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Cadillac Tax Feud: House, Senate Dems Tangle

First Posted: 03/18/10 06:12 AM ET Updated: 05/25/11 04:10 PM ET

Reid Pelosi

Tensions are mounting between House and Senate Democrats as the chambers try to hammer out an agreement over how to pay for health care reform.

House leaders are growing increasingly concerned that the Senate's mechanism for funding legislation -- which relies on taxing high-end insurance policies -- represents not just bad policy but could also be disastrous at the polls. The anxiety stems from the belief that a wide swath of union workers whose health care plans would be affected by the so-called "Cadillac tax" will be sufficiently upset by the time of the 2010 elections. Lawmakers who spent 2008 campaigning against this excise tax, meanwhile, will have the inevitable task of explaining why they reversed course.

"The Senate and the president may be dug in on the Cadillac tax," said one Democratic House official. "They also don't all have to run for election this year."

Added a health care strategist outside of government : "It's a disaster because members have to run every two years and now they are going to pass this tax that Obama and they campaigned against. You have essentially a ticking time bomb for every member who has to run in 2010."

On the other side of Capitol Hill, an equally dire political calculus is being discussed. The House's mechanism for funding health care reform -- which calls for an increased tax on the wealthy -- is, simply, a non-starter. There aren't 60 senators willing to support a bill with such a pay-for provision. And if the health care bill ends up filibustered, the next election could be even more disastrous for Democrats.

"We can't pass a bill through the Senate without this," said a Democratic Senate aide. "And if Democrats don't pass a bill, we lose Congress. Stop whining and call it what it is -- a tax on insurance companies, the most despised special interest ever."

Legislative spats between Congress's two chambers are a dime a dozen. But rarely in the course of this health care debate have the two bodies been as heated over an issue as they currently are over how to pay for health care reform -- and that includes the debate over a public option for insurance coverage.

Part of the acrimony is due to legitimate policy disagreements. A host of prominent economists have argued that the Cadillac tax is a prerequisite for getting health care costs under control -- discouraging consumers from buying high-end packages and encouraging insurers to offer effective, low-cost alternatives. One administration official, when explaining the White House's support for the measure, called it "essential."

"I agree it is blunt," said the official. "It is going to capture some things you would prefer it would not. But, on the other hand, it is exceedingly effective."

Detractors, in response, point to a report released by the Congressional Joint Committee on Taxation, which estimated that under the Senate Finance Committee's legislation (which was more aggressive than the current version), the excise tax would hit 19 percent of all single-coverage plans in the country when it starts in 2013. By 2019, the tax would impact 41 percent of single-coverage plans and 37 percent of family-coverage ones.

Confronted with these dueling outlooks and forecasts of electoral calamity, both sides have hunkered down. House Democrats were nearly unanimous during a conference call on Thursday night in their desire to oppose the Cadillac tax. An aide to House Speaker Nancy Pelosi (D-Cali.) said she plans to continue to fight it. Union officials, likewise, are already launching a massive effort to support the House's legislation.

"It is crucial that we pass major health care reform and we are closer than ever to doing so. But, it is just as important that we don't do so on the backs of working families by taxing their benefits," AFL-CIO president Richard Trumka told the Huffington Post.

But the Senate holds the cards, since the bill will die without a 60th vote. And they have the backing of the White House -- despite the fact that President Obama vigorously campaigned against the measure during the 2008 election. This Monday, labor leaders are being summoned to meet with the president to discuss their opposition. But already the arguments are being laid out to placate their concerns.

The Senate aide, when asked what how to reconcile the differences between the two chambers, said that they had to "convince unions that with this they can bargain for wages, not for health care." The logic, union officials argue, is more than a bit stretched, as employers seem likely to pocket the money saved on downsized health care plans rather then turn them into wage bumps. But the administration is also pushing this point.

"What you are basically doing is what [these unions] should be celebrating," explained the administration official. "We are translating lower health care costs for higher wages. That is a good deal for workers."


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