How Democrats prevailed over Obama on the ‘Cadillac tax’

As recently as three weeks ago, one of President Obama’s top advisers warned Democratic leaders to leave the “Cadillac tax” alone. 

Asked on Dec. 1 whether Obama would veto any measure that chipped away at the unpopular tax on healthcare benefits, White House chief of staff Denis McDonough was stern. 

{mosads}“Yes, it is true,” McDonough replied at a private luncheon that was attended by House Minority Leader Nancy Pelosi (D-Calif.) and Whip Steny Hoyer (D-Md.).

Democrats were undeterred.

Pelosi and her Senate counterpart, Harry Reid (D-Nev.), forged ahead with secret budget talks with GOP leaders in which they sought to delay or even repeal the tax before it took effect in 2018.

And two days after the luncheon, the Senate took a symbolic vote to repeal the ObamaCare tax by an overwhelming 90-10 margin.

The Senate’s vote marked a turning point in the Obama administration’s losing fight to preserve the tax, according to interviews with a half-dozen people familiar with the talks.

“I think that’s when the administration reluctantly began to see the light,” said Harold Schaitberger, head of the International Fire Fighters Association, who had asked the question of McDonough in the Dec. 1 meeting.

The White House’s defeat was sealed on Friday, when Obama signed into law a $1.8 trillion funding package that delays the tax for two years. 

The grand bargain signed by Obama delayed not only the Cadillac tax, but also a much-maligned tax on medical device manufacturers and a separate health insurer “premiums” tax.

Altogether, the changes take a $35 billion bite out of ObamaCare, with the savings shared between workers and businesses of all scale.

While the changes are worrying to ObamaCare advocates, their passage is a major victory for both Pelosi and Reid, who had worked painstakingly to ensure a delay of the tax would escape a presidential veto.

“The [White House] understood where the two of them were coming from, and that’s why you saw their position soften over time,” a senior Democratic aide said Friday.

“They knew they weren’t going to get an extenders package without it,” the aide added, referring to the tax bill included in the package. 

Horse-trading with the GOP 

In the nearly yearlong effort to roll back the Cadillac tax, the other major obstacle for Democratic leaders was the GOP. 

Republicans were reluctant to give their opponents any win on ObamaCare, according to sources familiar with the talks.

Throughout negotiations, GOP leaders insisted that they would not advocate for any changes to the Cadillac tax, giving themselves a bigger bargaining chip for the budget and tax talks to come.

But the 90-10 vote in the Senate gave Democrats critical leverage: Pelosi and Reid now had proof that delaying the tax had support in both parties, forcing Republican leaders to change their game plan.

Republican leaders, however, made clear they would not accept changes to the Cadillac tax without changes to the 2.3 percent excise tax on medical devices.

White House looks to bargain

In early December, as talks inched forward on Capitol Hill, Pelosi and Reid heard new ideas from the administration about how to lessen the financial blow of the Cadillac tax.

The White House floated several tweaks, such as accommodations for people in regions where healthcare is more expensive. Most of them were not taken seriously.

“It was too little, too late. Frankly that was a conversation we should have been having when we had that meeting in April,” said Rep. Joe Courtney (D-Conn.), one of the loudest Democratic voices against the Cadillac tax. 

Courtney had taken part in an April meeting with Pelosi as well as several administration officials about two months after reintroducing a bill to repeal the tax. At the time, he already had nearly 100 co-sponsors. A GOP version of the bill from Rep. Frank Guinta (N.H.) was also gaining traction.

“Frankly, I don’t think people took seriously the level of opposition we had [to the tax] at that point,” he added.

Months later, in September, Reid and Pelosi held a private meeting with Obama to again reiterate the growing problem of the Cadillac tax. They told the president they would be seeking changes as part of the year-end budget negotiations that were just getting off the ground.

They repeatedly heard the same message: No. 

Old debate reignited

From the start, the Cadillac tax had been one of the most hotly contested aspects of the healthcare law.

Labor unions, one of the Democratic Party’s most powerful allies, warned the tax would be disastrous for their members and fought to keep it out of the Affordable Care Act. Unions often negotiate generous benefits packages that would be subject to the tax, which would affect health plans worth more than $10,200 for individuals and $27,500 for families.

“Getting that through within the White House itself was a major area of conflict,” said Dr. Zeke Emanuel, an Obama administration health policy adviser at the time.

“The conflict wasn’t within the Republican Party, it was inside the White House. People were saying, ‘Should we just scrap it because it’s going to elicit some much union antagonizing?’ ” 

The pressure began to build again in January 2016, when a group of unions, business groups and patient advocacy groups kicked off a massive lobbying campaign warning of impending changes to healthcare benefits across the country because of the tax.

Labor groups, beginning to negotiate their multiyear contracts, turned up the heat on Democrats, while business groups worked the Republican side of the aisle.

Several union groups, including the American Federation of Teachers, put the Cadillac tax in candidate questionnaires that determine presidential endorsements. Hillary Clinton only won the teacher group’s endorsement after announcing her support for repealing the tax.

And in a meeting last week, Schaitberger, the head of the firefighter union, warned Reid that failure to resolve the Cadillac tax issue could hurt Democrats in the polls.

“I told him … ‘You’re going to have workers, members, citizens, willing to take their wrath out in the political arena,’” Schaitberger said.

Ultimately, some of the White House’s suggested tweaks made it into the final package, including giving employers the ability to deduct any Cadillac tax payments from their tax payments and making changes to the age and gender ratings that determine how much a company paid in taxes for each worker.

The changes were made, in part, to help the White House save face.

After the final omnibus package was revealed Wednesday, White House spokesman Josh Earnest downplayed any negative effect of the two-year freeze on the Cadillac tax.

“If I had a nickel for every time that somebody inside the Beltway suggested that the Affordable Care Act was at grave risk, I’d probably be able to buy an actual Cadillac myself,” he quipped.

The day before, Earnest had pledged “steadfast” support for keeping the tax in place.