Labor's Fight Over Funding Health-Care Reform.

Yesterday, the Congressional Budget Office scored the final iteration of the Senate Finance Committee's health-care reform bill. Good news! It will reduce federal budget deficits by $81 billion in the next decade. Bad news -- it's not quite universal health-care reform, since it only will cover about 94 percent of Americans. Many people won't be affected at all, as Ezra notes.

But there is a broader political problem: The single largest source of revenue to fund health-care reform -- $215 billion -- is an excise tax on insurers for health-care plans that cost more than $8,000 for individuals or $21,000 for families, which is in turn linked to inflation. The average cost of an employer-provided family health-care plan is $13,375; according to The Center for Budget and Policy Priorities, 90 percent of family plans in 2013 will have premiums below $21,000. But a significant bloc of congressional Democrats -- 156 representatives -- and their allies in the labor movement are opposed to this provision, largely because unions have often forgone wage increases in favor of protecting their workers' benefits, leaving them more vulnerable to any costs passed on to employers by insurance companies. Here is the letter [PDF] they sent to Speaker Nancy Pelosi.

Nonetheless, many policy wonks support the excise tax because it is progressive and it provides an incentive for insurers to control health-care costs. CBPP has a nifty plan to improve the Baucus excise tax, like raising the thresholds on certain segments of the population, like older workers, and indexing the tax at a slightly higher rate than inflation. In order to offset the costs of their plan, they suggest not equalizing tax-deduction rates across the population -- a sound proposal judged too radical by the Senate's irresponsible centrists -- but simply maintaining the current deduction rates for the wealthy after the Bush tax cuts expire next year, which could raise as much as $89 billion, enough to improve the excise tax and improve the Baucus bill's lackluster subsidies.

It's unclear if that compromise would satisfy labor or how the issue of funding will be resolved. First, the Senate must combine the Finance Committee's bill (once the committee passes it) with the Health, Education, Labor and Pension Committee bill, before the Houses passes their version and both meet in a conference committee. The House prefers to finance health-care reform through a surtax on wealthy individuals; a revenue measure that is probably dead on arrival in the Senate.

One thing is for certain: Labor is serious about stopping the excise tax -- so much so that new AFL-CIO President Richard Trumka has made leaving it out a necessary condition for his coalition to support the bill. In fact, the bill is also missing a public option and has a very loose employer mandate; both were necessary in Trumka's -- and labor's -- eyes. There's still a chance that this bill could have a public option, though -- in fact, it's probably more likely than it being funded by something other than an excise tax. Will labor be willing to drop its objection on funding in exchange for some kind of public option?

-- Tim Fernholz