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The (mostly) unchanged excise tax

On a 4:30 p.m. conference call, representatives of the labor movement triumphantly announced the details of their excise tax deal, and I'll list them in a moment. Before I do, however, here's the bottom line: The excise tax is virtually unchanged.

The major elements of the excise tax are, first, the threshold at which plans begin getting taxed, and second, how quickly that threshold grows. In the Senate bill, the tax begins on family plans costing $23,000 a year, and that sum grows at the rate of inflation in the Consumer Price Index plus one percentage point (so if inflation that year was 3.3 percent, the threshold would grow by 4.3 percent).

In the excise tax deal announced today, the threshold becomes $24,000, and the growth rate is exactly the same. The basics of the tax are virtually unchanged. The other elements of the deal are that vision and dental coverage aren't included in the taxable cost of the plan; there are adjustments for the age and gender of the pool (so if your insurance is expensive because everyone in your group is 52, there's an adjustment for that); and it doesn't hit union plans until 2018, which gives them time to renegotiate their contracts -- -- presumably rebalancing their compensation away from expensive insurance plans and towards higher wages, which is exactly what the tax is supposed to.

According to the union, these changes shave $60 billion from the tax's revenues in the first 10 years, which is a fair amount that Democrats will have to make up. But insofar as the prospects for long-term cost control go, the excise tax works the same way it did in the Senate bill, applying to virtually all the plans it applied to in the Senate bill, and growing at the same rate -- which is slower than the rate of medical costs -- as it did in the Senate bill.

On the call, the unions seemed very happy with the deal they'd struck. “This is not a time to stop," said Dennis Van Roekel, head of the National Education Association, "and it is surely not a time to turn back.” SEIU's Anna Burger was similarly positive: "We can stand here and say we’re going to implement a health-care plan that is good for working Americans.”

And my hunch is that the administration is similarly pleased: They managed to get the unions on board while leaving the long-term structure of the tax almost unchanged.

By Ezra Klein  |  January 14, 2010; 5:15 PM ET
Categories:  Health Reform  
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Next: White House official: 'The exchanges will open to more and more people'


"...and it doesn't hit union plans until 2018, which gives them time to renegotiate their contracts."

So the unions get an exemption from the tax for FIVE YEARS--for the rest of the country subject to the threshold, the tax goes into effect in 2013? Really?

Funny how you sort of downplayed that, Ezra.

Posted by: Claudius2 | January 14, 2010 5:28 PM | Report abuse

Wonder if union members, as opposed to Yellow Dog Democrat Union Bosses, will be as excited about their "cadillac" healthcare getting wacked with ever growing taxes? Or that more and more of them will get caught up in the "cadillac" tax as time goes on? I'll bet the Republicans will be working to get them excited.

Posted by: RobT1 | January 14, 2010 5:37 PM | Report abuse

How come we can't, just for once, tax rich people who have money rather than middle class people who don't? Economists seem to think this is impossible. Politicians I understand: they either are rich people or are owned by same. But economists? ...

Posted by: janinsanfran | January 14, 2010 5:37 PM | Report abuse

we pay out in 2011,
take in in 2018,
that makes perfect sense.
if you are a politician.

Posted by: simonsays1 | January 14, 2010 5:42 PM | Report abuse

So which is it, simonsays1? Which is the Republican talking point for today? Is it that we tax now and pay out later, or that we pay out now and tax later? The Republican Party can't seem to decide which it wants to argue.

(Hint: the correct answer is that, under any bill under consideration, we pay a little bit in and out now, and pay a lot more in and out later.)

Posted by: dal20402 | January 14, 2010 5:46 PM | Report abuse

It is kind of annoying how a sound policy gets so complicated by the legislative process.

Here's a simple fix to the excise tax:

Any amount over $20,000 gets taxed at 100%. This amount is moved down by $1,000/yr. All unions are allowed to now renegotiate their contracts.

Posted by: donhalljobs | January 14, 2010 5:48 PM | Report abuse

It would have been better policy to link the excise tax to lower actuarial value. That said, I'm in agreement with those who think this is a bad deal for unions. They are just trying to smile and save face. According to one report Obama "was not in a negotiating mood." If only he had shown that kind of steely resolve with the public option and other measures to benefit consumers.

Posted by: bmull | January 14, 2010 5:59 PM | Report abuse

"it doesn't hit union plans until 2018, which gives them time to renegotiate their contracts"

Were you laughing as you typed this? I hope so. They need EIGHT YEARS to renegotiate contracts? Really?

