Cadillacs versus Corollas in the Healthcare Debate

August 8th, 2013 by Phil Mattera

solidgoldcadillacOver the past couple of years it has appeared that critics of the Affordable Care Act were virtually all die-hard Tea Party types who couldn’t accept reality, including a ruling of the U.S. Supreme Court.

We are now seeing reminders that those who have misgivings about the ACA are not only those misguided souls who believe it amounts to a government takeover of healthcare.

One group that had raised objections to at least part of the plan are now finding that a compromise they made is coming back to haunt them. That group is the labor movement, particularly public sector unions, which had questioned the dubious decision of Senate Democrats and the Obama Administration to include an excise tax on higher-cost health plans when drafting the ACA; the provision was designed to help fund the costs of subsidizing new coverage for the uninsured.

That decision was particularly galling because Obama had strongly opposed John McCain’s proposal for health plan taxation during the 2008 Presidential campaign. Unions denounced the provision, but in early 2010 they agreed to support a modified version of it. The modifications included a delay in its effective date (until 2018 for plans covering state and local government employees or ones covered by collective bargaining agreements) and an increase in the threshold levels above which the tax would apply.

The issue has been little discussed during the past three years, but now there are reports that local governments across the country are using the coming excise tax to pressure public employee unions to accept less expensive coverage—i.e., plans in which the worker pays more and gets less—or face the prospect of other contract concessions or layoffs.

What the proponents of the excise tax chose to ignore is that unions, especially in the public sector, have often focused on negotiating better benefits because significant wage increases were not possible, either for political or fiscal reasons. In other words, better benefits were not a giveaway to public unions, as anti-government types like to claim, but rather a form of compensation for insufficient pay rates.

When the excise tax was being debated in 2009, proponents misleadingly referred to it as applying only to “Cadillac” plans. It was meant to give the impression that only luxurious coverage of the type offered to corporate executives would be affected. Now it appears that those who drive Corollas may get hurt most by the provision.

The labor movement is also worried that the ACA will weaken the multiemployer benefit plans that some unions negotiate for their members. The concern is that unionized small employers participating in those plans will be end up in a competitive disadvantage compared to non-union competitors which will be able to purchase lower-cost group coverage through the Exchanges being created by the ACA.

Last month the Wall Street Journal reported that the heads of three major unions—the Teamsters, the Food and Commercial Workers and Unite Here—were trying to get the Administration to do something about ACA’s impact on multiemployer plans but were being “stonewalled.” The unions are also concerned that the law prevents low-wage workers in group plans from gaining access to the premium and cost-sharing subsidies that will be available to those who purchase individual coverage through the Exchanges.

The lack of action in response to labor concerns contrasts with the surprise announcement last month by the Administration that it was delaying the implementation of the ACA provisions imposing financial penalties on certain employers that fail to provide affordable group coverage to their workers. The post on the White House website was entitled WE’RE LISTENING TO BUSINESSES ABOUT THE HEALTH CARE LAW.

Despite the scare-mongering that has been going on in parts of the media, the penalties for failing to provide group coverage (or for providing unaffordable coverage) are far from onerous. To begin with, they don’t apply to employers with fewer than 50 full-time workers, and the penalties don’t actually kick in unless there are more than 80 full-timers. Penalties are calculated according to the number of full-timers only, ignoring part-timers and seasonal workers.

And the penalties don’t apply at all unless one of the workers denied affordable group coverage on the job qualifies for a premium or cost-sharing subsidy when purchasing individual coverage through an Exchange. Those subsidies will not be available to anyone with household income above 400 percent of the federal poverty line. This means that even larger employers that fail to provide decent coverage but whose pay rates are somewhat above poverty levels may be able to skirt the penalties entirely.

Perhaps the Obama Administration should be listening a bit less to business and more to workers and their unions.

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