NCPA - National Center for Policy Analysis


January 21, 2010

Last week's deal between the Obama Administration and organized labor to exempt unionized workers from the so-called Cadillac health plan tax was portrayed as a victory for organized labor, says Steven Malanga, an editor for RealClearMarkets and a Senior Fellow at the Manhattan Institute. 

To understand the true nature of the White House deal, look at who actually comprises organized labor in America today: 

  • First of all, since both the country's private sector economy and the portion of private workers who are unionized have slumped in recent years, we have finally reached the point where there are more unionized government workers in America than organized private laborers.
  • Moreover, in the private sector the composition of the union movement has changed dramatically by shifting away from high-wage manufacturing jobs and toward low-wage service jobs in industries like health care and building services.
  • Many of these private service sector workers have only modest health insurance packages whose annual premium costs don't approach the point at which the health tax kicks in, so exempting them from the tax is meaningless. 

By contrast: 

  • Government unionized workers often have gold-plated health benefits packages that are among the most expensive in America.
  • Several years ago, for instance, the Employee Benefit Research Institute noted in a report the growing gap in both salaries and benefits between the private and public sector, estimating that state and local governments paid on average about 120 percent more on an hourly basis for employee health premiums than private employers.  

That's why although the entire notion of a Cadillac tax began as a way to restrain pricey executive health plans in the private sector, Democrats in Washington soon realized that the tax would mainly hit their allies in public sector unions, says Malanga. 

In places where government unions have the most influence, like California, New York and New Jersey, the cost of public health plans is well beyond what's typical in the private sector because public workers in these places make little or no contribution toward premiums, often don't have co-pays for doctor visits and have a rich array of supplemental benefits that are rare in the private sector and drive the cost of health coverage skyward (and which the Cadillac tax was supposed to help restrain), says Malanga. 

Source: Steven Malanga, "Health Reform and the Conspiracy Against Taxpayers," Real Clear Markets, January 20, 2010. 

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