I can’t say I ever expected to be writing a post about healthcare here on the blog, but sure enough, here we are. I continue to talk to a lot of people about the agreement that American’s pilots are voting on through January 30, and I’m finding it more and more fascinating every day. In any situation like this, the “no” voters will latch on to some aspect of the deal to convince others to sway their way. That appears to be what’s happening here with pilots who suggest that a “yes” vote will mean that healthcare gets gutted. Normally I wouldn’t write a post about one specific issue, but considering how many people will be facing this in the next couple of years thanks to provisions in the Affordable Care Act, I thought it worth talking about.
Here’s a sample comment that was left on my previous post to give you an idea of what people are thinking.
I still wonder how you wrote this piece without reference of how this [joint collective bargaining agreement] will nullify contractual guarantees of health care provisions. If this [agreement] is ratified than [American] pilots will be subjected to the Affordable Care Act going forward.
Pilots are unique in the union world in that they tend to be fairly right-leaning as a group. So if you mix contract negotiations and Obamacare? That’s going to get a lot of people going. The latest rumor seems to be that healthcare coverage will be destroyed if this deal passes. This all stems back to what has now become affectionately known as the “Cadillac tax.”
The Cadillac tax doesn’t go into effect until 2018. At that time, very expensive plans will be taxed highly. More specifically, the cap is $10,200 per year for individuals and $27,500 per year for families. If the employer and employee contributions for premiums and health savings accounts top that amount, then everything above the limit will be taxed at a whopping 40 percent.
There are some moving parts here in that the cap is higher in some professions and it will be adjusted with inflation over time. But you get the gist of it. These have to be pretty fantastic plans with individual monthly premiums topping $850 and family premiums over $2,000. If that threshold is met, then the tax burden falls solely on to the employer.
Keep in mind that there are many who think this will never go into place anyway. The country will have a new president by then, and businesses are going to start groaning louder as the 2018 deadline draws nearer. But you can’t just hope that it won’t happen. It has to be addressed as if it will.
So let’s say that you and your employer put $1,000 a month into your health coverage. At $12,000 a year, your employer would be taxed 40 percent on the $1,800 above the limit. That would be a whopping $720. When you’re talking about thousands of employees, this tax can quickly get into the millions.
You can imagine what’s happening here. No employer is interested in absorbing such a large additional cost burden. Many employers have already indicated that if they get near the cap, they’ll have to start cutting benefits to get back under the limit.
And that brings us back to American. In a letter from December 23, American President Scott Kirby noted that one of the things the company wanted to do (but the union didn’t want) was “to define a process that creates a structured review of medical plans that may be subject to the 2018 excise tax under the Patient Protection and Affordable Care Act.”
Pilots have been pretty concerned about this one, but it’s important to really understand what that means.
Today, the pilots have the boundaries of their healthcare set in a a document called Supplement K. While this document does set some minimum guarantees, it is far from comprehensive. (In fact, it doesn’t even address all of the plans that are offered.)
If the company sees it’s going to hit the limit on the plans in Supplement K before the Cadillac tax goes into effect, it has leeway to unilaterally cut benefits in areas not specified in the document. It can do that and have no issues at all because the contract today doesn’t cover everything.
This new proposal, which is in the agreement that’s being voted on now, would create a process so that the pilots could take part in the discussion of what happens to the benefits. APA and management would work together for 90 days to try to find a solution that would be acceptable to both sides. If that doesn’t work, then it’ll go to an arbitrator to figure out the best way to make this work.
Instead of just losing that money entirely, however, the value of the loss would go back to the pilots. So if the premiums are $12,000 a year and the company cuts it by $1,800, then that pilot will get $1,800 back in some other place to be determined by the pilots and management. (Again, it goes to arbitration if they can’t decide how.)
This all sounds good, right? The company can cut things today without talking to the pilots and give them nothing in return. This new plan would formally include the pilots in the process and it would give them back any cuts in contributions in some other form. So why are the pilots unhappy?
