Cadillac Tax: Clunker for Labor, Opportunity for GOP

by Betsy McCaughey | January 21, 2015 12:06 am

There’s one part of Obamacare that even Democrats hate: the Cadillac tax. It doesn’t go into effect until 2018, but it’s already forcing workers to give up generous tax-free health benefits and roiling union negotiations across the country.


Politics is a game of addition. The growing uproar over this tax may even present an opportunity for Republicans in Congress to woo enough Democratic votes to pass changes to Obamacare and overcome President Obama’s likely veto.

As far back as 2009, Obama has said he wants to penalize “fancy plans that end up driving up costs.” The Affordable Care Act slaps a 40 percent tax on these plans, beginning in 2018.

But it’s not just fancy people who have these plans. Blue-collar and union workers have traded cash wages for these generous benefits over the years. Union leader Gerald McEntee blasted Obama’s idea as “bull****.”

Now the manure is hitting the fan. In 2018, about half of companies will have to pay the tax if they don’t reduce benefits below what Washington considers “excessive”: $10,200 for individuals and $27,500 for families. Companies are already raising deductibles or skimping on coverage, according to Towers Watson benefits consultants.

What makes it worse is that the public was falsely reassured in 2010 that Obamacare wouldn’t tax health benefits. When the value of your health benefits started to appear on your W-2, raising fears that it would be taxed, White House spokesperson Stephanie Cutter said, “Don’t believe it. … You will absolutely not pay taxes on these benefits.” Obamacare architect Jonathan Gruber said he thought the administration would get away with the deception “by mislabeling it, calling it a tax on insurance plans rather than a tax on people.”

Union leaders weren’t fooled. In July 2013, three large unions, including the Teamsters, sent a letter to congressional Democrats warning that unless the Affordable Care Act is changed, it “will destroy the very health and well-being of our members.” Recalling the promise that “if we liked the health plans we have now, we could keep them, ” the union leaders were blunt: “We voted for you. We have a problem; you need to fix it.”

But the Democrats didn’t fix it. Now unions going into contract negotiations are faced with losing their gold-plated health benefits. Public-sector unions customarily have the richest benefits. They — or taxpayers — have the most to lose. From San Antonio, Texas, to Columbus, Ohio, and New Hampshire to California, governments are preparing to raise deductibles and reduce benefits. Benefits for police in some New Jersey towns run $44,000 per family. Gov. Chris Christie reminded constituents that it was Obama — “not the Republican governor of New Jersey” — who labeled the state’s health benefits as “a Cadillac plan.”

New York City Mayor Bill de Blasio is evading the issue as he negotiates contracts with the major municipal unions. Rather than force the unions to compromise on benefits, de Blasio suggested that the city could stay below the taxable Cadillac level by achieving “health care savings,” whatever that means. The problem is, that may mean local taxpayers get socked with actually paying the whopping 40 percent tax, something most other municipalities deem unaffordable.

For example, cities in New Hampshire also wanted to kick the can down the road, but without taking the same risk of getting clobbered. City negotiators required that contracts be reopened if the Cadillac tax threatened.

With unions feeling the pressure on their health benefits, Republicans in Congress should draft legislation to repeal the Cadillac tax and attach it to any Obamacare “fix” they are serious about actually enacting. Last week, the House passed a bill to restore the 40-hour workweek, but with only 252 votes, just shy of the two-thirds majority needed to override a veto. It’s likely more Democratic votes are there for the asking. At the last AFL-CIO convention, union leaders fired up over Obamacare framed a resolution to “nurture relationships with members of all parties.” It quoted former union president George Meany’s view of the Democratic Party: “We don’t run them, and they don’t run us.”

Betsy McCaughey, Ph.D., is chairman of the Committee to Reduce Infection Deaths and a senior fellow at the London Center for Policy Research.

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