Obama, unions agree to modify high-cost health-benefit tax

WASHINGTON — The White House and labor leaders agreed Thursday on a formula to tax high-cost insurance plans, removing one of the last obstacles to a health-care overhaul, officials said.

Under the agreement, reached after an intense round of negotiations this week, union leaders dropped their opposition to the so-called Cadillac tax in exchange for concessions to limit its scope. Organized labor had opposed the tax, saying that union members had negotiated generous benefits in lieu of pay increases.

In a significant victory for unions, the 40 percent excise tax would not apply to policies covering workers in collective-bargaining agreements, state and local workers and members of voluntary employee-benefit associations through Dec. 31, 2017.

A union official familiar with the details said the tentative agreement would raise the threshold on insurance policies subject to tax from $8,500 in the Senate-passed bill to $8,900 for singles and from $23,000 to $24,000 for family coverage, and exempt the cost of dental and vision plans. Even the new thresholds would be subject to adjustment if unexpected rises in health care occur by the time the plan is effective, this official said.

Additionally, AFL-CIO President Richard Trumka said that beginning in 2017, all health plans — union and nonunion — would be permitted to seek coverage in insurance exchanges that would be set up under the bill to allow consumers to shop for coverage issued under federal regulations. White House officials disputed that, saying the issue was not settled.

While politically powerful labor leaders support the plan — which President Obama considers crucial to controlling health-care costs — rank-and-file workers must be convinced it is not a betrayal of Obama's campaign promise to oppose any new taxes on their health benefits.

Obama spoke to the House Democratic Caucus late Thursday, acknowledging the challenges lawmakers will face in defending the health-care overhaul ahead of November's elections.

"Believe me, I know how big a lift this is; I read the polls," Obama said. But he reassured party lawmakers that the political climate would shift once voters learned more about the bill's effect.

"If Republicans want to campaign against what we've done by standing up for the status quo and ... for insurance companies over American families, that is a fight I want to have," Obama said.

Republicans criticized the compromise, especially the provision postponing its application to union health plans until 2018. Labor leaders said that transition time was needed to accommodate unions and employers with multiyear agreements.

Material from The Associated Press is included in this report.