Posted by: ab13 | January 14, 2010 6:00 PM | Report abuse

You missed the most important piece - Trumka said he opened the exchanges for all employers by 2017. Not just union plans, but all plans, according to him.

Posted by: dday212 | January 14, 2010 6:01 PM | Report abuse

This was the first big test of how the former community organizer will approach labor policy. It doesn't look like he's going to go easy on unions.

Posted by: bmull | January 14, 2010 6:11 PM | Report abuse

No wonder unions are tickled with this deal. They saw the writing on the wall, that this tax was going to happen regardless, but they managed to exempt themselves from it for five years.

That's five years that the rest of the country will have to pay this tax while unions don't have to pay a cent. I think anyone receiving five years free from a tax that everyone else has to pay would be tickled pink.

Posted by: blert | January 14, 2010 6:16 PM | Report abuse

Such hackery, Ezra. You were against carve outs for unions in June.

Posted by: greyseale | January 14, 2010 6:22 PM | Report abuse

"it doesn't hit union plans until 2018, which gives them time to renegotiate their contracts"

You, sir, are a hack beyond measure.

Posted by: jcp370 | January 14, 2010 6:30 PM | Report abuse

Ezra is either lying to his readers or stupid.

The excise tax is for 2 Americas: hardworking taxpayers who are not union members (80% of the country) or union goons (20% of the country).

What was done today was unAmerican, divisive, and is a sure loser.

For Exra Klein to spin this as remaining intact is pathetic, but expected.

Posted by: Cornell1984 | January 14, 2010 7:19 PM | Report abuse

There was no chance that WH was going to get easy with out some serious compromises. Giving Labor 5 years and losing $60B revenue (I think 1/3 of the total projection); these are serious give ins to Unions.

However, as Ezra says, to be able to keep the contours of the tax as is more or less; that is good for WH. The number circulated was $28K for a family so doing it by $24K is good for WH.

All in all WH did not cave in, but Union did get respectable concessions. Politically, there is no doubt that Dems owe their votes to Labor, regardless of whether I like, you like or anyone likes. So compromise and taking Labor along on this front was necessary. So I would say, I like the Politics here and the first serious test WH has passed in closing the HCR.

President has done good here, WH has done good here.

Posted by: umesh409 | January 14, 2010 7:29 PM | Report abuse


I'm sorry but you used to seemingly stand for cost control. You argued many times that cost control first off was essential and the second most important part of reform (second to the end to pre-ex/recision). Now you back off and say that $60 billion is nothing. Whose to say its only $60 billion. Whose to say that unions won't get their greedy moronic hands out in 2018. Maybe if they realized that the difference between a $5 copay for prescriptions and a $2 copay is much more than $3 in actuarial value. Maybe then they could actually do what their members need and bargain for wage increases instead of useless "POTENTIAL" health benefits. Wages are real. Health benefits are POTENTIAL. Sure for many its realized but for many its not.

If you keep someone's copay from raising $5 you're potentially saving them money (when and IF they use that healthcare benefit) but if you raise their paycheck $5 an hour you're ABSOLUTELY increasing their wage. How unions don't get this simple concept is beyond me.

Posted by: visionbrkr | January 14, 2010 8:07 PM | Report abuse

Somehow many workers in several years may not be happy with the results of this "deal." As to sixty billion being a lot, over ten years, this is stale peanuts in an annual federal budget of over three trillion a year. Obama will waste this much on his wars in the middle east in just a few months.

Posted by: Aprogressiveindependent | January 14, 2010 8:42 PM | Report abuse

a new two Americas.


Posted by: davidring | January 14, 2010 8:48 PM | Report abuse

Even liberals should be able to do this math: What are the two areas arguably representing the most screwed up areas of our country? Govt and the education system. What two areas are the most unionized? Govt and the education system.

Posted by: silencedogoodreturns | January 14, 2010 8:57 PM | Report abuse

"doesn't hit union plans until 2018"

Gotta love that double standard, and believe me I'm no union basher. How long before this becomes a Republican talking point? (and this time it'll make sense).

Rarely mentioned is that this screws small businesses more than anyone. Fewer than 200 employees and you get killed on rates. At my job a second-hand Chevy family plan costs over $22k. A large company could probably get it for half that.

I'm really starting to regret having voted for this guy.

Posted by: alex50 | January 14, 2010 9:32 PM | Report abuse


I was under the impression the senate bill had CPI for trend, not CPI +1. I could be wrong, but don't think so.

Also, union contracts aren't up for negotiation every year. Some are long term agreements, others good for 1 year. So, it'll take a while to 'renew' all agreements.

