A lot has been made of a supposed gift to organized labor in the Senate’s latest debt-ceiling/budget proposal (the future of which is about as bright as American organized labor’s, but never mind): the delay of a per capita tax on health-insurance plans, including companies and organizations that self-insure. This tax, the “transitional reinsurance fee,” is designed to provide funds for insurance companies to create high-risk pools for people with preexisting conditions — Obamacare requires that they accept people they may not have insured in the past, and restricts the premiums they can charge these expensive policyholders. It’s $63 per “covered life” for the first year, 2014, amounting to $12 billion in revenues, and will then decrease over the next couple years, raising about $20 billion in total before it expires after 2016; initially, the existence of the program this tax is supposed to fund is predicted to reduce premiums overall by about 10 percent in most places. (It’s called a “reinsurance transition fee” because it’s to help pay for transitioning sick people onto the exchanges, which requires insurers to set up reinsurance for the high-risk pools, and because of course something’s not a tax if you call it a fee.)
Since this tax will be imposed on unions that run their own insurance plans, often across multiple employers, they’d like it done away with. But it also hits corporations that self-insure, which most large firms do — 61 percent of Americans are covered by self-insured plans. And of course, employers who purchase their plans through an insurer normally and Americans who buy their insurance individually will pay the tax indirectly, and it’ll just be reflected in insurance companies’ prices. Almost no one with health insurance is exempt from this tax, and it doesn’t vary based on how generous or expensive their plans are.
This means that unions don’t bear any particular burden from it that other insurance customers don’t, and don’t gain from a delay in a way others don’t. In fact, since it’s a unit tax that costs every insured life equally, the tax actually could be seen as costing a little more to people with less-expensive plans, and being not a bad deal for unions’ extremely generous plans. So why did unions ask for it to be delayed?
Well, they demanded an exemption from just about every part of the law: They wanted tax credits for their multi-employer Taft-Hartley plans, the customers for which will probably now have a cheaper alternative on the exchanges thanks to the subsidies available there; they want the “Cadillac tax” on high-value insurance plans, which begins in 2018, to be delayed because they tend to have exceedingly generous health-care benefits that will be subject to it; etc. In exchange for their support for the law, the unions were just hoping to secure extra benefits (tax-credit subsidies on tax-exempt health-care plans, for instance) for which there was no good legal or economic justification. Which is more or less what the White House rightly told them, deciding in September that the administration “does not see a legal way” to give them what they wanted in terms of the tax credits. An exemption from the Cadillax tax would also be nonsensical, though it’s possible there will be a general delay of that in the years to come.
As Avik Roy points out to me, opponents did have a good shot at getting the reinsurance tax delayed — the fact that it falls on private insurers, self-insurers, and unions means it has bipartisan support, and a delay’s benefits are widely distributed (accruing to everyone who has private insurance, though to varying degrees depending on elasticities, employer-contribution levels, etc.). So it’s not surprising that it was up for consideration, and unions may have concentrated their lobbying efforts on it for that reason. Yes, this was a victory for unions, but dollar-for-dollar, also one for pretty much every American with private health insurance.
Whether the delay will remain in the eventual agreement both chambers reach is unclear: The House GOP’s adjustments to the Senate’s plan this morning took it out and replaced it with a delay of the medical-device tax, but now the medical-device-tax delay is out, because conservatives worried it was a “crony capitalist” measure.