Tentative Agreement Reached on Excise Tax on High-Cost Plans

Democratic negotiators and union leaders on Thursday reached a deal to scale back the proposed excise tax on high-cost insurance plans, a proposal that has proven to be a major sticking point during health care reform negotiations, the Wall Street Journal reports (Meckler/Bendavid, Wall Street Journal, 1/15).

Under the original Senate health care reform bill (HR 3590), starting in 2013 a 40% excise tax would be levied on health care plans costing $8,500 annually for individuals and $23,000 annually for families. The proposal met criticism from House liberals and organized labor groups, who often negotiate for better benefits instead of increased wages.

Thursday's negotiated deal would:

• Increase the threshold for the excise tax to $8,900 annually for individuals and $24,000 annually for families;
• Increase the threshold even more -- to perhaps $27,000 annually for a family -- for those in high-risk jobs, such as construction workers and police officers, and for plans with large numbers of older or female beneficiaries;
• Exclude the cost of dental and vision coverage from the threshold calculations, starting in 2015;
• Exempt state and local government employees and collectively bargained health plans from the tax until 2018 (Pear/Greenhouse, New York Times, 1/15);
• Grant 17 states with high insurance costs a three-year grace period during which they would have higher thresholds than other states; and
• Set the threshold at which plans are eligible for the tax at 1% above the rate of inflation annually (Armstrong/Wayne, CQ Today, 1/14).

Union officials said that under the agreement, starting in 2017 companies with unionized workers would be allowed to purchase coverage from the new health insurance exchange, which is designed to help individuals and small businesses buy affordable insurance.

The White House said that element of the agreement is not yet final but that they would like to open the exchange to more groups over time (Wall Street Journal, 1/15).

Deal Creates Potential Funding Gap

AFL-CIO President Richard Trumka, a key negotiator of the deal, said that the new deal leaves Democrats with almost a $60 billion funding gap in their health reform bill. The Senate's original proposed excise tax would raise about $149 billion over 10 years, but the new deal would raise $90 billion over that period of time, according to CongressDaily.

A White House official said that there is no exact estimate of how large the spending gap would be, nor a plan as to how it would be filled.

Rep. Frank Pallone (D-N.J.) said, "We can make up the difference with some of the other revenue raised in the bill," but he did not elaborate (Edney, CongressDaily, 1/14).

Politico reports that to make up for the lost revenue, Democrats have asked two industries that already have pledged money toward reform to increase their contribution.

Democrats have asked the hospital industry, which promised $155 billion in a deal with the White House last summer, to contribute an additional $15 billion in concessions. In addition, the pharmaceutical industry has been asked to contribute an additional $10 billion, on top of the $80 billion over 10 years the industry already has pledged (Budoff Brown/O'Connor, Politico, 1/14).

Overcoming a Hurdle?

A senior White House official said that "by dealing with" the excise tax, "which many had speculated would be the most potentially troubling issue, ... everyone thinks we've taken a big step."

Union leaders indicated that the new deal is a major step in moving them toward endorsing the final health care bill. "If continued improvements are made, we will, and proudly," endorse the legislation, Trumka said (CQ Today, 1/14).

However, Rep. Joe Courtney (D-Conn.), who opposes any excise tax, noted that this was a deal reached between the White House and organized labor. "My belief is that we still have our own opportunity to weigh in on this. So it's not going to be over, even if there is some type of result from the discussions going on," he said. He added that unions still are seeking to tie the threshold increases to the rate of cost increases in health care (Politico, 1/14).

Observers have noted that if the threshold grows by 1% above the rate of inflation each year -- which is significantly lower than the historical growth of insurance premiums -- more plans would be taxed each year if health care spending continues to rise at its current rates (CQ Today, 1/14).