Labor Issues Impacted by Health Care Reform

The reform act might disrupt the established order in the collective bargaining process

By Harry R. Stang May 21, 2010

Given analysts’ predictions that health care premiums will continue to rise, some employers have begun to assess the practical, economic, ethical and legal issues involved in the termination of health care coverage. These issues are particularly complex for employers with collective bargaining agreements that mandate contributions to health and welfare plans.

Employers’ judgments as to future action will require analysis of the “pay-or-play” provisions of the reform act; the likely impact on recruiting, retention, and morale resulting from plan terminations; their legal obligations; and the potential for economic confrontations with labor organizations seeking to preserve benefits built up over years of collective bargaining.

Employer ‘Pay-or-Play’ Mandates

A large employer, under the act, is one that employed an average of at least 50 full-time employees during the preceding calendar year. Beginning in 2014, in order to avoid statutory penalties, large U.S. employers must:

Offer health coverage that meets minimum federal standards.

Contribute to their workers’ health insurance.

A large employer that does not offer coverage to all its full-time employees, offers minimum essential coverage that is unaffordable (as determined under the reform act), or offers minimum essential coverage that consists of a plan under which the plan’s share of the total allowed cost of benefits is less than 60 percent, is required to pay a penalty, provided at least one full-time employee is certified to the employer as having purchased health insurance through a state exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee. The penalty is in the form of an excise tax of $167 per employee per month.

The reform act provides that an employer will not be subject to the penalty provisions if it does not have any full-time employees whose incomes might qualify them to receive a federal premium assistance credit or a cost-sharing subsidy to reduce their costs associated with qualified heath plan coverage obtained through the exchange. However, most employers with hourly blue-collar workers will be subject to the penalties.

Beginning in 2014, premium assistance credits and cost-sharing subsidies will be available for individuals and families with incomes from 100 percent to 400 percent of the federal poverty level (400 percent of the poverty level is currently $43,320 for an individual or $88,200 for a family based on 2009 poverty-level figures).

Bargaining Agreements and Obligations to Maintain Plans

Under the National Labor Relations Act (NLRA), employers with collective bargaining agreements generally are precluded from making unilateral changes in the terms and conditions of employment affecting employees during the term of agreement. While there is no prohibition on employers requesting midterm negotiations about health plan modifications, terminations or reductions of premiums, unions generally are not obligated to negotiate about or agree to such terminations or modifications while the collective bargaining agreements are in force.

Under the NLRA, employers with collective bargaining agreements are, with limited exceptions, required to maintain employees’ compensation and benefits during negotiations after the expiration of an agreement until the parties either reach a lawful impasse or an agreement on new terms as a result of good-faith negotiations. (An exception is made for employers in the construction industry that have entered into so-called prehire agreements; they have the right to terminate agreements on their expiration and may thereafter repudiate them without engaging in further bargaining.)

While unilateral implementation of changes such as health plan termination after a lawful impasse is legally feasible, it should be done only with the advice of experienced labor counsel. If a collective bargaining agreement with a no-strike clause has expired, and assuming it has served the notices required under the NLRA, a union would have the right to take action, including a strike, to prevent the termination or modification of a medical plan if the parties cannot reach agreement.

Cost-Benefit Analysis of Plan Terminations

In Massachusetts, which instituted a statewide mandated health care plan in 2006, multiple employers opted to pay relatively modest annual statutory fines rather than provide health care. The same scenario is likely to play out under the federal law, but with a greater order of magnitude. Paul Fronstin, a senior research associate with the Employee Benefit Research Institute, has predicted that if the unemployment rate continues to be near 10 percent in 2014, and if state health care exchanges are viable alternatives under the reform act, employers would have little competitive reason to continue offering group health care coverage (as reported in Daily Labor Report, May 5, 2010).

Fronstin noted that employers might decide that paying penalties under the reform law would be more cost effective than continuing to make annual contributions to their employees’ health care premiums, which averaged $8,900 annually in 2009. This figure is more than four times the annual “pay-or-play” penalty of $2,000 per full-time employee, which employers with more than 50 employees would be charged in 2014 for not offering health insurance under the reform act. The 2009 average premium cost will appear relatively modest by 2014.

The current reality in collective bargaining for virtually all industries is that escalating health care costs have become one of the most difficult issues confronting employers, unions and affected-bargaining-unit employees, who in many cases are being asked to contribute increasing amounts to maintain their medical plan coverage. A major issue for purchasers of medical insurance, including unionized employers, is that the reform act provides little help in restraining premium growth, capping the cost of malpractice litigation or addressing the inefficiencies inherent in the private insurance payor system.

As a result, the reform act might produce changes in the paradigm of employer-sponsored health care coverage for some unionized employers, with concomitant disruptions to the established order in the collective bargaining process.

Harry R. Stang is senior counsel with the international law firm of Bryan Cave LLP. After service with the National Labor Relations Board, he has represented employers in the labor law field since 1964. Stang is the former chair of the firm’s Labor and Employment Client Service Group, and is a fellow of the College of Labor and Employment Lawyers.

Related Articles:

Employer-Sponsored Health Benefits: ‘Reformed’ into Obsolescence?, SHRM Online Benefits Discipline, May 2010

Group Policies vs. Subsidized Individual Coverage—The Impact of Exchanges, SHRM Online Benefits Discipline, April 2010

Health Care Reform: Regulation Effective Dates for Collectively Bargained Plans, SHRM HR Q&As, April 2010

Wellness Program Reaps Cost Savings for Unionized Workforce, SHRM Online Benefits Discipline, April 2006

Related Video:

Wellness Efforts and Unions, SHRM Multimedia, June 2008

Quick Links:

SHRM Online Benefits Discipline

SHRM Online Health Care Reform web page

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