The excise tax deal won't fix any of its real problems

The picture about the deal on the excise tax is now becoming clearer.  Labor unions were up in arms about a tax on high-cost insurance plans, and pushed back against Democrats, warning of political consequences.  The White House, Congressional leaders and unions seem to have come to an agreement now.  The agreement, to say the least, does not fix any real policy problems with the excise tax, rather, it brings in an exemption for union plans until 2018, creating a rift in policy and politics between union and non-union workers.  Gah-reat.

First, here are the emerging details of the plan. Derek Thompson of The Atlantic puts it this way:
Two things that stay the same are:
1) The 40% tax rate
2) The rate at which the tax threshold grows

Three things that change are:
1) The threshold goes up (barely!) from $8500 to $8,900 for individuals and $23,000 to $24,000 for families.
2) The tax threshold won't count vision and dental coverage; and there are additional adjustments for age and gender.
3) Unions get a five year exemption from the tax.
The exemption for union employees also includes an exemption for state and local government plans, unionized or not.  Richard Trumka, President, AFL-CIO, seems to be saying that gender and age variance may be allowed, but I find it odd that there are no numbers given on this.  "Would be increased?"  To what?  I can't put any stock into it when the other numbers are so specific and this one is so vague.

This is a completely dumb way to make a deal, as far as policy is concerned.  Yes, it raises the initial ceilings above which a plan would be taxed.  There were two basic, fundamental problems with the excise tax that even proponents (including me) recognized:
  1. The indexing of the threshold - it's inflation plus one percent.  If the goal is to make sure it doesn't impact the average plan, then it should be indexed to the actual rate of increase of health insurance costs, which tend to grow faster than inflation.  But the deal leaves that incredibly bad way to index in place.  Hooray.

  2. The Senate bill did not allow for regional and age-based variations of the excise tax.  And it seems that it still doesn't.  Paul Krugman suggested some policy changes, including these, in his column.  But those didn't make it in.
So the big policy problems aren't addressed.  We're not going to fix the structural problems with the excise tax.  What are we going to do?  We're going to, first of all, raise the ceiling - to $8,900 for individual plans and $24,000 for family plans.  Have at it.  It doesn't really matter much.  Second, we're not going to count vision and dental coverage, which I suppose is fine, but again, it doesn't make that much of a difference.  When I had vision coverage, it was fairly minimal, and it doesn't exactly cost a fortune to see an optometrist at your local Costco.  For me, it cost $49 for glasses only.  I'm not sure taxpayers should be giving a tax exemption to plans that pay for expensive designer eye-glasses, but it's maybe a couple of hundred bucks a year per patient.  I'm not worried about that.

Third, we are going to exempt union plans for five additional years.  You see, for everyone else, the excise tax kicks in in 2013.  For unions, it starts in 2018.  Why should we create this - albeit temporary - system of fundamental unfairness and a divide between unionized and non-unionized workers?  Well, according to The Atlantic, unions say they need the exemption to renegotiate their compensations package.  Given the tax doesn't kick in until 2013 for anyone, I am not sure that's an adequate excuse.  But this is certainly not a policy decision.  It's a political one on the part of the Democrats in Congress and the President.  It's a political decision to appease our political allies, the unions.  Perhaps some will say that it's about time Democrats appeased their political backers.  Perhaps it is.  Or perhaps it will be taken advantage of by our opponents and show, with a finger in the eyes of voters who are not unionized (and the vast majority aren't) that the Democrats gave their political backers a sweetheart deal, and left you in the dust to pay for it.  It could go either way on politics.

But from a policy perspective, it makes no sense.  Union membership is not a recognized health indicator.  There is no evidence that the same coverage costs more for collectively bargained agreements than they do for others.  It doesn't even have an economic basis.  Union members do not earn less in wages than non-union workers.  In fact, they earn about 25% more.  Of course, they should!  That's what collective bargaining is about.  That's why people should join unions.  But that also means exempting union contracts from the excise tax for five additional years makes no economic policy sense.  And for not making any policy sense, the deal costs about $60 billion in revenue that will have to be made up for in some other way.

So in the end, we have managed to: (a) not fix any of the underlying problems with the excise tax, and (b) creates a revenue hole of $60 billion.  This is just great.  You know, I am now beginning to think maybe they should have put the negotiations on C-Span.  I, for one, would have liked to see how this one went down.

Before I end though, I want to pre-emptively address some ridiculous questions that I know will be raised: namely, what do I have against unions?  The answer is: nothing.  I have nothing against unions.  I think we would have a stronger economy if more people were in unions.  I think unions give workers an invaluable voice.  I have marched with unions in their demands for better wages and better working conditions.  I have worked the phone banks at our local labor temple for hours for their candidates and their causes.  I have even gone out and walked precincts for them.  I have nothing against unions.  I have something against fundamental unfairness.  And this exemption is unfair, any way you look at it.  I have a problem with fiddling around with policy and making it worse and not better.  I have a problem with doing a bunch of things that makes no policy sense just for political backers.

But I realize these things happen.  So be it.  I don't think this deal is productive, but I remain supportive of the concept of the excise tax, and I remain committed to seeing a health care bill pass and be signed into law.  I will not be hypocritical and demand perfection within the confines of excise tax policy or that it not be made worse in order to gain votes in the House while I have accepted other compromises to get votes in the Senate, such as dropping the public option.  This bill is too crucial to undermine over one issue, or two or three.