Collective Bargaining Implications of the Affordable Care Act Matthew H. Upton, Esq. 100 International Drive Suite 340 Portsmouth, NH 03801 mupton@dwmlaw.com (603) 433-3317 EE Employee KEY: ER - Employer Copyright 2012 Drummond Woodsum. All rights expressly reserved. Slide 1
COLLECTIVE BARGAINING OVERVIEW Health insurance is a mandatory subject of bargaining in New Hampshire. ER cannot unilaterally impose health insurance upon organized (union) employees. In expired collective bargaining agreements (CBA s), the doctrine of status quo requires that all terms and conditions of employment (health insurance) remain unchanged until a successor agreement is in place. ER and Union can mutually agree to modify (reopen) a CBA mid term (or after a CBA has expired) provided there is no increase in the cost items (decrease in costs is OK). All cost items must be approved by voters. Slide 2
2014 Employer Health Insurance Mandate of the Affordable Care Act Employer Pay or Play Penalties: Two different types of penalties Only apply to applicable large employers (50 or more FTE prior calendar Yr.) Penalty #1: ER fails to offer health insurance, and at least one EE purchases insurance on the exchange Penalty #2: ER offers unaffordable (exceeds 9.5% of income) or does not provide minimum value (60% of covered costs). Slide 3
2014 Do the Penalties apply to us? Large Employer : For prior calendar year, employed monthly avg. of at least 50 full-time equivalents (FTE) Full-time EE averaging at least 30 hrs/wk = 1 FTE Part-time (pro-rata based upon 120 hour month) : IE: Ed tech working 60 hrs for month = 0.5 FTE Seasonal Worker Exception: ER is not subject to penalty if: (i) exceed 50 FTE s for less than 121 days during the year and (ii) those workers in excess of 50 are seasonal workers (workers employed on seasonal basis ). Slide 4
2014 Do the Penalties apply to us? (continued) Example: Each month during 2013 the ER employed an average of 10 full-time administrators, 30 full-time EEs and 30 part time EEs. The part time EEs work 10 hours/ week. In this case, the ER is a an Large Employer with 50 FTEs. 10 full-time administrators = 10 FTEs 30 full-time EEs = 30 FTEs 30 P/T EEs working 10 hours/week = 10 FTEs Note: requires a monthly averaging, if you think you re close, give us a call Slide 5
2014 Large Employer Penalty #1 ( Sledge Hammer ) Question #1 : What is penalty if I don t offer any health insurance (e.g. Penalty #1) and at least one EE purchases insurance on the exchange? Answer: $166.67/month ($2,000/yr) per actual full-time EE for the month, over 30. Example: Each month ER has 40 full-time employees, 20 P/ T EEs working 15/hrs per week, then monthly penalty is $1,667 (for 10 actual full-time employees in excess of 30 x $2,000). Note: Part-time EEs included to determine if you are a large ER, but the actual penalty only applies to actual full-time employees (30 hrs/wk) in excess of 30. Slide 6
2014 Large Employer Penalty #2 ( Tack Hammer ) ER offers health insurance, but it is either : (1) unaffordable (exceeds 9.5% household income ) OR (2) low value (does not cover 60% of covered costs) (Penalty #2). 1) Unaffordable : EE s contribution exceeds 9.5% of household income TIP: IRS allow safe harbor exemption provided EE contribution does not exceed 9.5% of EE s wages reported on Box 1 of Form W-2. To qualify for the expected safe harbor: i) must offer EE (and dependents) minimum essential health coverage ii) EE cost of lowest cost, self-only minimum essential coverage must not exceed 9.5% of EE s W-2 wages Note: at calendar year-end, compare prior year EE cost to 9.5% of W-2 wages. However, during that current year, ER estimate 9.5% of wages and make adjustments as needed (e.g. health insurance costs go up, EE takes pay-cut, etc). Slide 7
2014 Penalty #2 (Continued) ER offers health insurance, but it is either : (1) unaffordable (exceeds 9.5% household income ) OR (2) low value (does not cover 60% of covered costs) (Penalty #2). 2) Low Value : the percentage of costs, on average, that the health plan s expected to cover is less than 60% i) HHS report concluded 98% of ER sponsored plans meet threshold ii) HSA ER contributions to an HSA, should count as insurance coverage towards meeting minimum value (per IRS Notice) Slide 8
2014 Penalty #2 Question #2: What is the penalty if I offer health insurance, but it is either unaffordable (exceeds 9.5% family income) OR low value (does not cover 60% of covered costs) (Penalty #2). Penalty is the lesser of: $167/month ($2,000 per year) for per full-time EE, over 30, or $250 /month ($3,000per year) for each full-time EE who: (i) purchases insurance on the exchange and (ii) receives a government subsidy TIP : ER will be notified if EE receiving subsidy Tip: Many EE s will not qualify as both purchasing insurance on the exchange and receiving governmental subsidy, so amount of penalty may be relatively low. Slide 9