What I’m told is that there’s concern that IF the tax is in place, and IF the premiums increase enough to exceed the cap, and IF the pilots and management can’t agree on a way to make the cuts… then the arbitrator could come in and decide that big chunks of the healthcare that is contractually guaranteed could be thrown out. That is in theory possible, but it seems like quite the stretch. And you can be sure that even if the pilots vote no, when the contract becomes amendable in 2018 there is no chance at all that the company will allow healthcare premiums to be above that threshold. So it’ll be negotiated out one way or another. In other words, the chance of this having a serious negative impact on the pilots is pretty slim.
Of course, this particular battle is likely to be fought in many places as the 2018 deadline nears. No employers are going to want to pay that hefty tax, and they’ll work within the contractual limits (in those cases where there are some) to get the premiums down while at the same time lobbying Washington to drop the tax. At American, the pilots would be better off being a part of that process and getting reimbursed elsewhere if cuts are necessary. But this issue is complex, and it’s easy for people to misunderstand what’s at stake. That’s why it’s become the latest rallying cry. I’m sure it’ll be something different next week.
In the meantime, voting continues….
[Original Cadillac photo via Jia Li / Shutterstock.com]
If I’m not mistaken, the ACA just says the tax has to be paid … it never says that the employer pays the tax … the employer could pass the tax on to the employee I believe … AA is sounding very generous here
Section 4980I(c)(1) states that the “coverage provider” is liable for the tax, which is either the insurer in the case of a fully insured plan, or the employer if it is a self-insured plan. Now, there’s nothing theoretically stopping an employer from “passing on” the tax to the employee by jacking up the employee’s contribution by the amount of the tax, but my guess is in a collectively-bargained agreement, AA couldn’t just jack up the employee share by $720 in Cranky’s example. Sounds like the only option is to cut benefits to drop the insurance value below the threshold.
The Affordable Care Act’s provisions will apply whether the American pilots’ contract is ratified or not. A labor contract can’t nullify federal law.
but it can determine which healthcare plan is chosen and therefore if it would be taxed under the law.
If you read the piece, the pilots have no say now. Someone will have to pay the taxes, and it probably will be the passenger.
This is as close to a political topic as I’ve seen you cover :-)
I do believe that the provision of the ACA are that the Cadillac portion of the benefits are taxable income to the employee, not the company (though I’m not 100% on that.) In that event, the pilots could see their taxes go up. Perhaps they think that the company ought to pay them a make-whole to cover the tax payment, but that seems to be negotiable at some point.
I cannot resist making at least a couple of observations about the politics of the ACA, as one of the few who did have his individual health plan changed considerably. The first observation is that there is some irony in the fact that labor unions generally supported implementation of the ACA, yet many of their members have plans that are far more generous than the plans that are available to individuals under the ACA, and many that are definitely in the zone where the will be Cadillac plans subject to taxes. The second observation is that in the event that the true goal is universal healthcare (which is the goal that many supporters really had) then that universal healthcare plan will by necessity be less generous than the Cadillac plans many union members, including the pilots, have enjoyed. It’s simply unaffordable to make such Cadillac plans the default plans across the population, whether paid for by individuals, subsidies and general tax revenues, or taxes on Cadillac plans. The typical ACA plans have fairly large deductibles, and fairly high premiums as well as co-pays.