Plus, if you forced labor to renegotiate all deals in the year before 2013, it would be virtually impossible for those on the level to do negotiations. They have many contracts under their control, but only need to negotiate 1/3 to 1/4 each year. The workload would likely lead to major problems (meaning deals wouldn't get done, and possibly more disruptions than are necessary.)

Posted by: rat-raceparent | January 14, 2010 10:37 PM | Report abuse


please show me the union contract that is 9 years long. I'd love to see it. And even if there was its called "negotiation". If you're forced to give something up then you GET something. Idiotic unions shouldn't even be negotiating based on benefits, they should be negotiating on wages to pay for "appropriate benefits" for their membership. That's why they're in the mess they are and a major reason healthcare costs so much in this country. People (as Ezra says) have no sense of cost in healthcare because they're way too insulated from it. You're worrying about people having "problems" with negotiations but its people like you that want to force an exchange to open sooner (before its ready) and the other major parts to this reform to happen overnight.

This deal would make Tony Soprano proud and Ezra should stop brushing it under the rug.

Posted by: visionbrkr | January 15, 2010 7:31 AM | Report abuse

visionbrkr - I've done work for companies that had to deal with 10+ year union contracts, it's not that rare. Also, unions are smart to negotiate for benefits over wages, since our stupid tax system makes employer provided benefits artificially cheap.

I'd like to echo umesh here and reiterate that allowing union plans time to renegotiate is a good thing for policy. Remember that the goal of the tax isn't to raise money, it's to create a push away from the tax preference for employer provided benefits over wages. If the whole purpose is to push renegotiation, then an extra 4 years for unions is a tiny cost.

Posted by: etdean1 | January 15, 2010 11:11 AM | Report abuse


but you can't tell me that it can't be done prior to 9 years. If liberals want to force exchanges to open before they are ready. If they want to force insurers to do many of their requirements immediately or before they are ready (see the asinine adjustments to ARRA) then why can't the other side adjust themselves accordingly. This isn't going to be "clean" for anyone. While I will agree with the tax structure i still can't get past the fact that if you saw what a change from an insurers perspective of a $10 to a $15 copay you would never buy the lower copay. Many times (depending on how the actuaries calculate the difference) you'd need to see a doctor 3-4x per month for it to be better for you cost wise to be on the lower copay. Unions just don't get it and never will (IMO)

Posted by: visionbrkr | January 15, 2010 11:34 AM | Report abuse

even though the tax structure of it is screwed up wages are real, benefits are only real when they're USED.

Posted by: visionbrkr | January 15, 2010 11:38 AM | Report abuse

In most cases the renegotiation can be done prior to 9 years. I'm not saying that this compromise is better than the original excise tax, just that it's a good compromise. The 4 year extension isn't long enough to really let the unions profit, they'll still be renegotiating in advance. And while it's probably overkill in most cases, I think it's a good thing for the government to respect private contracts. I have no idea what the unions see in health benefits, maybe it's a source of pride or unions are extra risk averse, but the fact that those benefits come at a 30ish percent discount compared to wages is a huge incentive to get bloated plans. To keep the tax in the bill to help correct that, I'm more than willing to accept the compromise of a minor benefit towards the unions.

Posted by: etdean1 | January 15, 2010 11:49 AM | Report abuse


but the problem is that there is a large constituency that IS being harmed here (ie the small business owner in group health plans). They'll be taxed here (their rates won't be cheaper on the exchange because of the watering down of positive provisions) so they'll be taxed while unions aren't. That's the unfair aspect of it. Take for example a small business owner (independent plumber) Many of them purchase group health policies and say that his wife does their books. If he's 55-64 his rates will absolutely be taxed. What you're doing is punishing him for NOT joining the union. How is it right to FORCE people to join a union (if they don't want to) to get a better health plan deal. If the opposite was happening liberals would be up in arms as they should. That's my main point.

Its not just what unions see in health benefits, those actuarial figures are attributable to all. Insurers actuarily slant their figures to make it more cost effective to go to higher copays so that at some point people won't run to the doctor for every little sniffle and cold like they do. At some point people feel it. For some its $10 to $15 for some its $30 to $40 per visit. The point is unions don't factor that in like non union employers do.

I'm guessing my independent plumber friend didn't buy the election in 2008 like SEIU, AFL-CIO et al did and now he's going to pay for it.

Posted by: visionbrkr | January 15, 2010 1:07 PM | Report abuse

Democrats are toast in 2010.

Posted by: cautious | January 16, 2010 2:27 AM | Report abuse

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