2014 Tip on Penalty #2: No penalties for following i) EEs who choose not to purchase insurance; ii) EEs who choose to purchase the employer-provided coverage, or any other coverage besides coverage on the exchange; iii) EEs who do not purchase insurance on the exchange because they have coverage from a spouse's policy or parent's policy; iv) EEs who do not purchase insurance on the exchange because they are covered by Medicare or Medicaid; v) EEs who cannot afford insurance on the exchange, even with the government subsidy; vii) employees whose family income exceeds four times the poverty level (approximately $43,000 for a single employee and approximately $88,000 for a family of four); and viii) employees for whom the employer premium is less than 9.5% of income. Slide 10
2018 Cadillac tax goes into effect in 2018. Tax will equal 40% of any premiums above: A. $10,200.00 for single plan. B. $27,500.00 for family plan. Based upon projected annual premium increases of 7.0%, you should be planning for health insurance plan changes if the plans you are currently offering costs more than: A. $7,800.00 for a single plan. B. $21,500.00 for a family plan. Slide 11
TAKE AWAY POINTS Limit work week of part time EEs below 30 hours where possible (including paid coaches). Check CBA to see if work week is specified. Negotiate /change if possible. Remember you can delay eligibility to 90 days from DOH. Make sure EVERYONE that works 30 hours or more per week is offered health insurance. Check CBA/policies to ascertain coverage thresholds. Negotiate/change to extend coverage to applicable EEs. Slide 12
TAKE AWAY POINTS Evaluate whether the District is better off taking the risk of incurring the $3,000 penalty or offering affordable (not low value) health insurance. Most districts will be better off financially to offer unaffordable (100% EE paid) coverage to EEs not currently covered. Evaluate likely premium growth and change plan offerings to avoid Cadillac Tax in 2018. Tax will be absorbed by ER. Slide 13
Safety Net Consider adding reopener language in case unanticipated regulations implementing the Affordable Care Act cause substantial change in district costs: The District reserves the limited right to reopen this agreement in the event that unanticipated changes in health insurance regulations substantially increase, alter or impair the financial obligations of the District. Slide 14
Strategies for Lower Health Insurance Costs Health Insurance premiums track historical plan utilization. Lower premium cost/growth comes from preventive medicine, wellness and eliminating wasteful, excessive and unnecessary plan utilization. Lowering plan utilization with EE skin in the game can help. EEs becoming more intelligent consumers of health care services an important factor. Slide 15
Strategies for Lower Health Insurance Costs $20.00 Doctor s Office copayment. Higher Emergency Room/Urgent Care EE co-payments. In-patient deductibles. Higher prescription drug EE co-payments (10/20/45). Across the board EE deductibles. Health care shopping services such as Compass and Tandem. Slide 16
Self-insuring Deductibles Can result in lower overall health costs. Remember the insurance carriers establish rates with expectation that the higher copayments and deductibles will lower plan utilization. If self insuring deductibles (reimbursing EEs) becomes too easy, the disincentives will be eliminated and this may result in higher premium costs in the long run (Seabrook). Slide 17
The Holy Grail EE premium cost shares are reaching unaffordable limits (80/20 or 75/25). EE premium cost share for family plan approaching $5,500.00 per year. Strategies to lower premium costs through tweaks are running out leaving only additional plan downgrades. The Holy Grail going forward appears to be reducing the rate of premium growth (everybody wins). Slide 18
Reducing the Rate of Premium Growth The premiums for the average HMO (without disincentives to lower plan utilization) are increasing annually on average around 7.0%. Introducing plans that lower plan utilization can lower future premium increases (many as low as 2.8% annually). A ER with annual health insurance costs of $3.0 Million can save over $1.0 Million in 10 years simply by reducing premium growth annually by 3.0% (Example: from 7.0% to 4.0% annually). Slide 19
Reducing the Rate of Premium Growth Higher EE % premium cost share does not change plan utilization behavior (If anything the mindset is: I/we pay allot for it and therefore I/ we better darn well use it ). EE s paying out-of-pocket ( skin in the game ) for medical services at POS generally can lower plan utilization. Controlling premium growth a necessity to avoid Cadillac tax in 2018 (not going to be popular with taxpayers!). Slide 20
Under IRS Circular 230 we are required to inform you that any statements in this communication regarding tax matters are not intended or written by us to be used, and may not be used by any recipient of this communication, for the purpose of avoiding penalties that the Internal Revenue Service may seek to impose. The Internal Revenue Service has issued requirements regarding the formality and level of detail required in written analysis to be relied upon to avoid penalties; this communication does not meet those requirements. Slide 21