Democrats Move Closer to Health Bill After Tax Dispute Settled

Jan. 14 (Bloomberg) -- Congressional Democrats say they are closer to agreeing on legislation to overhaul the U.S. health system after labor unions and the White House struck a deal over a tax dispute that stood as a major obstacle to a bill.

“We’re on the brink of passing important legislation providing health care for all Americans,” House Speaker Nancy Pelosi told reporters today after President Barack Obama addressed Democratic lawmakers.

The accord between the unions and the Obama administration to ease the impact of a Senate plan to tax the most-generous health benefits cleared one of the biggest hurdles to passing the most sweeping revamp of the medical system in 45 years.

The administration and Democratic-controlled Congress are “very, very close,” White House spokesman Robert Gibbs said.

Other barriers remain, including how to pay for the bill, which may cost $1 trillion over 10 years, and make up the $60 billion that union leaders say the tax deal will cost. Lawmakers are pressing drugmakers to contribute more toward the legislation than the $80 billion they already pledged in June.

The legislation is intended to extend health coverage to tens of millions of uninsured Americans by expanding the Medicaid program for the poor and setting up online insurance- purchasing exchanges, while at the same time curbing costs.

Republican Opposition

House and Senate Democrats seeking to merge their two versions of the legislation have clashed over issues such as whether to establish a single national insurance exchange and how much aid to provide low-income people to buy coverage. Republicans are almost universally opposed to both bills, so the Democrats have little room for defections.

The Senate’s proposed tax on the most generous employer- provided health benefits -- known as Cadillac plans -- has been a stumbling block to passing the legislation, Obama’s top legislative priority.

Proponents, including those in the administration, say the levy will help curb spending by discouraging costly insurance. Labor unions argued that the tax would hurt many union members and middle-class workers more than the corporate executives it was aimed at.

The deal reached this morning raises the threshold at which the levy would be applied to the employer-provided health plans to $8,900 for individuals and $24,000 for families, so it will affect fewer people.

Union Exemptions

Union members’ health benefits that were collectively bargained would be exempt from the tax until 2018, as would the benefits of state and local municipal workers.

The legislation passed by the Senate on Dec. 24 calls for a 40 percent levy on health-insurance premiums that exceed $8,500 for individuals or $23,000 for families. There are higher thresholds for retirees 55 years of age and older and workers in high-risk professions such as firefighting.

Under today’s agreement, dental and visions costs beginning in 2015 are exempt from the tax, and the threshold is raised for plans that have a significant number of women and older workers. The threshold would be raised for workers in high-risk professions.

“We’ve made some changes for middle-class America out there that will be very beneficial,” Richard Trumka, president of the 11 million-member AFL-CIO labor federation, said on a conference call with reporters.

Aid to Democrats

Labor unions, which spent a record $450 million helping elect Democrats to the White House and Congress in 2008, had said the tax would hurt older workers and employees of small companies, as well as many union workers who traded wage increases over the years for generous health plans.

“We’re trying to protect working families who may have high-cost plans, but not high-end plans,” said Randi Weingarten, president of the American Federation of Teachers.

Labor leaders warned this week that union members may not support Democrats in the November elections if they get hit by the tax.

Unions had sought to do away with the tax entirely as a way of paying for the health-care legislation.

“Politically, that is not achievable” Trumka said.

Congressional leaders met with Obama and White House aides for eight hours yesterday to settle remaining differences, and returned again today for more talks.

Once they agree on a bill, it would need to be sent to the Congressional Budget Office for a new cost estimate.

Income Surtax

A version of health-care legislation passed on Nov. 7 in the House doesn’t include the excise tax. To pay for expanding health-care coverage, that bill calls for a 5.4 percent income surtax on individuals who earn more than $500,000, and couples making more than $1 million. Some Senate Democrats oppose that levy.

Lawmakers discussing a greater contribution from drugmakers were debating various amounts, including an extra $10 billion, said New Jersey Representative Robert Andrews, a Democrat who has been briefed on the status of the negotiations.

Andrews, who heads the Education and Labor’s health subcommittee, said a deal on additional payments hadn’t been reached yet.

“My understanding is that there’s no consensus between the two chambers and the White House on what that contribution should be,” Andrews said.

To contact the reporter on this story: Holly Rosenkrantz in Washington at hrosenkrantz@bloomberg.net