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.
Questions for Negotiators
Labor negotiators from companies and unions should address the following questions to comply with the Patient Protection and Affordable Care Act mandates:
- Do the parties want their health insurance plan to maintain "grandfathered" status under the law?
- What opportunities are associated with grandfathered status?
- What requirements are subjects for bargaining without jeopardizing grandfathered status?
- What other topics should be discussed?
- What types of labor agreement "reopener" provisions can be employed as a way to address statutory changes that are scheduled to become effective during the life of a labor agreement?
Grandfathered Plan Rules
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:
- Continued coverage of children until age 26, without regard to the definition of dependent status. However, grandfathered plans are not required to extend this coverage if the child is eligible to enroll in an employer-sponsored plan other than the parent’s.
- No lifetime limits on "essential health benefits."
- Adoption of phase-in restrictions on annual limits on essential health benefits prior to the complete ban on lifetime or annual limits.
- No rescissions or retroactive cancellation or discontinuation of coverage in the absence of fraud or material misrepresentation of facts.
- Elimination of pre-existing condition exclusions from coverage for children younger than 19.
Now the Perks ...
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.
- Grandfathered plans do not have to make information disclosures to the U.S. Department of Health and Human Services and plan participants about cost-sharing and coverage requirements.
- Grandfathered plans did not have to comply with 2012 reporting requirements regarding benefits and health care reimbursement structures.
- Grandfathered plans did not have to implement new internal claims and appeals processes and procedures by plan years beginning on or after Jan. 1, 2012.
- Grandfathered plans are not required to cover children age 26 or younger if they are eligible for health care benefits provided by another employer.
- Coverage eligibility rules based on an individual’s health status that are effective for plan years after Jan. 1, 2014, are allowed to continue in grandfathered plans.
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:
- Substantially cutting or reducing benefits to diagnose or treat a condition beyond what is permitted for grandfathered plans.
- Increasing co-insurance requirements beyond what is permitted for grandfathered plans.
- Increasing deductibles or out-of-pocket maximums by amounts that exceed medical inflation measured from March 23, 2010, plus 15 percentage points.
- Increasing co-payments by amounts that exceed $5 or medical inflation measured from March 23, 2010, plus 15 percentage points, whichever is greater.
- Decreasing an employer’s contribution rate toward the cost of coverage by more than 5 percentage points.
Other Topics to Discuss
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:
- Coverage of adult children to age 26, even if married, regardless of eligibility for alternative employer-sponsored coverage.
- Premium discounts or rebates, modification of co-payments, and deductibles of up to 30 percent or even 50 percent, depending on regulations to be issued, for participation in wellness programs.
- Vouchers worth the same amount as the largest premium contribution the employer makes to permit low-income employees to purchase health insurance through exchanges, which are to be up and running by 2014.
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:
- To address future regulatory changes.
- At certain points in time tied to timelines set forth in the law.
- In response to certain specified changes in health care costs.
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.