Are Democrats willing to anger their most loyal political backers to achieve one of their main health reform goals?

The answer is a definite ... maybe.

Senate Democrats want to tax expensive insurance plans, saying it is a key way to lower the astronomical rise in medical costs, but doing so would hit many union workers and that has House Democrats more than a little squeamish. So instead the House wants to tax millionaires.

This backburner issue is likely to get much hotter if the Senate manages to pass a health reform bill soon, as expected. That would force House and Senate leaders to decide whether to support a cost-containing tax despite union opposition, or protect their power base at the expense of a desired reform.

Despite his ties to labor groups, Rep. Jim Matheson, D-Utah, backs the tax on so-called "Cadillac plans," especially after analysts with the non-partisan Congressional Budget Office said it is one of the most powerful ways to slow health care inflation.

"That makes the idea attractive to me," said Matheson, who opposed the House's health reform bill in part because it didn't do enough to control costs.

Unions have given Matheson more than $1.1 million in campaign contributions during his decade-long congressional career, which is more than he has received from any other sector.

From the service workers to the automakers, union representatives are speaking out against the position held by Matheson and many Senate Democrats.


"We shouldn't be taxing workers on health care benefits," said Utah AFL-CIO President Jim Judd.

Here is how the Senate plan would work: If a policy costs more than $8,500 for a person or $23,000 for a family, then the insurer would have to pay a 40 percent tax on the cost above that threshold. The amount triggering the tax would rise with inflation. Retiree policies would face a slightly higher threshold.

The average plan for a family now costs about $12,000 each year, split between employers and the premiums paid by workers.

The CBO estimates that this new tax would raise nearly $150 billion in the next decade and even more after that. The Senate would use this money to give poorer people subsidies to buy insurance, but the primary goal is to encourage companies to pick cheaper insurance plans and avoid the tax entirely, which is why the Senate bill delays the tax until 2013. Proponents say these cheaper plans would likely have less generous benefits and higher deductibles, leading people to think twice before getting unnecessary care.

But unions and many House Democrats argue the tax would actually force union families and middle class workers to pay more out-of-pocket costs. Unions have aggressively negotiated for richer health benefits in recent years, which could affect everyone from firefighters and teachers to miners and steelworkers.

If approved, this tax would likely have a disproportionate impact on states with older populations and higher average health care costs. Since Utah is the youngest state in the nation with some of the cheapest health care, the effect on residents would appear to be minimal to nonexistent.

Judd said he couldn't find a Utah union that approached the $23,000 ceiling for family coverage. Neither could Wayne Holland, the chairman of the Utah Democratic Party and the union negotiator for workers at Kennecott Copper.

"They are not that high right now," Holland said.

Both of Utah's senators -- Orrin Hatch and Bob Bennett -- oppose the Democrats' health reform plan and criticized the Senate's proposed tax on high-end plans, though they don't do it with unions in mind.

Bennett argues that it will hurt businesses and the middle class. Hatch called it "cowardly" tax policy.

"There are many businesses that offer employees generous benefits packages that could be considered 'high-end' under this health care bill," Bennett said. "Those employees will be the ones that will take the hit from the tax hikes."

Hatch contends that it would make more sense to limit the amount of tax-free health insurance workers can receive, which would encourage them to buy less costly plans. He said the Democrats' proposal to tax insurers that offer the plans "takes the cowardly approach."

"This is a bad idea because it hides the tax increase from the individual employee," Hatch said, "Instead, the excise tax is paid by the insurance company, which has no choice but to pass the cost on to employers and workers, both of whom may have no idea why the cost of insurance has gone up."

Taxing plans

Democrats in the Senate and House are taking different approaches for raising money to subsidize insurance for low- and middle-income Americans.

The Senate plan would impose a 40 percent tax on the cost of insurance policies over a threshold amount of $23,000 for a family or $8,500 for an individual. The average plan for a family currently costs about $12,000.

The House proposes an alternative tax on millionaires.