Health reform collides with organized labor's Cadillac

Posted: Monday, September 28, 2009

The health-care debate is supposed to be more civil now. But I guess Gerald McEntee didn't get the memo. During the recent AFL-CIO convention in Pittsburgh, the labor leader blasted the draft bill put forth by Senate Finance Committee Chairman Max Baucus, D-Mont., : "It's all bull manure," McEntee roared. "It's bull manure." Except he didn't say "manure."

Though coarse, McEntee's rant was illuminating. Organized labor's tooth-and-nail fight to protect union health benefits is a significant - but underreported - obstacle to sensible health-care reform.

Practically every serious analyst of U.S. health care says the tax exclusion for employer-provided health benefits distorts the system. Valued at $250 billion per year, this break encourages more consumption of costly care by those with employer-provided plans while denying the government money to insure the uninsured.

Wall Street executives and other rich Americans benefit disproportionately - but so do union workers, who extract tax-free health benefits from their employers in lieu of wages. This is especially true for politically influential public employee unions, such as McEntee's American Federation of State, County and Municipal Employees.

In New Hampshire, state employees contribute just $720 a year for coverage that costs $20,400 per family, according to the Boston Globe. They get free MRIs, free prenatal care and $450 a year for a gym membership. All told, it's more than twice as much coverage as the average family receives through work. And it cost New Hampshire's taxpayers $234 million last year.

At General Motors - now taxpayer-owned - active United Auto Workers members make no monthly contribution and pay no deductible for their health insurance coverage. They face no co-insurance costs for in-network physician services and an annual out-of-pocket maximum of just $500 per family for out-of-network doctors, according to the company. No wonder they call them "Cadillac" plans.

And so labor defends the tax exclusion with every ounce of its considerable clout. When Baucus floated a tax on the priciest 40 percent of plans in June, the Laborers International Union launched TV ads against the senator in his home state. The Laborers attacked Baucus even though he was open to exempting current union contracts.

Baucus' new bill would not repeal or even cap the tax break. But it would indirectly curb high-cost plans by charging insurance companies a 40 percent excise tax on those valued at $8,000 or more for most individuals and $21,000 or more for most families. This would hit only 7.8 percent of all taxpayers while raising $205 billion over 10 years to help insure the uninsured.

Even that, however, is too much for McEntee and the new president of the AFL-CIO, Richard Trumka. Asked about McEntee's outburst in Pittsburgh, Trumka said it showed "much wisdom."

Trumka argued that "we've paid for those benefits over the years - we've forgone wage increases, pension increases, days off and everything else to get those medical benefits." That's one way to look at it. You could also say that they were paid for by taxpayers, along with people who buy union-produced goods and services.

It's true that certain workers, such as coal miners, face extra health challenges. Some labor forces, such as GM's, are relatively old and thus more expensive to cover. Regional differences in health-care costs mean that a plan that might be lush in one state would be paltry in another. Taxing employer-paid benefits might not cut overall costs as much as advocates suggest, because heavy users of the system would still need expensive care.

But labor offers few credible alternatives. The AFL-CIO backs a government-run single-payer system - as long as it does "not diminish the hard-fought benefits currently enjoyed by our members, their families and union retirees," and permits unions "to collectively bargain supplemental coverage." Probably the only thing less likely to pass Congress than single-payer is single-payer with a layer of extra benefits for unions only.

Meanwhile, Trumka proposes paying for expanded coverage with a 0.10 percent tax on stock transactions, which would violate the principle of funding health-care reform out of health-care savings - and might just re-crash our fragile financial system.

Imperfect as it is, Baucus' proposal forces modest redistribution of health-care resources from those who have more to those who have less - or none. For unions, which represent barely one worker in eight, to resist it shows that they have morphed from a broad-based force for social justice into just another special interest.

• Charles Lane is a member The Washington Post's editorial staff.

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