AFL-CIO Lawyers Coordinating CommitteeFOLLOW UP WEBINAR

HEALTH CARE: ACA BARGAINING BASICS FOR UNION LAWYERS AND ORGANIZING

OPPORTUNITIES

October 14, 2015

Sharon M. Goodman, Esq. Daniel R. Brice, Esq.sgoodman@slevinhart.com drbrice@bklawyers.com Slevin & Hart, P.C. Blitman & King LLP1625 Massachusetts Avenue, NW Franklin Center, Suite 300Washington, D.C. 443 North Franklin StreetTelephone: (202)797-8700 Syracuse, N.Y. 13204

Telephone: (315)422-7111

What Is (some of) The ACALandscape Driving Bargaining?

• SCENARIOS ON–Cadillac Tax

– Interaction of Employer Penalties, Public Exchange & Premium Tax Credits (Subsidy) in:

  -- Dependent  Child Coverage-- Part Time Employees

-- Reduction of Hours

• Bargaining Options • Organizing Opportunities 2

Scenario 1Reaction To Cadillac Tax

• The parties are bargaining a 5 year agreement in 2016 and Employer projects that it will be hit with the Cadillac tax in 2018. 

• It proposes language giving it the right to redesign the plan to adjust employee cost sharing to reduce plan cost and avoid the penalty. 

• How should the Union respond?3

• Beginning January 1, 2018, Internal Revenue Code Section 4980I imposes a 40% excise tax (“Cadillac Tax”) on the cost of employer-provided health coverage above the applicable threshold.

• In general, the thresholds for 2018 are $10,200 for self-only coverage and $27,500 for family coverage. Those amounts are subject to adjustment.

Cadillac Tax - Internal Revenue Code Section 4980I

4

• As a starting point, the Cadillac tax applies to the cost of employer-sponsored health coverage.

• The employer and employee contribution/premium toward health coverage shall count as the overall cost of coverage.

• However, employee out-of-pocket medical expenses (e.g. deductibles, co-pay,…) are not counted toward the cost of coverage.

Cadillac Tax – Coverage Subject to the Tax

5

• Coverage subject to the tax includes:Flexible Spending Accounts (“FSAs”), Health Savings Accounts (“HSAs”),

and Health Reimbursement Accounts

(“HRAs”)

Cadillac Tax – Coverage Subject to the Tax

6

• In general, each coverage provider shall pay the tax imposed on its applicable share of the excess benefit with respect to an employee.

• For insured coverage, the coverage provider is the health insurance issuer.

• For self-insured coverage, the coverage provider is the “person that administers the plan benefits”.

Cadillac Tax – Liability To Pay Tax

7

Employer Proposals.• In general, the two main methods to lower the

cost of coverage are cutting benefits and increasing employee cost share.

• Accordingly, employer proposals related to the Cadillac tax will generally include each.

• The Employer may also propose eliminating/reducing HSA, HRA, and FSA contributions.

• Any cost savings realized by the employer as a result of cutting benefits or raising deductibles should be shared with the employees.

Cadillac Tax – Bargaining Issues

8

Reopeners.• Any reopener related to the Cadillac tax should

only be triggered upon a determination that the coverage will trigger the tax, not a “belief” that the tax will be imposed upon the Plan. Contract language should be included that

requires the employer to provide, without request, any and all information supporting its position regarding the Cadillac tax.

• Any reopener should include a designated period of time within which the parties may negotiate changes to avoid the Cadillac tax.

Cadillac Tax – Bargaining Issues

9

Unilateral Changes.• The Union should resist any language that allows

the employer to unilaterally make changes to health benefits to avoid the Cadillac tax.

• Preferably, any change made because of the Cadillac tax should not become effective until the Cadillac tax becomes effective for the plan. There is always the possibility that the Cadillac tax is delayed, revised or even repealed; it is unlikely that the Union would gain back any concessions provided to avoid the tax if the tax never applies.

Cadillac Tax – Bargaining Issues

10

Indemnification.

• The Union should resist accepting responsibility on behalf of the members to pay the Cadillac tax due to the uncertainty regarding exposure.

Cadillac Tax – Bargaining Issues

11

SCENARIO 2 Skimming Down On Dependent

Child Coverage

• A large nursing home employer proposes plan which meets ACA’s requirements of minimum essential coverage, minimum value and affordability for full-time employees.

• The employer increases co-premium for dependent children.

• Goal: To maintain current affordable good quality dependent coverage.

