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]
