The Patient Protection and Affordable Care Act, also known as health care reform, is now three years old. Employer health plans have had a host of new administrative and coverage requirements to comply with during each of the PPACA’s first three years. However, the PPACA requirements that have taken effect to date seem negligible when compared to those that will take effect in 2014 and beyond. The legal landscape of health insurance will fundamentally change in three ways next year:
• Eligible individuals will be able to purchase "qualified health plans" using tax credits or subsidies through newly created "health care exchanges."
• Individuals who fail to obtain affordable coverage that is available to them will be subject to an "individual mandate" penalty equal to 1 percent of their gross income or $95, whichever is greater (this penalty will be adjusted upward in subsequent years).
• "Large employers" (those employing an average of 50 or more employees) will be subject to "shared responsibility" penalties unless they offer 95 percent of their "full-time employees" and dependent children "minimum essential coverage" that is "affordable."
In 2018, the PPACA’s final requirement, the "Cadillac tax," will take effect. Under this provision, employer group health plans with annual premiums that exceed statutory benchmarks ($10,200 for self-only coverage; $27,500 for family coverage) will pay a 40 percent tax on the overage. Many generous employer health plans appear likely to incur the Cadillac tax in 2018 unless steps are taken to significantly reduce plan costs in advance.
Identifying cost-effective PPACA compliance strategies is challenging enough; however, unionized employers face the additional challenge of making sure their strategies don’t run afoul of a collective bargaining agreement or their statutory duty to bargain under the National Labor Relations Act). CBAs that expire before 2014 or that contain "reopener" provisions will provide unionized employers with the opportunity to address this challenge. Employers whose CBAs do not expire until after 2014 may have a difficult time simultaneously complying with their CBA and the PPACA. This article examines the intersection of the PPACA with a unionized employer’s responsibilities under its CBAs and the duty to bargain under the NLRA.
Who Is Offered What Coverage?
The PPACA requires large employers to offer full-time employees (those employed for an average of 30 or more "hours of service" per week) and their dependent children health coverage on an affordable basis. The term "hours of service" is defined in proposed regulations to include "each hour for which an employee is paid, or entitled to payment," including time spent on vacation, holidays and sick leave. This definition is broader than the "hours worked" standard by which many employers have traditionally measured full-time status, and plans will need to be updated to incorporate the PPACA’s new regulatory standard.
Most unionized employers already offer health coverage to their full-time employees and many also offer dependent coverage. Importantly, however, the PPACA’s "30 hours of service" threshold for full-time status is lower than the threshold many employers have used in the past. A large employer that has traditionally offered coverage only to employees who regularly work 40 hours or more per week has several options under the PPACA:
• Expand the eligible class to all employees who average 30 or more hours of service per week.
• Reduce work schedules so that no one (or less than 5 percent of the employer’s full-time employees) falls between 30 and 40 hours of service.
• Drop employee coverage altogether and pay a shared responsibility penalty if any affected full-time employee obtains coverage with a tax subsidy on a health care exchange.
• Do nothing and risk paying a "shared responsibility" penalty if any employee who averages between 30 and 40 hours per week obtains coverage with a tax subsidy on a health care exchange.
Each of these options except the last will likely trigger a duty to bargain with the affected union and may violate existing CBA provisions. These issues can get very complex very quickly. How will average hours of service be calculated for variable-hour employees? May the employer provide lesser coverage to employees in the 30-to-40-hour class than is offered to employees who work more hours? May employees in the 30-to-40-hour class be charged more for coverage? Employers will need adequate time to thoroughly consider these issues and negotiate the best path with their unions.
A New Type of Cost-Sharing?
One of the toughest issues in labor negotiations over the past 20 years has been cost-sharing for health coverage. It was not very long ago that many employees and their dependents had access to employer-provided coverage at no cost. However, many CBAs now include provisions requiring employees to pay a share of their monthly health coverage premium either in the form of a fixed-dollar contribution or a percentage of the applicable premium. The PPACA introduces new facets to this bargaining issue.
First, in order to avoid shared responsibility penalties, employers may not charge full-time employees more than 9.5 percent of their wage income for the lowest-cost, self-only plan option available. This may lead some employers to negotiate cost-sharing amounts based on a fixed percentage of each employee’s wage income (not to exceed 9.5 percent).
The PPACA also introduces a number of fees and taxes for employers that give rise to other cost-sharing considerations. Covered employers that offer health coverage are now required to pay a "comparative effectiveness research fee" of $2 per covered individual in 2013 and similar amounts through 2018. In 2014, employers will be required to pay a "transitional reinsurance program fee" that is predicted to cost about $63 per year per covered life; this annual fee expires after 2016. As mentioned above, many generous health plans will also be subject to a 40 percent Cadillac tax unless they are able to significantly reduce premium costs by 2018. It is likely that some employers will seek to share responsibility for these new fees and taxes with participating employees via expanded cost-sharing; however, unless this sort of cost-sharing is already permitted under an employer’s CBA, this issue will probably lead to difficult negotiations.
Arbitration of Health Claims in a Post-PPACA World
In the pre-PPACA world, employees whose claims were denied under a health plan had the option of appealing the denial through a procedure outlined in the health plan. If the employee was not satisfied with the outcome on appeal, he or she could proceed to court under the Employee Retirement Income Security Act. Some union employees have the additional option of challenging benefit denials through the grievance arbitration provisions in their CBA. Arbitration can be a quicker and cheaper means of resolving health claims through review by a neutral arbitrator who may or may not be experienced in interpreting health plans. Under the PPACA, however, employers offering non-grandfathered health plans must now include enhanced appeals procedures that provide the option for review by an "independent review officer." The availability of a pre-litigation independent review may lead some employers to conclude that health claims should no longer be arbitrable under their CBAs or that an election of remedies requirement should apply. Otherwise, a relatively minor, low-dollar health claim could lead to simultaneous appeals in multiple forums and result in significant defense costs. Employers that are presently subject to arbitration of health claims under their CBAs will need to negotiate any limitations on arbitration that are deemed necessary.
Resolving PPACA/CBA Compliance Issues
Some employers will have surprisingly little to do in order to comply with the PPACA’s 2014 requirements, while others will need to make substantial changes to their health plans and CBAs. Unionized employers need to immediately identify what steps must be taken to comply with the PPACA by 2014 and how those steps impact their CBAs. Given the limited time to comply, some employers may find it beneficial to assemble joint labor-management "PPACA compliance committees" composed of members that understand the PPACA and its impact on the business and its employees. These committees could be authorized either to make recommendations for leadership approval or to take final action on compliance issues that arise over the next few years. The benefit of this approach is that such committees can help employers implement prudent changes in a time-effective manner without running afoul of their CBAs or bargaining obligations. If left to traditional bargaining processes, PPACA compliance could require far more time than the law allows.
The PPACA’s 2014 requirements will present a number of significant compliance challenges for many employers. Unionized employers have the added challenge of ensuring that their PPACA compliance efforts do not violate their duty to bargain under the NLRA and do not breach existing CBAs. The points outlined above are just a few of the PPACA issues that unionized employers must wrestle with as 2014 approaches. Each issue presents options for employers; however, the negotiations associated with most options will take time. One may expect that labor negotiators will be quite busy over the next few months. •
Eric N. Athey is co-chair of the McNees Wallace & Nurick labor and employment law group and practices out of the firm’s Lancaster, Pa., office. Contact him at email@example.com or 717-581-3708.
Kelley E. Kaufman is an associate in the firm’s labor and employment law group and practices out of the firm’s Harrisburg office. Contact her at firstname.lastname@example.org or 717-237-5248.