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Union Leaders Step Up Fight Against Excise Tax

Joe Davidson | The Washington Post via YellowBrix

December 09, 2009

Federal employee union leaders threw the second of a one-two punch at a Senate plan to tax health insurance premiums on Tuesday, saying it would mean significant benefit cuts and higher health costs for workers.

The presidents of the American Federation of Government Employees, the American Postal Workers Union and the National Association of Letter Carriers joined with the Communications Workers of America, which is leading organized labor’s effort to defeat the proposed excise tax on premiums.

Their release of a report on the potential impact of the tax on federal employees with the Blue Cross/Blue Shield standard option comes one day after the Association of Federal Health Organizations issued a study with similar findings. That study, on the impact of the tax on federal health plans generally, was prepared for the Office of Personnel Management.

The tax is included in the Senate bill to overhaul the nation’s health insurance system. Union leaders agree on the need for an overhaul and basically support the legislation. But the excise tax has become a prime target for labor leaders who say it will unduly burden their members.

Though the legislation would apply a 40 percent tax to any employer-provided plan over a certain price, the Federal Employees Health Benefits Program has become a focal point in recent days. Despite some problems, it is considered a model program. It is well-run and offers enrollees far greater insurance choices than those available to private-sector employees. The 8 million people covered, including current workers, retirees, dependents and survivors, are the largest group in the nation under a single health insurance program.

About half are covered by the Blues standard option, the big dog in FEHBP and the focus of the union leaders’ report. It warns that federal employees could “get clobbered by the excise tax.”

The tax would take effect in 2013 for total family premiums exceeding $23,000 and individual policies costing at least $8,500. These amounts include medical, dental and vision plans, and contributions to currently tax-free health savings accounts. Based on past performance, the report assumes premiums will rise 9 percent a year. With that assumption, the report says the annual tax hit for workers with the family plan would be $2,040 and $1,640 for singles.

“Such a tax will present the FEHBP with a major dilemma — it will have to dramatically reduce health benefits in order to get the cost of its health plans below the threshold and avoid the tax, or pay the tax,” according to the report. “Either way federal employees pay. They will lose benefits, have higher out-of-pocket health care costs, or face higher premiums — or all of the above.”

Though Democratic Senate staffers cast the report from the Association of Federal Health Organizations to OPM as one from a self-serving industry organization, that approach won’t work with labor organizations that provided strong backing for Democratic members of Congress. Supporters of the tax on Capitol Hill say it is only one part of a larger legislative package that includes numerous provisions to reduce health-care costs while improving efficiency.

“When our health-care system is more efficient, it will be less costly for America’s families and businesses, and that’s the goal of the high-premium excise tax and many other policies in health reform, like increased focus on prevention and generic prescription drug research,” said Erin Shields, press secretary of the Senate Finance Committee.

The political power of the unions was important in President Obama’s election and the strong Democratic majority in Congress, which led to health reform being on the nation’s agenda. But that power, and a newspaper advertisement against the tax, may not be enough to stop its passage in the Senate. Senate approval, however, is not the same as law.

Rep. Gerald E. Connolly (D-Va.), who participated in a conference call with the union presidents, predicted the tax in its present form will not be approved by Congress. “I can assure you that the excise tax contained in the Senate bill as currently formulated will not survive,” he said.

No big raises

As federal employees wonder if they’ll have to pay more for health insurance, they don’t have to wonder if they’ll get more than a 2 percent raise next year. The answer is no.

House and Senate members have agreed with President Obama’s decision to limit the raise to that amount, with a national increase of 1.5 percent and an average 0.5 percent bump in locality pay.

Union leaders held out faint hope that Congress would provide more, but they learned Tuesday that will not happen. Congress still has to make the 2 percent official, but consider it a done deal.

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