Look for the union payoff

A final step in the closed-door negotiations among Democrats trying to pull together a health-care bill from the versions which passed the House and Senate was the disposition of a tax on Cadillac health plans. Employers generally provide these high-dollar health benefits to two classes of help: corporate executives and union workers.

According to the Kaiser Family Foundation, the average cost for a health insurance plan covering a family is $13,375. The 40 percent tax on Cadillac benefits is slated for adoption once premiums reach about $8,900 for individuals or $24,000 for families – but union negotiators managed to get a carve-out on the tax for an additional five years after the 2013 effective date, purportedly to allow benefits negotiated in current contracts to expire. Others benefiting from exceptions will be residents of certain states where premiums are highest and those in some high-risk occupations. A large percentage of these beneficiaries are union workers as well.

One part of the equation gets little explanation, however. Few seem to be asking what it is that makes a Cadillac plan so costly? To have a plan be significantly more expensive than average it usually requires one or both of two factors to be in play.

In the case of union labor, some of the additional cost comes from the overall group skewing towards older and sicker workers or, more precisely, the coverage of retirees in these plans. With union-dominated heavy industries losing workers as a percentage of the overall labor force, fewer younger laborers are picking up the slack for their more elderly counterparts.

But a larger share of the insurance cost comes from the much more generous benefits afforded to the workers who are enrolled in union-sponsored plans. Employers in union shops haven’t succeeded nearly as well in passing their health care costs on to workers, so they bear a disproportionate burden compared to their nonunion competition. The automotive industry is a prime example, with the toll of providing health care for workers and retirees placing Detroit at a disadvantage of up to $2,000 against automakers not saddled with this sort of overhead cost.

Conversely, with the health care carve-out union workers win twice – once by maintaining these gold-plated plans for several more years at little cost to them and again by skirting the taxes other workers with similar health insurance plans (mostly in the ranks of management) will have to pay for their coverage once collection starts in 2013.

Over the last decade or so unions have eschewed large wage increases, trading them away in order to keep their generous health benefits. With the advent of Obamacare and the prospect of the 40 percent surtax on Cadillac health care plans, those labor leaders who invested heavily in making an Obama presidency a reality threatened to withhold support for the compromise bill if their concerns weren’t addressed. Their millions in political contributions indeed gave them a seat at the table.

But taking away from one corner means a cut on another side if negotiators want to maintain the prospect of reform being budget-neutral, so there has to be some other compromise on costs to make up for the loss of up to $150 billion in revenue over the first decade the bill is enacted. Look for that shortfall to be made up by some group not invited to the confab considering the final health care bill deep within the bowels of the White House. That would be the American people.

Michael Swartz, an architect and editor of Monoblogue, is a Liberty Features Syndicated writer.

This op-ed for LFS cleared on January 22nd. Little did I know when I wrote it that health care would soon be dead.

Author: Michael

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