Does your company offer coverage to employees that are part of a collective bargaining unit?
If so, you’ll need to understand and consider the impact certain provisions of the Affordable Care Act (ACA) will have on the benefits you offer and your negotiations with the union.
For example, the Shared Responsibility provisions of the Affordable Care Act, which require employers to offer coverage to full-time employees or be subject to penalties, may be problematic for your organization. You have a Collective Bargaining Agreement (“CBA”) in place and will need to make sure that the provisions of that agreement relating to health coverage also comply with the requirements of the ACA. Of course, you’ll also want to be careful to limit the costs of providing health coverage.
Before heading into union negotiations, you should be aware of strategies for maintaining costs and understand the implications presented by ACA requirements. Here are a few to consider.
Timing is Critical
The National Labor Relations Act (“NLRA”) prohibits employers who have entered into a CBA from modifying the terms of that agreement—such as wages, hours, or working conditions—without first giving the union fair notice and an opportunity to negotiate the proposed changes and their effect on union employees.
Because of these NLRA provisions, the timing of collective bargaining negotiation is crucial. When negotiating with union representatives, you’ll need to pay close attention to the effective dates of the CBA and be sure that the terms of the agreement will not cause a failure to comply with the ACA.
Beware of the Zipper Clause
Many CBAs include a clause in which both parties agree to waive the right to demand bargaining on any matter dealt with in the contract, sometimes known as a zipper clause. Such a clause can hinder your ability to seek modification of a contractual provision that was previously negotiated—for example, the number of hours worked for benefit eligibility – to comply with the ACA.
Health plans that were negotiated as part of a CBA ratified before March 23, 2010, may continue as grandfathered plans under the ACA. However, those plans lose their grandfathered status if they undergo certain material changes, including elimination of benefits; significant reduction of the employer’s contribution to premiums; and significant increases to deductibles, coinsurance, or co-pays.
Grandfathered plans are exempt from some ACA requirements, such as 100% coverage of preventive services, waiving referrals for OB/GYN care, limits to out-of-pocket maximums, and requirements that certain services be covered.
Some ACA provisions apply even to grandfathered plans. These include the prohibition on annual and lifetime maximum benefits, coverage for adult dependents under age 26, and rebates to participants in plans whose administrative costs exceed a certain threshold. Additionally, grandfathered plans are subject to the waiting period limitation—coverage must begin no more than 90 days after the participant fulfills eligibility requirements.
Costs of doing business
Before entering into collective bargaining negotiations, you’ll want to consider the potential costs of providing—or not providing—health insurance coverage to union employees. You should understand the current costs of providing coverage to full-time employees as required by their CBA, as well as potential additional costs that have resulted from the implementation of the ACA.
Shared responsibility payments. Employers with more than 50 full-time employees (and full-time equivalents) who do not offer affordable, minimum-value coverage to all full-time employees may be subject to an annual penalty of at least $2,000 or as much as $3,000 per employee. Ensuring that at least one option offered to full-time employees under a CBA is affordable and provides minimum value is key to avoiding these penalties.
Patient-Centered Outcomes Research Institute (PCORI) fee. The fee is used to fund research that will evaluate and compare health outcomes and the clinical effectiveness, risks, and benefits of two or more medical treatments and/or services. The fee started at $1 per covered life for plan years ending on or after October 1, 2012 through September 30, 2013, increased to $2 per covered life for plan years ending on or after October 1, 2013 and will increase based on the cost of national health expenditures.
Transitional reinsurance program fee. This fee is designed to help stabilize premiums for individual coverage due to the regulatory impact of the ACA. The amount will vary by state and will decrease over the 3-year period the fee is imposed, but is expected to be approximately $63 per covered life per year for the first year. This fee will cause insurance premiums or self-funded costs to increase in 2015.
“Cadillac” Tax. A 40% excise tax will be imposed on the amount by which the aggregate value of employer-sponsored health coverage for an employee exceeds a certain threshold, starting at $10,200 for self-only and $27,500 for family coverage in 2018. You should determine whether any plan offered may be subject to the Cadillac Tax in 2018 so that benefit changes can be made and negotiated prior to 2018.
Coverage for Spouses and Children. The ACA requires employers who offer coverage to their full-time employees to also offer it to the children of these employees through the end of the month in which they reach age 26. Foster and step-children no longer have to be offered coverage, nor do children who are not U.S. citizens or nationals unless that child is a resident of a country that is contiguous to the United States. There is no requirement to offer coverage to spouses.
Although coverage of children is required, the additional charge for family coverage is not included in the calculation of affordability. Therefore, the premium contributions can be increased for family coverage without triggering a potential penalty. Because spouses do not need to be covered, including a spousal carve out or surcharge, could also be a cost saving measure for the employer that may need to be negotiated for union employees.
Benefits or cash?
It is probably inevitable that at some point, employer and union representatives will discuss whether it is best to continue providing employer-sponsored coverage for employees and whether to provide it for employees’ dependents. Individuals who have access to employer-sponsored health coverage – as long as it is affordable (as determined based on an employee’s cost for self-only coverage) and meets the minimum value standard – cannot qualify for a subsidized premium from the health insurance marketplace or exchange.
But if employer-sponsored coverage is not available to the individual—whether the employee, spouse or child—then that individual can qualify for a subsidized premium payment if the individual’s household income is less than 400% of the federal poverty level and the individual is not eligible for Medicaid or CHIP. You, along with union representatives, should weigh carefully the costs and benefits of failing to provide coverage—most notably the shared responsibility payment employers will face if they do not provide it.
Employers that offer health coverage to employees who are part of a collective bargaining unit should prepare for negotiations by understanding the impact that the ACA has on its CBA. The ACA experts at Bell Associates can help. Call us at 203-707-1300 or send an email to firstname.lastname@example.org. You can also visit us at www.bellassoc.com.
This article refers to all regulations issued through April 1, 2014. It is intended to be a summary of important issues and should not be considered legal or tax advice.
© Bell Associates and “Ask the Professionals,” 2014. Unauthorized use and/or duplication of this material without express and written permission from Bell Associates is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Bell Associates and “Ask the Professionals” with appropriate and specific direction to the original content.