Unions May Get a Pass on Health Care Benefits Tax

By ROBERT LAWSZEWSKI

There is a major bipartisan effort going on in the Senate Finance Committee to reform the health care system.

Reportedly, one of the elements of that effort may be a tax on "gold plated" health insurance benefits above a certain threshold--$17,000 for family coverage is one option being discussed. The new tax could raise close to $300 billion over ten years to help pay for a health care bill.

However, the word also is that a new benefits tax would not apply to current union contracts for at least five years.

This from a Bloomberg story on Friday:

Gerald Shea, an AFL-CIO official lobbying for health-care reform, said grandfathering benefits negotiated in a collective bargaining agreement is a “common thing when there is a big change in federal law.”

‘Expectations Are Set’

“Once a collective bargaining agreement is set, employer’s budgets are set, workers expectations are set. It doesn’t make sense to go back in the middle of the contract and change it,” he said.

Union groups and workers said Congress shouldn’t target contractually negotiated benefits.

Anna Burger, secretary-treasurer of the Service Employees International Union, said in an interview that workers have often traded salary increases for better benefits in agreements.

Taxes “shouldn’t be taken from the backs of workers who have bargained away wages and other things for their benefits over the years,” Burger said.

Sandra Carter, a retired Pacific Bell Telephone Co. technician from Stockton, California, said her health benefits, worth about $12,000 per year, were negotiated by the Communications Workers of America. She is unmarried with no children, meaning her individual coverage exceeds benefits paid to federal workers by about $7,800. If that amount were taxed at the 15 percent marginal rate, she would owe $1,170.

“I can’t afford the taxes I pay now,” said Carter, who said she suffers from diabetes. “Why should I get taxed on a benefit that keeps me a functioning person?”

Carving unions out of any deal to tax health insurance benefits would be outrageous.

First, such a new tax would not alter any collective bargaining agreements--it would only change how those earnings would be taxed.

Second, since when have unions become a special class? Every new tax increase I've ever been subject to was on something--my income, my house, my property--that was either set or owned well before the new tax was passed.

This is tantamount to a smoker telling us the new tobacco tax to pay for the childrens' health plan shouldn't apply to him because he developed his addiction to cigarettes before the tax was passed.

I now think I understand how the Chrysler and GM bondholders felt when they were forced to give up their priority bankruptcy claims in favor of the Unions' retiree health care fund.

Robert Laszweski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. Before forming HPSA in 1992, Robert served as the COO, Group Markets, for the Liberty Mutual Insurance Company. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog, where this post first appeared.