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Northwest OH Legal Blog

Tuesday, December 3, 2013

The New Normal: Negotiating in the Age of Health Insurance Exchanges

As full implementation of the Patient Protection and Affordable Care Act (PPACA) gets closer, the topic of President Obama’s signature legislation is increasingly coming up during negotiations for new collective bargaining agreements and open enrollment periods for the 2014 health insurance coverage.  This discussion may start with the Employer threatening to drop insurance coverage and sending everyone to the Health Insurance Exchange to purchase their own individual insurance.  Other times, it is the members, frustrated with their current health insurance, that are expressing a desire to move onto the exchanges.  Unfortunately, in many cases both the employers and members have been informed by the media outlets they listen too.  Consequently, negotiations on health care are often being driven by misinformation and misconceptions on both sides of the table.  Although a full overview of the PPACA is far too complex to address in this article, the following remarks will hopefully give you a better understanding of how one aspect of the law—the Health Insurance Exchanges—work and how they may affect negotiations.

On October 1, the Health Insurance Exchange began accepting applications for individual insurance coverage for the 2014.  Problems with the rollout notwithstanding, the Exchanges are here to stay.  Because these exchanges were not designed for people that already receive insurance through their employer, this should not apply to most public employees.  Despite this fact, the topic of Health Insurance Exchanges has begun to enter into discussions during contract negotiations.

To understand how the Exchanges may affect bargaining it is first necessary to have a basic understanding of the Employer Mandate.  The Employer Mandate requires any employer with more than 50 employees to offer affordable health care to all full-time employees.  If an employer chooses to not offer insurance to its employees, they will be fined $2,000 for each full time employee minus thirty ($2,000 x (# of employees – 30)).  Although this may sound like a lot, this is probably substantially less than what the employer is paying for insurance coverage.  For example, in 2013, SERB reported that the average public entity paid an average of $5,532 per year to cover an employee getting single coverage and $14,385 per year for an employee on family coverage. Because of this disparity, some public employers have begun to explore the possibility of dropping insurance and paying the fine.  This would then allow employees to potentially purchase subsidized care on the exchange.

While dropping health insurance may present a “win” for the employer, many employees feel that it will also produce a “win” for them.  This feeling among employees is usually predicated on two basic assumptions.  (1)  if the employer drops health care employees will receive the money the employer would have spent on health care in compensation; and (2) employees will pay less for insurance on the exchanges and will be able to “pocket” some of the extra compensation the employer is giving them to purchase health care. A variant of this second proposition is that the employee can “pocket” all of the extra compensation and buy health insurance when they actually get injured or sick.  You may have heard this referred to as “buying insurance at the emergency room.”

First, it is important to note that the “buying insurance at the emergency room” concept is part of the misinformation and misunderstanding as to how the law works.  Insurance in the Health Insurance Exchanges, like the insurance you purchase through your employer, has an open enrollment period.  For 2014 this period began on October 1, 2013 and runs through March 31, 2014.  In subsequent years, the open enrollment period will be from October 15 through December 15 of the year preceding the year in which the insurance will take effect.  If a person fails to sign up for insurance during the open enrollment period, they will not be allowed to sign up later unless they have a major life event such as marriage or divorce that changes their eligibility status.  In other words, you will not be able to “buy insurance at the emergency room.”  You will be uninsured and face paying the full cost of that emergency room visit and subsequent care out of your own pocket.  In addition, people that intend to carry out this “strategy” should be reminded that they will also face a tax penalty that could be as much as $2,085 by 2016.

Another consideration when thinking about going to the exchanges is that although some employees may be able to purchase insurance for less on the exchanges this will not necessarily apply to all members.  As a general rule, the health insurance offered on the exchanges will cost more than what you are paying now.  This is because your current employer subsidizes, or pays a percentage of the premium.  The Health Insurance Exchanges also offer subsidies, but you are only eligible for the subsidies if your employer does not offer affordable coverage (affordable coverage means that no more than 9.5% of your household income goes towards paying insurance premiums) or offers no coverage at all. Generally, if your employer offers health insurance, you may purchase health insurance on the Exchange, but you will pay full price.

