Compromise Reached On US Health 'Cadillac Plan' Tax

by Mike Godfrey, Tax-News.com, Washington

19 January 2010

It is understood that the Obama administration, leading Congressional Democrats and union representatives have struck a deal that waters down the Senate's proposal to tax high-end "Cadillac" health plans, potentially smoothing the path towards final passage of the historic healthcare reforms.

Following hours of talks between Democrats and administration officials at the White House last week, reports suggest all parties have agreed to a compromise that would raise the threshold levels for the proposed excise tax and delay its introduction for health plans covered by union contracts.

The Senate healthcare bill as approved on December 24 makes provision for a 40% excise tax from 2013 on insurance companies and plan administrators for any health coverage plan with an annual premium that is above the threshold of USD8,500 for single coverage and USD23,000 for family coverage. It is believed that as a result of the compromise, these thresholds will increase to USD8,900 and USD24,000 respectively, while dental and vision-related elements will not be included in this figure from 2014. The thresholds will be increased by 1% above the rate of inflation annually.

Labor unions have also won a significant concession because plans covered by union contracts will not fall under the excise tax regime until 2018.

Congressional leaders and the administration have been forced into the compromise because the "Cadillac tax" is not supported in the House of Representatives, although President Obama is known to be an advocate of the Senate plan. The House version of the healthcare reform bill is paid for largely by a "surtax" on wealthy individuals, which, it is argued, will be fairer and will affect far fewer people.

Labor unions, some with strong links to Democrat lawmakers in the House, have complained that the excise tax will disadvantage many middle-class taxpayers. However, Republicans now believe that the compromise proposals will make the excise tax system even more unfair because union members would have a significant advantage over those with high-end employer-provided health plans but who are not members of a union.

"Numerous media reports indicate that during their secret negotiations President Obama and Democrat leaders have now cut a deal worth an estimated USD60bn that would exempt union workers from paying this tax for years to come," said a statement from the Republican minority on the House Ways and Means Committee.

"This despite the acknowledgement by House Majority Leader Steny Hoyer (D-MD) that, 'there are a lot of Americans that are not in organized labor that are very concerned about the so-called tax on high-end policies.' Too bad their concerns have been ignored by Congressional Democrats," the Republican statement added.

House and Senate leaders are hopeful that the two competing proposals can be reconciled, voted on and signed by President Obama before he delivers his State of the Union address next month.

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