My third observation, which is embedded in your observation that things may change in 2018, is that the only reason the ACA has been tolerated in its infancy is that the vast, vast majority of the population, including virtually all journalists who are covered under employer plans, hasn’t been much impacted by the ACA… yet. The number of people who buy individual plans is under 10% of the population. Most of those don’t really like what has happened. The press focused on the website rollout problems. Yes, the administration ought to have done a better job of what should be its signature initiative. However, the real impact on people who had individual plans pre-ACA, is that unless they qualify for subsidies, their plans got considerably more expensive, and/or they had a significant increase in their deductibles and their co-pay requirements. They got worse plans. The economics of how this is supposed to be paid for includes the Cadillac tax, as well as income tax surtaxes. When it starts to hit the 90% who are covered by employer paid plans that are more generous or expensive, the public will demand changes. That seems inevitable. Who knows what those changes will be, but it does not seem fair that individuals have to pay for their insurance on an after tax basis while employees can get $12000 of insurance completely tax-free. I don’t know how this will play out, but I doubt the ACA in its present form is a stable long-term solution.
No, the “excess benefits” don’t become taxable income to the employee; it is an excise tax that is the responsibility of the employer or insurer (I am guessing AA in this case on the assumption that they operate a self-insured plan). The pilots’ taxes won’t be affected at all.
I’m not sure where your 90% figure came from. I have a fairly average to middling healthcare plan, and as an Individual my company pays $3,600 for it per year.
Oops.. I just pulled up the document.. Its $6,000 that still is only 50% of where the Cadillac plan would kick in.
My 90% statement is that 90% of the population is covered by employer plans, so they haven’t experienced what individuals on their own plans have faced: sharply higher deductibles and co-pays and increased premiums for coverage that’s worse. Not saying that everyone or even most in employer plans will have Cadillac plans, though interestingly I suspect Cadillac plans will be concentrated in union and government employee groups.
Carl – far from 90% of the country gets their healthcare from their employers. in 2012: only 43% of adults got their healthcare from employers, 27% got it through the government (think Medicare and Medicaid), 12% bought from the private market, and 18% was uninsured. Oh, and in 2014 after ACA came in; the uninsured dropped down to 13% and it keeps falling.
Oh and yes, Unions have a lot of Cadillac plans, because in contract negotiations its always been cheaper (remember because healthcare benefits were tax free) to give employees more healthcare. thats going to change, and thats a good thing.
By the way, @Nick Barnard, if your plan covers just you, then the same plan with the same benefits covering a family (spouse and children) would be a Cadillac plan.
Carl, now you’re just contradicting facts and going for pure supposition.
My individual plan is only 58% of the way to hitting the Cadillac tax ceiling of $10,400.
What my plan would cost as a family plan isn’t something I know, so it definitely isn’t something you know.
Stop using scare tactics.
The pricing of my plan is that a married couple costs 2x an individual, and kids cost more on that of that. I think that’s fairly typical, especially as they are not allowed to discriminate by sex. So if an individual plan is 58% of Cadillac threshold it’s a pretty easy conclusion that a full family will exceed the threshold.
But the threshold for an individual is different than the threshold for a family.
Correct, $10,200 for individuals and a much higher $27,500 for families.
Wrong. It’s a higher threshold for married/family plans. “The tax will
start in 2018 and impose a 40 percent levy on the cost of individual health
plans above $10,200 for individuals and $27,500 for family coverage, with
both employer and worker contributions included. Every dollar above those
thresholds is taxed at that 40 percent rate, the tax is not deductible by
the employer and the thresholds are indexed to inflation.”
If 12% bought from the private market, then only those 12% have a point of reference for how things changed, and 88% of the population does not know how individual plans fared under ACA. And that 88% includes the journalists. And for those 12% who haven’t had any major medical issues, it may not be a big deal. But anyone who developed a serious illness is having to pay $6,250 out of pocket or in increased premiums.
And you can’t expect that the unions will take reducing their plans lying down.
51% of Americans receive their healthcare from the Federal government. Medicare, Medicaid, Military and Federal employees. No where near 90% gets their healthcare from their employer.
Mea culpa. But there are relatively few who buy individual plans on their own and without subsidies. So far they are disproportionately impacted, especially if they have sizable expenses towards deductibles. We aren’t hearing much about them because it is a small number of people. Another problem that will soon occur is people with subsidized ACA plans who won’t be able to afford to pay $6000 toward their deductible & out of pocket. Expect provider bad debts to skyrocket. The “co-pay” (presumably primarily deductible) towards my wife’s January prescription drug was $5700.
