It is an understatement to say health care is an integral part of collective bargaining relationships.
In most labor negotiations during the past 30 years, more time and effort has probably been spent on the health care plans provided by labor agreements than on any other contract provisions, including pensions. The Patient Protection and Affordable Care Act increases the stakes dramatically.
The legislation and its implementing regulations introduce unprecedented complexity and increase the costs of compliance. Enormous pressure is placed on divvying up the amounts available to employers and unions to fund wage increases and even to maintain wages and benefits at existing levels. And, all too often, labor negotiators wait until just before a contract is set to expire to get serious about negotiations—a strategy that is nothing short of disaster.
Compounding the difficulties facing labor negotiators, changes required by the Patient Protection and Affordable Care Act must be implemented on the timetables provided by the legislation without regard to the expiration dates of labor agreements.
Labor negotiators from companies and unions should address the following questions to comply with the Patient Protection and Affordable Care Act mandates:
A grandfathered health plan is a group health plan or insurance coverage that existed on March 23, 2010, and in which at least one person was enrolled. Grandfathered plans are exempt from the vast majority of insurance reforms under the Affordable Care Act.
All plans, including grandfathered plans, had to satisfy the following conditions on Sept. 23, 2010, the effective date of the act:
Although grandfathered plans are subject to some Affordable Care Act requirements, maintaining grandfathered status provides plans with the following opportunities:
Grandfathered plans have additional time to study the impact of changes required of nongrandfathered plans, such as the cost impact of the law’s requirements to offer preventive care and services in-network without cost-sharing; that there be no prior-authorization requirements for obstetric and gynecologic care and emergency care services; and that individuals be provided the right to choose their primary care physician, including in-network OB/GYNs and pediatricians.
Summary plan descriptions and records documentation requirements for grandfathered plans are less burdensome than for nongrandfathered plans. Plan materials provided to participants of grandfathered plans must include a description of the benefits provided, a statement that plan administrators believe it is a grandfathered plan, and contact information for questions and complaints. Grandfathered plans must maintain records documenting the terms of the plan in effect March 23, 2010, and any other documents necessary to verify that it is a grandfathered plan.
Companies and unions preparing for labor negotiations need to understand what changes they can make to their health plans without forfeiting or jeopardizing grandfathered status.
For example, cost-sharing amounts, such as deductibles required as of March 23, 2010, may be increased by a percentage less than medical inflation measured from March 23, 2010, plus 15 percentage points without forfeiting grandfathered status.
Similarly, co-payment amounts may be raised by less than $5 or a percentage less than medical inflation measured from March 23, 2010, plus 15 percentage points, whichever is greater.
Limited changes related to coverage tiers are permitted and would not jeopardize grandfathered status. For example, labor negotiations could add self-plus-one, plus-two or plus-three coverage tiers to plans offering self-only and family tiers, as long as the employer contribution for family coverage is reduced by no more than 5 percentage points in determining the contribution for the new tiers.
Learn what changes can be made to plans without jeopardizing grandfathered status.
Companies and unions offering fully insured plans can change carriers without jeopardizing grandfathered status as long as benefits and coverages remain essentially unchanged.
Because potential cost-savings opportunities are associated with relinquishing grandfathered status, labor negotiations should consider making changes and adjustments to health plans that are not permitted by the standards for maintaining grandfathered status.
These changes include:
Unions and employers should also discuss the following changes:
Required changes. Negotiators can and should plan early for sharing the costs of required health plan changes. These will include minimum essential benefits that must be provided for such items as ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance abuse disorder services, prescription drugs, rehabilitative services and devices, laboratory services, preventive and wellness services, and chronic disease management and pediatric services, including oral and vision care.
Also, it is proposed that most private-sector plans will be required to pay assessments based on the number of individuals covered under a plan. These assessments are estimated to be in the range of $60 to $105 per covered person to help stabilize premiums for individuals with pre-existing conditions.
Negotiators will need to plan for the minimum-essential-coverage mandate. That mandate requires that employers pay at least 60 percent of covered health care expenses and that employee contributions not exceed 9.5 percent of the employee’s household income.
Additional negotiations planning will need to address the out-of-pocket annual maximums requirements. These maximums will be $5,950 for self-only coverage and $11,900 for family coverage.
Labor negotiators will need to take into account that no pre-existing conditions coverage exclusions and no annual limits on dollar value of benefits will be allowed in health plans, regardless of participants’ ages.
In addition, health plans will be required to provide:
Low-wage earners’ eligibility. Having low-paid employees in a bargaining unit might lead to proposals to keep some bargaining unit members from being eligible for employer-sponsored coverage, especially if some married individuals in the bargaining unit have household incomes that fall roughly between 100 percent and 250 percent of the federal poverty level. The families of these individuals might be better off if they are eligible for premium tax credits based on purchasing coverage from a health insurance exchange. They cannot claim these credits if they are covered by an employer’s plan.
Special ‘reopener’ provisions should be included in labor agreements.
Cadillac plans. Finally, labor negotiators who handle high-cost, or so-called Cadillac, plans will need to study methods for avoiding the 40 percent excise tax on high-cost plans that becomes effective Jan. 1, 2018. That tax is imposed on employer-provided coverage if the cost exceeds $10,200 for self-only coverage or $27,500 for employee-plus-one and family coverages, or if it exceeds $27,500 for all levels of coverage in multi-employer plans.
The complexity of the Affordable Care Act’s requirements, plus the uncertainty associated with the content of future regulations, suggests that special "reopener" provisions be included in labor agreements to require the parties to reopen their agreements and negotiate over the effect of future regulatory requirements on health plans.
Reopener provisions can be designed to reopen contracts and negotiations:
Be sure to heed this call for advance planning, as the complexity and scope of the mandates imposed by the Affordable Care Act cannot properly be dealt with in the crisis atmosphere created by a last-minute scramble to reach a new labor agreement.
Arthur Smith Jr. is an attorney at Ogletree Deakins in Chicago.