• If can’t, what are options for Union negotiators?         12

13

Impact of Penalty On Large Employers

• Penalties only for failing to offer coverage to full-time employees and apply only to large employers (50 or more full-time and full-time equivalents).

• NO COVERAGE: Does NOT OFFER “Minimum Essential Coverage” (MEC) to full-time employees (“FTE”) and dependents and 1 FTE receives subsidy.

Penalty: $2,000 x Total # of FTE Minus 30

• LOW COVERAGE: OFFERS MEC to FTEs and dependents that is not Affordable (9.5% of employee’s income based on self-only coverage) or not Minimum Value (60/40 Plan) and 1 FTE receives subsidy.

Penalty: $3,000 Per FTE Receiving Subsidy

• Full-time = averages 30+ hrs week (130 hrs month equiv.) 13

Employer Penalty Dynamics For 2015

SPECIAL MULTIEMPLOYER EXCEPTION IN 2015 (AT LEAST)• IF required by CBA or participation agreement to contribute

for some or all employees to multiemployer plan that offers eligible individuals coverage that is: • Affordable • Minimum value and • Offered to individual’s dependent children

• THEN employer not treated – with respect to employees for whom employer required by CBA/PA to make contributions to plan – as failing to offer MEC to full-time employees and dependents for penalty

• Even if employee only eligible for Mini-Med Plans?• Participation agreements = Local Union staff, Fund Office

staff.14

Impact of Premium Assistance Tax Credits (Subsidy)

Under Scenario 2, to receive premium assistance tax credit, dependent child must:

• Not be offered/eligible for minimum value employer plan

• Not actually covered by any employer plan.

• No offer of dependent coverage (even if unaffordable (exceed 9.5% of household income).

• Be citizen or legally documented residing in U.S. 15

Impact Of Employer Proposal On Dependents

• ACA only requires employer to offer dependent children of full-time employees coverage – no employer penalty even if unaffordable.  If offer any minimum value coverage, Exchange subsidy unavailable. So employer proposal of expensive child coverage means no subsidy.                

• If Employee declines expensive coverage for dependent child:

Exchange without subsidy Dependents go without coverage and incur individual

mandate penalty At lowest incomes, qualify for Medicaid/CHIP coverage at

no/low cost?• Should Union consider Exchanges (without subsidy) as

alternative to employer coverage for dependents?   16

17

Exchange As An Option For Dependent Child Coverage

• Have you surveyed household income to determine cost of Exchange coverage?

• Do employers/members understand differences in coverage between plan and Exchanges for dependents without subsidy?

• How will Exchange “winners and losers” impact you plan? Younger, single participants will be charged

less Older participants with families will pay more17

18

But If You Are Considering Public Exchanges ….

• Decision to use Exchange comes down to evaluating economic implications of affordable dependent child coverage vs. other bargaining issues. Pension plan funding Wage pressures Non-Union competition with no coverage Relevance of employer penalties – large vs. small

employers Relevance of employee subsidies – low vs. high

wage industries • If you may be headed to Exchanges for some

dependents, focus on: Potential role of Union/Plan in assisting members18

19

How Are You Handling Exchanges?

• Misunderstanding has resulted in two key misperceptions Some companies believe they can “gross up”

employees pay to allow employees to purchase comparable coverage at lower cost from Exchange

Some employees believe they can take contributions to multiemployer funds and purchase comparable coverage from Exchange

• BUT, in generous plan, gross up would have to be very large

• Employer pays FICA and FUTA tax on increase in wages

• Employee pays income taxes on additional wages• AND can’t use HRA dollars to pay premiums• PLUS large employers would pay penalty

19

SCENARIO 3 Elimination of Part-Time

Coverage• Employer provides ACA compliant plan

to full time employees and their dependents only.

• Eliminates all coverage for part-time employees. 

• How might Union respond?

20

Impact Of Employer ProposalOn Part-Timers

• If part-time employee has no offer of employer coverage: Employer has no penalty concern – part-timers not

covered by penalty Exchange – employee may be eligible for premium

assistance tax credits since no employer plan offer (depending on household income)

Goes without coverage and incurs individual mandate penalty

At lowest incomes, qualifies for Medicaid program coverage at low/no cost

• Union Option: Bargain “excepted benefit” coverage to supplement

Exchange coverage (new temporary “wrap-around” program – very complicated, see paper) 21

Option: Excepted Benefit Coverage To Supplement

Exchange• BASIC RULE: Premium credits not available to

participants receiving minimum essential coverage from employer plan.

• Minimum essential coverage consists of almost any medical/prescription benefits provided by plans.