If your employer drops insurance, then you may be eligible for subsidies on the exchange.  Subsidies are calculated based on the cost of the second lowest silver plan offered in your ratings area.  The Silver Plan pays for 70% of medical expenses while you pay the rest.  Although you can purchase a more expensive plan than Silver such as Gold (paying 80%) or Platinum (paying 90%) the amount of your subsidy will not change.  You will have to make up the difference out of your own pocket.  Conversely, if you feel you do not need very much health insurance coverage you can opt for a bronze plan (paying 60%).  Again, you will still receive the same subsidy as you would if purchasing a silver plan only now that subsidy will pay for a larger percentage of the premium, costing you less out of pocket.

Three factors ultimately determine the amount of your subsidy.  First, Ohio is broken down into 17 ratings areas.  In each ratings area, there are a different number of plans being offered.  Depending on how many plans are being offered and where you live in the state, the prices for insurance on the Exchange will vary.  In general, plans offered in urban areas will be priced lower than in rural areas.  Because subsidies are based off of the overall costs, a person living in a rural county will receive a larger subsidy than if that same person living in an urban county.   Also, those with a higher household income will receive a smaller subsidy than those with lower incomes.  As a third variant, the larger your family the more likely you will be to receive a subsidy.  If you would like to know approximately how much a Silver Plan would cost you, and how much of a subsidy you are eligible for, the Kaiser Foundation offers a subsidy calculator at   http://kff.org/interactive/subsidy-calculator/.

Finally, many employees believe that the money their employer is saving by cancelling insurance will be passed on to them.  However, this is a risky assumption to make.  First, it is unlikely that the employer will give employees the exact amount that they were paying towards premiums.  At a minimum, employers that choose to go this route will have to pay the $2,000 per person fine.  This, no doubt, would be deducted from any extra compensation you might receive.  Also, employers may wish to pocket even more of the saving to help their bottom line. Some employers will even argue that the subsidy employees will receive from the Federal Government will replace the subsidy the employer was paying making it unnecessary for them to give any extra compensation to employees.

If your employer is considering moving you to the exchanges and brings up these points, a helpful argument might be to point out that the compensation you previously received in insurance was a bargained for exchange.  In many cases, members accepted lower wage increases to ensure that their share of the premium costs did not rise.  To eliminate this compensation now without offering anything in return would destroy that bargain.  Also, as noted above subsidies in the exchanges will affect the members unequally and cannot be counted as a one for one on the exchange.

If the employer does agree to roll some of their cost saving over to employees this can be done in two ways.  One way would be to simply roll it into wages.  The other way would be to provide a stipend.  Without knowing the specific situation, it is difficult to say which would be better.  However, one thing to consider is the long term effects of both options.  If the extra compensation is rolled into wages, this will be a one-time thing.  The next time that the employer negotiates with you they are unlikely to give any additional bump to the wage increase to compensate for the rise in health insurance.  Given that the medical inflation rate for next year is 6.5% this means that a larger share of the insurance costs will land on employee’s shoulders in future years further eroding any wage increase they may see.

You may also consider having the employer provide a stipend for medical insurance.  If this route is taken, it may be easier to bargain for increases in the stipend that keep pace with medical inflation in future years.  On the downside, money paid out in the health care stipend may not be counted towards your wages when determining your pension at the end of your career.

Like it or not, the PPACA is here to stay.  Undoubtedly, as the law matures, so will the negotiation strategies used by the OPBA and the employers.  As negotiations take place under the law, it is important to understand how the law works and what effects your decisions may have.  Although the above information should be helpful in your endeavors you should give careful consideration to any proposals that may have a long term effect on your health insurance, do your own research, and be careful to not fall prey to the misinformation that is out there.  


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