Military and Federal EMPLOYEES, by definition, get their healthcare from
their employer (or their spouse/parent’s employer). The actual number is
somewhere around 82%, I believe.
Carl – The ACA (based almost entirely on what Romney Care was in Massachusetts) had a number of goals; 1st being expanding coverage. 2nd lowering the costs. And its doing a great job, not withstanding a few hiccups along the way.
Plans like the AA union were precisely the target of lowering the costs; one of the reasons average wages haven’t gone up is that healthcare has gotten more expensive, employers have simply paid the excess (think, when something is tax free people want more of it), when the Cadillac provision fully comes into effect you will see consumers take more power over their healthcare and say to their employer ‘give me the money, I’ll decide what to do with it’, thus leading to more transparency over the payment of expenses.
“their plans got considerably more expensive, and/or they had a significant increase in their deductibles and their co-pay requirements.” – you’re wrong. policies on the exchange and have gotten cheaper. and co-pays and deductibles are precisely the goal of ACA; healthcare has gotten expensive because no one knows how much it really costs! that’s changing. the past 4 years have experienced the slowest growth in healthcare costs in the past 30 years! thats good news in a country that spends 19% of our GDP on healthcare, twice as much as the next industrial country, oh ya, and with worse health outcomes. ‘Pay more, live less’. not a good model.
“They got worse plans.” – Actually ACA for the first time put in minimum coverage levels. no more could an insurance company sell you a policy that didn’t really cover you when you got sick. it stopped lifetime caps on coverage and ended the ‘pre-existing’ coverage that prevented good people from changing jobs out of fear they would never be covered.
“it does not seem fair that individuals have to pay for their insurance on an after tax basis while employees can get $12000 of insurance completely tax-free.” – I agree with you. BUT small business can deduct the cost, and, the idea is eventually that no one will be able to deduct the cost. in the future the hope is that everyone will get paid casb (remember we all pay taxes on what our employers pay us in wages, so why not healthcare?) and then consumers can choose the best plan for themselves!
Look, I have two individual plans which I bought from my local Blue Shield company pre and post ACA. One for me, and one for my wife. They are definitively more expensive and cover less. There was no meaningful increase in conditions covered. I guess I had a reasonable plan going in. Mine was previously a high deductible HSA plan. My premium doubled, my deductible went up and my maximum out of pocket went up. My wife previously had a lower deductible plan. Her premium also went up, though not as much because her deductible went from $1000 to $5000 and her maximum out of pocket from $1250 to $6250. It’s crystal clear to us: our coverage is roughly the same, our insurance premiums are higher, and our expected out of pocket payments are higher.
I’m not opposed to universal health care, but there is no such thing as a free lunch, and the ACA has done very little to reduce healthcare costs, and the costs of the ACA aren’t yet being paid, and so far the burden has been shifted to a significant extent on the individuals who have to purchase individual plans and the individuals who have investment income (via the 3.8% additional tax on investment income.) For the ACA to work, the costs need to be shared more broadly, and that has to be by the population which is covered by employer paid plans. You haven’t begun to hear the whining that this will cause.
Even one of the architects of the ACA has admitted that it is so complicated that the vast majority of the population doesn’t understand the impacts and that is how it was able to be passed. And like so many government programs, it promises benefits right away and has to be paid for in the future. That’s the subtext. Healthcare costs need to be throttled and more revenue needs to be raised. There’s no way around that reality but that reality won’t be pleasant for many folks.
“I’m not opposed to universal health care, but there is no such thing as a free lunch,”
Call me an asshole. I really don’t care about universal health care. It is a solution perpetrated and designed to solve a “problem” devised by hospital administrators, the healthcare industries, the healthcare insurance companies and politicians on someone’s lobbying group.