• Minimum essential coverage does not include certain benefits called “excepted benefits”.

• Option for plan to provide these “excepted benefits” to employees with Exchange coverage and tax credit.

22

Excepted Benefit Coverage With Exchange

Excepted Benefits Include:

• Coverage for accident or disability income insurance• Liability insurance, including automobile liability

insurance• Workers’ compensation or similar insurance• Limited scope dental or vision benefits• Benefits for long-term care, nursing home care, home

health care, community-based care• Benefits not coordinated with other coverage• Coverage only for a specified disease or illness - e.g.

cancer coverage• Hospital indemnity or other fixed indemnity insurance• Employee assistance programs that do not provide

significant medical care or treatment23

What If Employer Offers Part-Time Employees Unaffordable

Plan?• Union Option:

Bargain “excepted benefit” coverage to supplement Exchange coverage?

Get employer to offer minimum value (but unaffordable) coverage to part-time employees with an opt-out, so employee has choice of employer coverage or Exchange with premium tax credit?

24

SCENARIO 4 Mass Reduction of Hours

Below 30• Large employer providing health

insurance to full-time employees announces reduction in hours for most employees to avoid providing health insurance and penalties. 

• If Union employer, what are bargaining strategies?

• If Non-Union employer, is this an organizing opportunity?     

  25

ACA Opportunities for Unions to provide value.• Employees’ need for protection against hours reduction.

As a result of the employer penalty exposure being limited to full-time employees (average at least 30 hours per week), variable-hour employees will likely face greater resistance to 30+ hour work weeks.

• Employees’ need for protection regarding health benefits. In light of ACA fees and market reforms creating pressure on employers offering coverage, as well as employers contemplating moving employees to the Exchanges, employees, more than ever, benefit from working as a group to maintain the status quo for health coverage.

Organizing Opportunities

26

Multi-Employer Groups.• As a result of new ACA reporting requirements and

other associated burdens imposed upon health plans due to the ACA, there is an advantage and draw of allowing a multi-employer health fund to administer/provide benefits to the employer’s employees.

• Large employers seeking to limit exposure to the employer penalty can utilize the safe harbor; employers that timely contribute to a multi-employer health plan on behalf of employees will not be subject to penalty for those employees so long as certain conditions are met.

Organizing Opportunities

27

ERISA Section 510• It shall be unlawful for any person to discharge, fine, suspend,

expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan, … or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan….

• Consider whether there is potential ERISA claim against an employer that reduces hours below 30 (penalty threshold) causing a loss of health coverage for employees.

• When restructuring reduces most workers from full-time to less than 30 hours – look at intent, timing, history of workforce hours.

• No guidance (and unlikely) or successful cases to date – OPEN ISSUE. See Marin v. Dave & Busters, Inc., 1:15-cv-03608 (S.D.N.Y. 2015) (pending ERISA Section 510 reduction in hours case).

28

29

SCENARIO 5Private Exchanges

• The Employer proposes to provide health coverage through private exchange. 

• Started with Medicare private exchanges.• Expanded to large organizations. Examples: Hewitt/Aon,

Towers Watson Offer — IBM Retirees, Walgreen’s active employees, Darden Restaurants.

• “Defined contribution” structure — Employee given set amount of $$ to shop private exchange and pick coverage AND PAY BALANCE.

• Employer establishes its contributions — ex: $500 and selects private exchange options — ex: high deductible plan ($550), silver plan ($700); gold plan ($900).

• Employee can use HRA $$ to buy coverage.• KEY DIFFERENCE FROM PUBLIC EXCHANGES: No Federal

Subsidy Money Available To Buy Coverage.• What are considerations for Union?

29

Private Exchange

WHY ARE EMPLOYERS INTERESTED??• Shifts costs, administration, inflation risks to employees

• Can act as control on employer’s overall health costs — averages 70-80% of total plan costs

• Avoids Cadillac Tax

• Avoids employer penalty if full-time

WHY ARE EMPLOYEES (MAYBE) NOT INTERESTED??• Employer amounts may not pay for right coverage or keep

up with medical inflation

• New/underdeveloped market — less than 1% of employees

• Shifts future cost increases to employees (unless employer increases contribution each year)

30

Arguments For Unions To Make

Against Private Exchanges • Carrier Limits Choices

• Not Fully Customizable for industry / area/workforce

• Shift in Costs from Employer to Employee

• Plan Administration Shifts to Carrier – Loss of Control

• Broker/Carrier Costs

• Short Track Record – Too Early to Consider

31