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A Labor Union Prepares To Strike, As Obamacare Ups Health Insurance Costs

May 27, 2014

By Avik Roy

Labor unions have, of course, been among President Obama's most reliable supporters. Unions' support was critical to the passage of Obamacare in 2010. But unions are continuing to learn, to their apparent surprise, that their members will bear many of the costs of the new health law. Now we learn that some laborers are preparing to strike, if they are forced to absorb the higher health-insurance costs that the Affordable Care Act requires.

“When we first supported the calls for health-care reform, we thought it was going to bring costs down,” a lawyer for the Laborers International Union of North America, or LIUNA, told Kris Maher and Melanie Trottman of the Wall Street Journal. But that's not what's happening. Maher and Trottman today discuss several cases where unionized workers and their employers are being forced to absorb higher costs as a result of the law.

Large employers frustrated that Obamacare doesn't decrease health costs

Last year, I noted the case of Delta Air Lines, which told the Obama Administration that it would be spending $100 million more on health insurance in 2014 relative to 2013, mostly driven by Obamacare. Obamacare's “slacker mandate” requiring plans to cover adult children under 26 means higher net costs for all of their workers, an especially bad deal for the large majority without children in that age bracket. The law's “Cadillac tax” applies a 40 percent excise tax to health plans whose value exceeds a certain threshold. Other provisions of the law, like the individual mandate, drive up costs by increasing the number of people who sign up for Delta's health insurance packages.

Other large employers share Delta's concern. A new survey from the American Health Policy Institute, of the chief human resource officers of 360 large employers finds that 82 percent disagree with the statement that “the ACA will help my company more effectively control health care costs,” while another 82 percent disagree with the statement that “the ACA is improving the efficiency of the health delivery system.” On the other hand, while many HR chiefs expect their costs to increase at a faster rate than the historical trend (42 percent), a plurality expects costs in 2014 to remain in-line with historical increases (48 percent).

Nonetheless, 63 percent agree that “the ACA will make it more difficult for my company to control health care costs,” while 60 percent disagree that “the ACA will ultimately make the U.S. health system better.”

The study was jointly sponsored by the HR Policy Association, the public policy association of chief human resource officers (CHROs). The American Health Policy Institute, led by Tevi Troy, does health policy research on behalf of large employers including IBM, Johnson & Johnson, McDonald's, and American Express.

When the respondents were asked why they were so pessimistic that the ACA would improve the health-care system, by far their number-one complaint was that the law was expanding coverage “without making significant improvements in the efficiency and affordability of that system” (85 percent). Number two was “limitations on employer flexibility to design cost effective health care programs” (75 percent).

Employers seeking to increase deductibles, co-pays

What are the strategies that large employers want to use to rein in costs? 36 percent are seriously considering a defined contribution strategy, such as giving workers a fixed-dollar sum to shop for coverage on a privately-sponsored health insurance exchange. Most others are looking to increase deductibles and co-pays.

Jim Ray, the LIUNA lawyer, told the Journal that construction-industry health insurance costs have increased by 5 to 10 percent because of Obamacare. Employers are responding by lowering wages and designing contracts that protect them from future cost increases.

It's these cost-sharing techniques that have union members hopping mad. According to the Journal, 2,000 housekeepers, waiters, and other Las Vegas casino workers voted to strike on June 1 “if they don't reach agreements on a series of issues, the thorniest of which involve new ACA-related cost increases.” UNITE HERE, the union representing such workers nationwide, estimates that adding 14,000 adult children to its health plan has increased its costs by $26 million since 2011.

Similarly, flight attendants at Alaska Airlines have rejected a contract offer from their employer, in part because it exposed them to higher Obamacare-related insurance costs.

Public-sector unions fighting to foist costs onto local taxpayers

5,000 transit workers in Philadelphia are at loggerheads with the Southeastern Pennsylvania Transit Authority, or SEPTA, over their new contract. SEPTA estimates that the Cadillac tax alone will increase its health-insurance costs by $15 million a year, an increase of 12.5 percent.

The Cadillac tax is, in general, a good thing, because it ends the unlimited tax exclusion for employer-sponsored coverage. It will incentivize many employers to revise their health plans in order to become more cost-efficient. But public-sector executives are far more reluctant to fight the unions on this point.

Asks Richard Burnfield, CFO of SEPTA: “The options you have are you just suck it up and pay for it, or you look at plan design. Do you increase employee contributions?”

That's what the private sector is doing. But SEPTA's largest union, Transport Workers Union 234, says “suck it up.” Its members balked at increasing their own spending by 1 percent in order to help defray the government's higher costs.

If you're Richard Burnfield of SEPTA, the incentives are obvious: roll over. If Philadelphia's buses and trains stop running, you're the one who gets the blame. If you give in, however, local taxpayers are on the hook for the bill. On the other hand, the Cadillac tax is a tax, meaning that those extra Phiadelphia costs will flow to Washington in the form of tax revenue.

In the private sector, Burnfield's colleagues have tougher choices. As more of their cash flow gets spent on health care, they can either hire fewer workers, pay those workers less, charge higher prices to their consumers, or stop investing in their businesses. So far, they have been doing all of the above in order to keep premiums down.

But money doesn't grow on trees, and the extra money these employers and their workers are spending on health care will continue to drag on the Obamacare economy.

Original Source: http://www.forbes.com/sites/theapothecary/2014/05/27/a-labor-union-prepares-to-strike-as-obamacare-ups-health-insurance-costs-by-5-0-12-5/

 

 
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