The new health care reform legislation has dramatic implications for all employers. For employers with existing collective bargaining agreements, there are unique considerations, both in the short and long-term. While full implementation of the law is still years away, employers should begin evaluating and preparing for its impact on collective bargaining agreements today.

The health care reform legislation, which costs $938 billion and is estimated to extend health insurance coverage to an additional 32 million people, contains a number of important new insurance market reforms. Some of these new requirements will become effective for group health plans within the next year. For example, mandated coverage of dependents up to age 26, restrictions on annual limits, and prohibitions on lifetime benefit, rescissions, and pre-existing condition exclusions for dependents under 19 become effective for plan years beginning on or after six month after the date of enactment of the law, which was March 23, 2010. Other insurance market reforms will not take effect until later. These include prohibitions on excessive waiting periods for coverage, annual benefit caps, and any preexisting condition exclusions, which become effective in 2014. Among the many questions about this complex legislation are if and when these insurance market reform requirements apply to health plans provided for in collective bargaining agreements.

The analysis includes an important provision of the newly-enacted Patient Protection and Affordable Care Act (PPACA) regarding the applicability of the insurance market reform requirements to “grandfathered” plans in existence on the date of enactment. Under the heading “Effect on Collective Bargaining Agreements,” Section 1251(d) of the PPACA states that in the case of health insurance coverage maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers that was ratified before the date of enactment of this Act, the insurance market reforms referenced above shall not apply until the date on which the last of the collective bargaining agreements relating to the coverage terminates. The PPACA further provides that any coverage amendment made pursuant to a collective bargaining agreement relating to the coverage which amends the coverage solely to conform to the new requirements will not be treated as a termination of the collective bargaining agreement.

It is important to note that this “grandfathering” provision for health insurance coverage maintained pursuant to collectively bargained plans only applies to agreements ratified before the PPACA was signed into law and only applies through the end of the existing contract. Therefore, employers need to be aware of and prepare for new obligations that could apply as the existing contracts providing health insurance coverage come up for renewal. “Reopeners” in current contracts should also be reviewed.

Beyond insurance market reforms, other key provisions of the health care law could have longer term implications for collective bargaining. Notably, beginning in 2014, when state health insurance exchanges become operational, employers with more than 50 employees will become subject to an assessment if they do not offer health insurance and any full-time employee receives a tax credit to purchase insurance in an exchange. The assessment would be $2,000 for each full-time employee. The employer would also be subject to an assessment if they do offer coverage, but it is deemed unaffordable or does not cover 60 percent of the costs. In that case, if any full-time employee receives a tax credit, the employer must pay the lesser of $3,000 per full-time employee receiving a subsidy or $2,000 for all full-time employees.

Another provision of the health care law – the excise tax on high cost insurance plans – has generated a great deal of controversy. The PPACA included a 40 percent excise tax on the cost of coverage in excess of a threshold amount beginning in 2013. Labor unions raised strong opposition to this provision because of its impact on generous collectively bargained plans likely to exceed the trigger amount for the excise tax. A reported agreement to carve out collectively bargained insurance plans from the excise tax, thus making them more attractive, was scuttled. Instead, the Health Care and Education Affordability Reconciliation Act, which includes a number of changes to the PPACA, delayed the effective date of excise tax for all high-cost plans to 2018. The reconciliation bill also increases the tax thresholds to $10,200 for single coverage and $27,500 for family coverage. The amounts are higher for multiemployer plans, as well as for retirees and those in high-risk provisions, $11,850 and $30,950 respectively. The reconciliation bill also provides that coverage under a multiemployer plan will be treated as other than self-only coverage, meaning it will be subject to the higher threshold. Although this provision does not take effect until 2018, it could have important implications for collectively bargained plans. Even with the higher thresholds, generously negotiated benefits could exceed the trigger or grow in cost over the life of the agreement so that the trigger is eventually exceeded. The Congressional Budget Office has opined that most employers would respond to the tax by offering plans below the threshold. Although the cost threshold is indexed for inflation, more plans could become subject to the tax over time.

To prepare for implementation of the health care reform law, employers should first review their existing collective bargaining agreements in relation to the law’s new requirements. Even if an insurance market reform does not apply until after expiration of the current contract or thereafter, employers should begin to evaluate those changes now. As the exchanges become operational, the employer assessments become effective, and the excise tax applies, existing collectively bargained health care plans are likely to be very different both in content and context. The combination of these factors, as well as the trajectory that health care costs take over time, will make negotiations ever more complex.

This entry was written by Ilyse Schuman and Jay Sumner.

Photo credit: Alex Nikada