The Affordable Care Act infuses new complexities into bargaining health insurance benefits. In past years, the challenge for many employers in bargaining has been to control escalating insurance costs and shift a greater share of costs to employees. Those challenges were hard enough. But now, with the ACA, employers face entirely new bargaining challenges. These challenges begin with fundamental decisions about the ACA’s employer “play or pay” provision, including whether to provide health insurance, what types and levels of insurance to provide, how to address coverage of part-time employees, and how to deal with employee costs. In short, regardless of what employers negotiated into past contracts, the landscape has dramatically changed – forcing employers to develop new strategies for negotiating health benefits with the goal of minimizing exposure to ACA penalties, satisfying the ACA’s coverage and benefit requirements, and preserving flexibility to make changes to comply with the ACA’s complex and evolving requirements.
The ACA adds new consequences to some fundamental decisions about providing health coverage, directly impacting bargaining strategies. The threshold questions that employers must answer include:
1. To “play or pay”? Whether to offer or drop health coverage for employees and their dependents is a complicated decision that unionized employers must make, taking into account the economic impact of that decision, the structure of their health benefit programs (e.g., existing coverage of union and non-union employees under the same plans), the employers’ bargaining leverage, and the impact on employee morale, recruitment, and retention. In analyzing the ACA’s costs for bargaining purposes, employers need to consider:
2. Coverage Levels and Plan Design. Employers who decide to provide health insurance must determine the level of benefits to offer. They need to meet the “minimum value” threshold to avoid ACA penalties, but stay under the cost threshold that would trigger the Cadillac tax. Some considerations include:
3. Part-Time Employees. The ACA’s “full-time employee” definition sweeps in many workers long considered part-time for purposes of health coverage. For many employers, their covered populations will expand, potentially dramatically, when they treat part-time employees averaging 30 hours a week as full-time employees to avoid the ACA’s play or pay penalty. Employers need to plan in bargaining to:
Health benefits are a mandatory subject of bargaining under the National Labor Relations Act, and the ACA does nothing to change the employer’s duty to bargain over health benefits for active, union-covered employees. The ACA does, however, change the dynamics of bargaining health benefits, since employers now face significant penalties and costs associated with providing or not providing health coverage to a potentially larger pool of “full-time” employees. Employers should take advantage of the leverage that the ACA provides to force change in their negotiated plans:
Ending company-sponsored insurance: Some employers may, for economic or other reasons, decide not to offer health coverage, pay the ACA’s penalties, and send their employees to the state exchanges. This approach will undoubtedly produce significant union opposition in bargaining, though employers may insist to impasse on the issue. Employers seeking to end company-sponsored insurance thus need to prepare for intense challenges at the bargaining table, including pressure to participate in Taft-Hartley plans and to make wage or other concessions to compensate for loss of coverage.
Flexibility. Employers who plan to provide health coverage and have open or soon-to-open contracts should consider making flexibility in plan design a top priority. The ACA is enormously complicated and has spawned unintended consequences, making legislative change possible during the term of any multi-year labor contract. Employers should consider negotiating avenues to allow mid-term adjustments in response.
One approach is to negotiate waivers allowing the employer to make plan changes, on a company-wide basis, without mid-term bargaining or arbitration. These waivers should extend to all plan design features, including deductibles, copayments and surcharges, as well as the measurement and stability periods used to determine full-time status. The waivers should also cover modifications necessary to comply with changes in the ACA and its regulations, so that the employer can avoid penalties. Any such waivers have to be “clear and unmistakable” to be effective under Board law. See Omaha World Herald, 357 NLRB No. 156 (2011).
While unions with experience with “me-too” company-wide benefits arrangements may agree to such waivers, some unions will be reluctant to do so. Employers, therefore, should consider the potential challenges to implementing waivers unilaterally after a bargaining impasse. The NLRB has held that an employer’s implementation of a proposal reserving discretion to change unilaterally health plan design, providers and benefits mid-term, even on a “me-too” company-wide basis, violated the NLRA because it excluded the union from any meaningful bargaining over benefits. See KSM Industries Inc., 336 NLRB 133, 135 (2001). Thus, employers need to be prepared to consider alternative ways for preserving flexibility to make mid-term changes, including less expansive waiver language tied exclusively to changes mandated by law.
Economics. Employers should leverage the costs that the ACA imposes on employers at the bargaining table. These added costs are tangible: the ACA requires employers to expand coverage to part-time employees, provide coverage that meets a host of requirements like preventive services without cost-sharing, make certain mandatory plan changes, and ensure that coverage is affordable. It also imposes costly record-keeping and reporting obligations on employers. Employers should use these costs to leverage plan design changes and increased employee cost-sharing, as long as the plan continues to provide minimum value and affordable coverage.
In addition, as noted above, the ACA provides employers with unique economic bargaining tools. In negotiations, they can use their actuary’s assessment of a plan design that meets the ACA’s minimum value and affordability tests as the floor for an acceptable benefit plan. And, on the other end, employers can use the Cadillac tax thresholds as the ceiling on benefits that they would be willing to provide. In between, they can also evaluate the market by looking at state benchmark plans – and push back on unreasonable union demands.
Contract Term. With the postponement of the employer play or pay provision and continued uncertainty surrounding the ACA’s implementation, employers have to consider contract duration. Depending on the employer’s overall bargaining objectives and leverage, a shorter term contract (or an extension) that allows the employer to adapt sooner to ACA changes may be prudent, particularly if the employer is unable to secure a waiver to make mid-term plan changes.
Patricia A. Dunn is a labor attorney in the Washington, DC office of global law firm Jones Day, where she represents employers in all aspects of their dealings with unions, with a particular focus on labor contract negotiations. F. Curt Kirschner Jr., a Partner in the San Francisco office, focuses on complex labor and employment disputes, with particular focus on the health care field. Before joining Jones Day as a Washington Partner in 2013, Catherine E. Livingston was Health Care Counsel in the IRS Office of Chief Counsel, where she advised senior leadership on all aspects of the ACA and its implementation. This article represents the views of its authors and not necessarily those of their firm.