the union exception

Ezra Klein explains the new version of the excise tax on Cadillac health plans.

The major elements of the excise tax are, first, the threshold at which plans begin getting taxed, and second, how quickly that threshold grows. In the Senate bill, the tax begins on family plans costing $23,000 a year, and that sum grows at the rate of inflation in the Consumer Price Index plus one percentage point (so if inflation that year was 3.3 percent, the threshold would grow by 4.3 percent).

The excise tax on expensive plans is one of the things I like about the Senate's health care bill. It gingerly steps toward counteracting the awful distortion that is tax code-induced employer-provided health insurance, the monster that veils health care costs from consumers, rigidifies labor markets, and inhibits entrepreneurial activity all at once. The employer health insurance tax subsidy should be got rid of completely; this threshold is moving in the wrong direction.

In the excise tax deal announced today, the threshold becomes $24,000, and the growth rate is exactly the same. The basics of the tax are virtually unchanged. The other elements of the deal are that vision and dental coverage aren't included in the taxable cost of the plan; there are adjustments for the age and gender of the pool (so if your insurance is expensive because everyone in your group is 52, there's an adjustment for that); and it doesn't hit union plans until 2018, which gives them time to renegotiate their contracts -- -- presumably rebalancing their compensation away from expensive insurance plans and towards higher wages, which is exactly what the tax is supposed to.

Why make vision and dental special cases? Whatever. The union bit is more interesting. I find it unlikely that, in these interim years, the unions will be renegotiate their compensation away from employer-provided, tax-free health insurance to normally taxed wages. They could just as easily lobby instead to keep the exception to the excise tax. If some union-busting Republicans gain power after the eight years are up, they can renegotiate then.