to support the bill.

I understand why some unions see this stance as serving the interests of their members. But the reality of the matter is that Trumka is just wrong on the policy merits here. There’s no good reason for the tax code to privilege compensation taken in the form of health insurance over compensation taken in the form of money. And Max Baucus structured the phase-out of that tax subsidy in a thoughtful way that will be progressive in the short- and medium-term and non-disruptive to the vast majority of people’s lives. The excise tax also makes the bill genuinely deficit neutral, as opposed to the kind of semi-fake deficit neutrality* of the House version of the bill.


One might say that the larger political problem for the Democratic leadership is that earlier this year they proved themselves pathetically unable to deliver on labor’s key priority — the Employee Free Choice Act. That was an issue where union leaders were right on the merits, and the objective significance of the issue to the interests of union members and union leaders alike was much larger. Had Democratic leaders delivered on Employee Free Choice they would be in a very strong position to ask the AFL-CIO to just eat something it finds mildly unpalatable in the broader interests of making progressive governance work. But they didn’t. And it looks to a lot of folks like they barely even tried.

The House bill is structured a bit like this:

In other words, surpluses in the early years make up for deficits in the later years. But since time doesn’t actually stop when the CBO ten-year scoring window expires, what you’re left with is legislation that worsens the long-run fiscal outlook. That’s not really so awful since it basically just means that you’ll need to change the law sometime in the next ten years, and the law will definitely be changed in the next ten years anyway. But I’d say it’s definitely worse than the more robust form of deficit neutrality given by a bill that includes a revenue source which grows over time in line with costs.