Health benefits have historically been an important part of employer-provided compensation and benefits packages. Issues related to the cost of health coverage have been a hot topic in labor negotiations for more than a decade. While prior negotiations have focused primarily on co-pays, co-insurance and other cost-sharing features, that dialogue will be different in current and future negotiations as a result of the Patient Protection and Affordable Care Act (ACA).
The ACA includes several provisions that impact employer-provided insurance and union health plans. Although certain provisions of the ACA are already in effect, many plans subject to collective bargaining agreements will face additional requirements if or when they lose grandfathered status. In addition, other requirements of the ACA go into effect in 2014 and 2018. As a result, employers preparing to negotiate new collective bargaining agreements will be well-advised to understand the requirements of the ACA.
Four basic principles of the ACA have broader implications and are important as background to the bargaining process. These four principles are:
- The individual mandate requires every individual to either have minimum essential coverage starting in 2014 or pay a tax.
- Beginning in 2014, employers must provide affordable minimum essential coverage to all full-time employees or risk paying a tax. The ACA defines affordable as no more than 9.5 percent of household income and also limits an employee’s total cost to no more than 40 percent of the cost of coverage.
- Under the ACA, a full-time employee is one who works, on average, 30 hours per week or 130 hours in a month.
- An ACA full-time employee whose employer does not provide affordable coverage may purchase coverage on a government-regulated health insurance exchange and may be eligible for a government subsidy. Employer tax penalties are triggered when their ACA full-time employees purchase subsidized coverage on the exchange.
In some negotiations, bargaining may focus on decisions relating to increased wages rather than health benefits. Employers whose cost for medical coverage is significantly greater than the tax penalty will find this appealing. It may be equally appealing to employees if the employee cost of coverage at the exchange is less than the cost of employer coverage, especially if the cost is subsidized. In other negotiations, employers will be focused on issues presented by auto-enrollment, the affordability requirement’s limitations, the Cadillac tax and wellness programs.
Under the proposed auto-enrollment regulations, employers that have 200 or more full-time employees will be required to automatically enroll their employees into a health care plan unless the employees affirmatively elect to decline coverage. Significantly, the ACA does not contain specific requirements as to the type of plan into which employees must be enrolled. The auto-enrollment requirements present two areas of potential impact in bargaining. First, employers that offer multiple coverage options will want to consider which plan they will treat as the default plan for auto-enrollment purposes. Second, employers should expect to address the communications notifying employees of their auto-enrollment and their election to opt out.
The affordability requirement applies only to individual coverage, not to dependent or family coverage. As a result, if an employer offers self-only coverage at a cost that meets the affordability requirement and the employer also offers dependent coverage, both the employee and the family members will be ineligible for the government subsidy regardless of whether the cost of the additional dependent or family coverage is affordable. Thus, employers who offer family coverage may impact dependent access to subsidized coverage in the exchange.
Adverse selection and the “Cadillac tax”
For tax years that begin on or after Jan. 1, 2018, there will be a 40 percent excise tax on the excess benefit of employer health insurance considered “high cost.” This is often called the Cadillac tax. The Cadillac tax is currently expected to be based on an annual limit of $10,200 for individual coverage and an annual limit of $27,500 for other coverage. If younger and healthier employees opt out of employer coverage to purchase at the exchange, they will leave older, or less healthy, employees in the employer plan. This would likely result in higher costs and premiums. The resulting higher premiums may in turn trigger Cadillac tax implications.
Wellness program issues
Under the ACA, a program must be “reasonably designed to promote health or prevent disease” to qualify as a wellness program. As such, wellness programs are anticipated to help keep health care costs lower and may become a focus in bargaining. Currently, employers can provide a wellness incentive of up to 20 percent of the total plan premium. This amount increases to 30 percent in 2014, and the Secretary of Health and Human Services has authority to increase this amount to 50 percent.
The implementation deadlines of the ACA create unique issues in the collective bargaining environment. Most bargaining agreements do not have expiration dates that fit neatly into the ACA implementation time tables. As a result, employers may want to consider negotiating language that leaves them discretion to change their plans to comply with the ACA, limit their costs to those in effect before the enactment of the ACA, maintain the group health plan currently in effect or determine how to distribute any medical loss rebates. Employers may also want to craft limited re-opening language, permitting them to address cost-sharing in the event that future costs implicate the Cadillac tax or to address future clarifications or changes in the law.