Cadillac Hacks

The unions' health care deal isn't all that great

Behold the Cadillac Tax, a shining example of interest-group horse-trading. As a means of funding the Obama administration’s health-care proposal, the Senate passed a tax on the most expensive private health-care plans. The tax of 40 percent on premiums of over $8,500 (or $23,000 for family plans) is technically supposed to be paid by health insurers themselves, but union officials, in a notable exercise of economic literacy, recognized that the costs would be passed on to consumers, and that many of their members, who have pretty generous health care plans of their own, would wind up indirectly paying the tax.

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So naturally, union lobbyists called in their political chips — they are among the largest contributors to Democratic politicians and President Obama in particular — to get collectively bargained health-care plans excepted. Okay, it’s a cynical deal, but union workers can at least take comfort in knowing that their unions are looking out for them, right?

Well, maybe not. One of the underreported yet very important aspects of the deal is that the exception only lasts for about five years, from 2014, when the tax comes into effect, to 2018, when the exception expires. Union officials may be planning on an extension, but there are no guarantees. The entire structure is underfunded — Congressional Budget Office estimates showing low costs for the plan assume ten years of revenue but only six of actual benefits, a gimmick that simply won't work over the long term — so come 2018, there will likely be a sharp need for revenue that will make it very hard for Congress to continue special exemptions from taxes.

In short, older union workers make out like bandits, but younger union workers are liable to pay a steep price, all part of what Joe Weisenthal at the Business Insider calls an "inter-generational hose-job," in which younger workers pay for the perks of retirees and those about to retire.