I AM opposed to universal healthcare. I am also opposed to subsidized housing, EBT cards (food stamps), and anything else that is given out from the federal government (you and me) for free.
All we do is create an environment that allows people to blame someone else for their misfortune, instead of getting up off their asses and doing something on their own to make their lives better.
Somebody has to pay for it. That is the bottom line!
Charity comes from religious or other organizations and has no place coming from government or my tax dollars. I would rather chose my own charities, rather than have you or the federal government tell me how to spend my discretionary income to help others.
@Dumbass, (Why you’d choose that nickname is beyond me.)
As someone who has used some of those government services in the past, they were invaluable in helping me get up off my ass and working to make my life better..
While I’m at it since you don’t seem to want any subsides from the Federal Government, can I have your oil subsidy, roadway subsidy, higher education subsidy, and a bunch of other subsidies back?
Also, if you’re a member of a religious community, do you tithe? If not, why not? do you not believe in charity coming from religious organizations?
But to bring this back to the overall topic of this blog, shouldn’t airlines pay more to use airports? Any and all public subsidies should be taken away from them as well, should they not? Some of those public subsidies are interest reductions on bonds, since they’re implicitly backed by various government agencies…
Society and airlines function because we all work together.
This is why we need single payer health care. Health care should be a right, paid by taxation (whether that be an increase in the income tax, a VAT similar to what is used in Europe or another broad-based tax). There should not be co-pays and deductibles, a person should just be able to go into the doctor and get care (and the pharmacy and get a prescription) without having to worry about affordability. Any other system will cause people to die from lack of ability to afford health care including the ACA (although it is an improvement over pre-ACA policy where if you were sick you better qualify for Medicare/Medicaid or you are dead man walking without any coverage at all). Taking all of the profit out of the system (as insurance companies would no longer be involved in health care, all doctors would be on the federal government payroll and all doctor’s offices and hospitals would be owned by the federal government) would reduce costs drastically.
Its a shame Carl has to use an aviation site to generalize and extoll untruths. There are many who are pleased with the ACA, they are likely hardworking people with little time. If anything, as the rollout continues it will shed an uncomfortable light on the disparities of healthcare costs.
What the … ???
What are you smoking?
Your premises and beliefs with regard to union support of the ACA is utter bull shit!
Carl hit the nail on the head. The pilots are going to have to realize, they aren’t the only ones in the boat here. I went from a normal HMO plan to paying co-pays for visits and small deductibles to an HSA high deductible plan. We are able to put money towards the HSA and the company front end loaded a small portion of it but even that amount doesn’t reach the lowest per person deductible. The way it was told to us, our company would’ve had to foot the tax bill for it…whether that’s true or not, I certainly wouldn’t want to pay 40% on something I may or may not use…The AA pilots just need to realize, they aren’t the only ones who are being subjected to this and that something has got to give and that almost everyone is going towards these types of plans.
I would presume that if the AA pilots are in a worse position with respect to healthcare that when this topic cropped up the union would have issued a bulletin laying out the two alternatives. Do you know if that has happened?
As a follow on to your earlier post I had the sense from your post that while the AA pilot group may not have gotten all the improvements they wanted (and it would seem from stuff I’ve read elsewhere needed to reach a true equivalency with Delta) they aren’t giving anything back that they already have.
I did some brief looking around and saw some pilots referring to the 6 concessions in this agreement and also the fact that it extends their current contract by a year. Do you know if their is anything concessionary in the TA that is on the table right now? Because if their are concessions included and when you consider that they have some significant pay raises coming (though not as large as what’s on the table) there may be a sound argument for rejecting the TA, going to arbitration, and being into Section 6 a year sooner.
Without direct knowledge of the TA its impossible to evaluate and I haven’t had the opportunity to chat with any AA pilots in the last week or so.
You’re a moron, why do you care about the pilot’s health insurance plan?
