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Feds are left out of excise tax compromise

Alex M. Parker | Government Executive

January 19, 2010

Federal employee groups fear that they are being left out of a health care reform compromise forged by unions and lawmakers to alleviate the effects of a proposed excise tax on insurance plans.

The deal, posted on the Web sites of the AFL-CIO and the National Education Association, would raise the premium threshold level at which a 40 percent tax kicks in, and exempt dental and vision coverage from the tax; both provisions apply to federal and civilian workers.

But a proposed delay in when the tax takes effect — from 2013 to 2018 — does not apply to most federal employees’ health care plans.

“That’s one of the things we’re scratching our heads about right now,” said Dan Adcock, legislative director for the National Active and Retired Federal Employees Association. “We’re concerned that the tentative agreement could leave out federal workers and retirees.”

The five-year window applies to health care plans that are part of collective bargaining contracts, as well as the plans of state and local government workers. Even though many federal workers are union members, in all but a few cases, their health care plans aren’t part of the bargaining contracts, and the unions aren’t involved in negotiating for those benefits.

According to a labor source with knowledge of the negotiations, some lawmakers expressed concern that if the five-year delay of the tax was applied to health care plans in the Federal Employees Health Benefits Program, it would appear to be a conflict of interest. Members of Congress are enrolled in FEHBP as employees of the federal government.

But the fight is not over, said Adcock and other union members.

“The American Federation of Government Employees strongly supports health care reform and we will continue to press Congress for the FEHBP to be treated the same as collectively bargained health care plans,” said Beth Moten, AFGE’s legislative director, in a released statement.

The excise tax on so-called Cadillac plans was included in the Senate’s version of the bill to help pay for the costs of reform and also limit spiraling health care expenses. It imposes a 40 percent tax on the value of health care plans that exceed a certain premium threshold. While the tax would be levied on insurance carriers, critics claim those costs will be passed on to middle-class policyholders and lead to decreased benefits and increased out-of-pocket expenses.

The Senate bill contains threshold levels of $8,500 for an individual plan, and $23,000 for a family plan. According to the AFL-CIO, the deal will raise those limits to $8,900 and $24,000, and also will exclude dental and vision coverage from the tax. The threshold levels will be raised higher for plans that cover several women or older employees, although specifics about that proposal were not available. In addition, the compromise will contain provisions in the original Senate language that increase the premium threshold for retirees over 55, and for those in high-risk professions.

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