STUMP » Articles » Obamacare Watch: More on the Cadillac Tax and Public Employees » 9 August 2014, 07:13

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Obamacare Watch: More on the Cadillac Tax and Public Employees  


9 August 2014, 07:13

In my last Obamacare post, I looked at ways public employees are getting whacked by Obamacare. Let’s look more carefully at one specific bit — the “Cadillac tax”, where “overly-generous” benefits are taxed to the amount they’re overly generous.

Taxed at levels higher than the highest marginal income tax rate, by the way — 40 percent for the “excess” levels.

Unsurprisingly, the type of people most likely to have this sort of coverage are public employees, and to a lesser extent, union employees in specific industries.

This is far from a new issue, but as the implementation of this tax (as well as other things) got pushed “far” in the future, unions thought it would be yet another thing that would simply go away.

But it hasn’t.

And “far in the future” is getting uncomfortably close, especially as governments also have to deal with pensions that many in the private sector consider overly-generous.

Last November, Governing Magazine ran an article on options for governments with respect to the Cadillac tax

Under the terms of the Obama health reform law, so-called “Cadillac” health insurance plans worth more than $10,200 for individuals or $27,500 for families face a 40 percent excise tax starting in 2018. The logic behind the plan is that rapidly exploding health costs are driven partly by overconsumption of health-care services by Americans who have little skin in the game thanks to low co-pays and deductibles. The goal is to tax the most generous Cadillac plans to drive people toward plans that make them contribute more. Taxes collected from those who stay in Cadillac plans could be used to fund other aspects of the law.

But these taxes are proving be a thorn in the sides of public-sector employers and workers, who have long understood that strong health-care benefits are often granted in lieu of less-than-stellar pay. Because the threshold is indexed to inflation—not health-care costs, which historically increase at a much faster rate—the assumption is that more plans will be subject to the tax each year. Already, it’s started coming up in multiyear negotiations between governments and workers.

The Cadillac tax will be levied on health insurance companies, which many expect will pass the tax along to governments. That leaves government officials with a big decision: They can cut employees’ health plans so they fall below the Cadillac threshold; pass the tax cost on to workers; or eat the tax themselves and make other budget cuts. Each choice has consequences.

Now, “eat the tax themselves” means that taxpayers foot the bill, ultimately, especially if officials can’t make other budget cuts. That means the pain is distributed more broadly (I would hope taxpayers outnumber the public employees…. or there would be some issues with anything persisting for said employees), but it also means it’s externally visible.

The other two hit the public employees directly, and only the public employees, but the problem there….

Unlike private-sector CEOs—who might damage their relationship with employees but wouldn’t risk losing their own jobs—the stakes are higher for government leaders who cut benefits. Politically powerful unions could cost officials their jobs if they’re unhappy with potential health-care cuts.

Yeah, but here’s the deal. Unions were so powerful in Detroit. Look what that got them.

So they can throw a hissy fit about this to the local politicians, or they could, you know, pick federal politicians who will throw out Obamacare.

Union leaders played their members for suckers, assuming that support for Obamacare would keep them clout and that they could always waiver the whacks at unions away. I am not all that interested in hearing the whining that they’re not getting special treatment. Michael Barone has some sympathy for the unions, if you want to read that sort of thing.

But I don’t.

Anybody voting for or supporting Obama in 2012 knew what they’d get.

And they’re getting it hard.


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