The Good and Bad of the New Excise Tax Deal

Democrats and the White House reached a deal with unions over the excise -- or "Cadillac" -- tax. The unions pushed back against the original tax, having fought for years to move more compensation into plush insurance plans. So Democrats had to broker a deal to win their approval. Now they have. Here's what the deal does:

Two things that stay the same are:
1) The 40% tax rate
2) The rate at which the tax threshold grows

Three things that change are:
1) The threshold goes up (barely!) from $8500 to $8,900 for individuals and $23,000 to $24,000 for families.
2) The tax threshold won't count vision and dental coverage; and there are additional adjustments for age and gender.
3) Unions get a five year exemption from the tax.

In the long run, the tax is basically the exact same -- same rate, similar threshold, same inflation indexing. In the short run, the deal is a little uglier. First, there's the money. The changes add $60 billion to the bill, cutting the excise tax's expected savings by 40 percent. The administration now has to track down some of that money by. Second, there's the optics. The unions say they needed the exemption to renegotiate their compensation, but the excise tax wasn't going to kick in until 2013 anyway. Now they have 10 years to negotiate with not only employers about compensation but also their representatives about delaying the excise tax further and further into the future. I'm worried about Megan making sense here: "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."

Some good news for health reform: The deal allegedly extends the exchanges to include unions in 2017. The exchanges would create a managed marketplace where consumers could shop for state and/or nationally approved health care plans (with community rating, no pre-existing conditions, penalties for rescission, and so forth) that break down their benefits as clearly as a Best Buy page breaks down a Dell computer's specs. In theory, this would provide transparency and competition and innovation. Transparency would help families pick the right plan, competition would control health care inflation, and innovation might help change the way we pay for care, entirely.