Lennie – I’m not the author, but I care about the pilot’s medical plan because I work in the medical field, I travel, and I understand that this is one aspect of a much larger discussion that will reach other sectors of the economy in 2018 so this is a great way to watch one aspect of the affected employers and employees determine what has to change as the laws do. Why would one need to be a moron to appreciate that?
This seems like quite a bit of FUD on some people’s parts.. I’m really curious where this is coming from.. I’m betting former USAPA represented pilots..
I’m betting APA represented pilots in LGA and MIA……
“Fairly right leaning” might be a massive understatement. Almost every major pilot I know over age 45 lives beyond the idealogical right and into the punditry right of anger and vitriol towards all things left, where connections with reality can be happily suspended if it means getting to be angry at the other party. The ACA is, to them, the very embodiment of an oppressive government forcing socialism on the working class to pay for the lazy. Associating the contract to the ACA was a shrewd move on the part of some No voter to garner support.
I strongly suspect given my profession I know a whole lot more pilots than you do and to describe those over 45 as “beyond the idealogical right and into the punditry right of anger and vitriol towards all things left, where connections with reality can be happily suspended if it means getting to be angry at the other party” simply isn’t true. Frankly your entire statement is offensive and equally indicative of the politics of hate and destruction (this time on the left) that you accuse pilots of.
It also contributes nothing to the issue at hand.
121 Pilot… your suspicions are wrong in this case. I fly with about fifteen guys a month over age 45 (mostly over 55, really), and while they’re generally an amazing group of guys to fly with the ones who are politically passionate are, broadly speaking, reflexively anti anything left to the point of embracing the most far fetched of urban legends that allow them to find a reason to dislike politicians on the left more.
I don’t think my description of a certain type of political belief is off base. On both sides there are people at the farther extremes who are mostly concerned with being anti-the other guy. It’s kinda like the sports fans who spend most of the game yelling insults at the other team and their fans. Finding a way to dislike and diminish the other team becomes more important than cheering the exploits of their own. That pundits of both stripes take those sentiments and run with them beyond the confines of reality goes without saying, I think.
My earlier point stands: many older pilots have a deep seated dislike for everything liberal, especially ACA, and so any connection between a contract proposal and the ACA will, for many, irreparably stain that proposal, even if that connection is tenuous or would have very little impact.
I work for an airline. The pilot work group is far right, no matter what their age. I suspect that it comes from the fact that most of the pilots are ex-military. Plain and simple, really!
but they love the union!
You fools are going wonder just what the hell happened and why you are so “butt-hurt” in about three years.
I have to ask, “what or who are you putting in your wallet?”
Great article, CF!
The irony is rich here.
As I understand it, Franklin Delano Roosevelt is the main reason that companies started compensating employees with benefits rather than cash.
Now, we have a case where the Pilots Union is essentially whining that they want to perpetuate what FDR set in motion!
ACA seems to me to be driving people back to a cash based compensation system. To most people, removing special tax benefits for certain things seems fair.
But how will the Pilots case play in Peoria? Well, to most people, a $27,500 family plan is quite a plan. And most people will compare it to what they have to decide what they think of the pilots. Me? My plan costs about $1,200 a month for me, spouse and one kid. So, say $14,000 a year. It’s a “high deductible” plan, so I also fund a Health Saving Account. The max I can contribute in 2015 will be $6,650. So, we’re at about $20,000 already. My deductibles are about $2,600 or somewhere around $7,500 for the family. If my employer were to spot me that full amount, then the total cost of the plan would be around $27,500. Of course, someone would have to pay tax on the $7,500 amount and by the time you add up all the taxes, it could easily be 40%.
I am thankful to have my plan, and consider it to be a pretty good one. The pilots must have an incredibly good plan. I don’t have much sympathy for them.
u do not have to have a fancy (lots of benefits)plan to be in the cadillac tax class/… this really sucks if the congress does not really fix some of these 16 taxes in the obama taxcare law it will be even worse/./!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!