Special Deal for Labor Unions in Health Care Bill

The labor unions have been fighting the Senate health care bill for some time now--specifically, the provision that levies high taxes on "Cadillac" plans that exceed certain maximums.  That was expected to be a sticking point in the negotiations between the Senate and the House, but as Samuel Johnson once said, "the prospect of being hanged focuses the mind wonderfully."  With the potential loss of their 60 vote majority lurking ahead, they can't dawdle on the details; it's time to haul in their lente and festina like hell.  

And so it looks like they may have reached a deal sooner than otherwise expected: unions get a special two-year exclusion from the tax.

Presumably, the unions plan to go back and get their exclusion extended every few years.  Otherwise, the deal doesn't make much sense.  The ostensible reason for the respite is to allow them to renegotiate new collective bargaining agreements, but in these inflationary times, how many collective bargaining agreements last longer than three years?  I could be wrong about that, but unless I am, 2013 is plenty far enough away for most of the unions in question to negotiate better contracts.  

Giving them an extra two years seems like acknowledging that they can't negotiate better contracts, a situation that won't really change very much after the recession is over for many of the unions in question.  Moreover, trading wage gains for less generous health benefits arguably gets very complicated for unions with multi-employer plans.  Not least because the workers will not be feuding with insurance plans over claim denial, but with the unions themselves.

The next question is: where do they make up the lost money?  There are three obvious places left: use some part of the "millionaire's tax" that the House bill imposed; beef up the scope of the "automatic" cost cuts; or slash provider reimbursements even further.  The former is problematic because it hits New York and California's powerful delegations the hardest.  And as far as I can tell the trend has been towards weakening, rather than strengthening, the automatic cost cutting authority.  So I expect there will be some enhancement to the "productivity indexing" for provider payments, and/or a new special tax on one or more classes of provider.

Of course, they could just eat the concession; they have wiggle room in the CBO estimates.  But I doubt they will.  For one thing, they will probably have to make other concessions that eat up the wiggle room.  For another, they like making each bill more deficit-busting than the last; I fully expect whatever monstrosity emerges from this quasi-conference will have a CBO score even better than the final Senate bill.  So they'll probably be looking to make up the money somewhere.
This may backfire.  If you think that the Nebraska deal was unpopular, just wait until the administration announces higher taxes on everyone but its friends in the labor movement.  We may see if the popularity of the health care bill still has room to fall.

Update:  The more I think about this, the more I think it's a huge mistake.  Support for unions is at a record low, and the GM deal has already made people think that the Democrats are doing sweetheart deals for Big Labor with our money.  Republicans will have a field day.

Update II:  Early reports understated the deal, which now has the excise tax kicking in for labor unions in 2018.  Even more popular, I expect, and even less plausible as a necessary move to let them renegotiate their contracts.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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