Ever since I wrote this piece on the excise tax in October .... very little has changed. Today, President Obama meets with union leaders to hear their objections to the tax, but they don't expect to come away with much. My hope is that they come away with modification's to the tax, like the one suggested by Brookings' Henry Aaron that would make sure health care plans that are inefficient actually bear the brunt of the tax, or even an exemption for plans that are subject to union bargains until those agreements are next renewed.
I understand why the AFL-CIO's dynamic new president, Richard Trumka, is fighting the excise tax: He's not right about why it is being proposed, the extent of its burden on workers, or what it's ultimate effects will be. It's unfortunate that union workers live in a system where the tax system favors benefits over wages for no apparent reason and that transitioning out of that system will take time, but there are pros: Because the excise tax acts to as a cost-control measure, it will drive down premiums over time. Though many labor folks are skeptical of economists' claims -- even Paul Krugman's -- it does seem likely that higher wages will be result of this change.
Ezra Klein is right that failing to tax employer-provided health care is about a $250 billion subsidy, and that it would be much more progressive to simply to cap the exclusion, which would let people pay their normal tax rates on health insurance benefits rather than pay however much of the 40 percent surtax insurance companies can pass along to employees with expensive plans. I wonder how much more succesful a labor campaign based around that policy -- as a fair way to share the costs of health care reform among everyone -- would have been. Counterfactuals aside, one hopes whatever the final compromise is will ease the transition to the new health care framework as much as possible, so that future union workers can have affordable health care, too. As it stands, though, failing to pass reform will likely mean the eventual death of employer health benefits. The AFL told me that!
-- Tim Fernholz
