Organized labor mostly does the right thing re the excise tax

People who have been following the health reform debate will know that a) employer contributions to your health insurance premiums are completely excluded from your taxable compensation, b) this subsidy is ill-targeted, benefiting the rich more than the poor, and probably helps drive up health spending, c) the Senate proposed to put a cap on the exclusion - plans above a certain dollar value would be taxed and d) organized labor was bitterly opposed, thinking that all our tax problems can be solved by taxing the rich.

However, the cap is one of the relatively few things in the current bills that is likely to drive spending lower. It seems that the AFL-CIO and other unions have negotiated a compromise with the White House, according to this NYT article: the tax wouldn't kick in for collectively bargained plans until 2017, and the cap would be adjusted by age, occupational group and gender.

Republicans have sneered at this, calling it another back-door deal - as if they themselves never made any of those. However, the latter provision is what concerns me the most - it is what should have been in the bill all along. A study in the health policy journal that industry type and medical costs in the region explained more of the variation in premiums than the actuarial value (which is a measure of how rich the benefits are). Most of the variation in premiums was unexplained by the factors the researchers examined. I suspect that a big part of that variation is explained by how efficient the plans are - I would be intrigued if the researchers had factored in each plan's HEDIS score, which is a measure of their quality of care. We want to pressure health plans to be more efficient.

Before, the tax was being used as a pretty blunt instrument. I still supported it, because it is a poorly targeted tax policy and it will be difficult to finance health reform otherwise. However, these provisions make the exclusion a bit of a finer instrument. And they remove one more obstacle from passage of the bill.

Addendum: OK, so now that we've reached a point where we all know this is really a tax on health insurance, not on health insurance companies, and organized labor is somewhat willing to live with this, why don't we go back to an actual cap on the tax exclusion? Under a cap, any employer contribution to premiums over the cap would be taxable income. This would further sweeten the deal for labor, because they would be taxed at (presumably) 25% plus state taxes, not 40% (the amount we're taxing the insurers by). It would be a bit of a better deal for union members plus we'd be calling a spade a spade.