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Health Care Reform Creates ‘Catch 22’ for Employers with Unions

Employers who are subject to labor agreements and accustomed to dealing with complex employment issues are learning that health care reform implementation obligations are about to further intensify their world.

Under health reform rules, an employer remains subject to penalties even if it is contractually obliged to pay a union to deliver health benefits to union members. Without an exemption, the employer could be penalized if a union-member employee received union coverage that was somehow "defective" and the individual obtained tax credits to fund exchange health coverage. In light of these risks, HUB International is prepared to help clients who are subject to collective bargaining agreements avert penalty problems.

The employer health coverage mandate penalty rules do not exempt union employees or their employers from compliance, giving rise to the following sticky issues:

  • Although an employer may know that some union health benefits are not affordable, based on the contribution rate per hour compared to wages, the employer will not always hold sufficient plan details to accurately project possible penalty exposure.
  • An employer may not be able to effectuate any changes as participant contributions are often collectively bargained and benefits set by the union itself.
  • Since an employer can never definitively satisfy mandate criteria standards (which the union itself controls), they remain exposed to penalties even if the employer follows the presumed best practice: getting a formal signed representation from the union that these standards are met as well as representations that other health reform requirements are met.  

The IRS is aware of the need to either waive penalties in the case of following this best practice or perhaps adopt a different enforcement approach for the Catch-22 the employer faces. Further guidance on these issues is expected later this fall, assuming the IRS is ready to issue that guidance and if they feel the urgency to do so, now that the general health coverage mandate penalties have been delayed until 2015.  

At this point, for 2015 mandate purposes, HUB International is prepared to provide its clients with sample statements they can review with legal counsel and present to the union for required signatures attesting to the facts at issue. We certainly will keep following this issue and guiding the federal regulators toward practical solutions.

A side note: At the same time that employers are grappling with this issue, labor unions are becoming increasingly concerned, as the contributions for active members compared to the quality of the plan benefits, becomes more transparent to union membership. Unions offering retiree benefits and even just those union plans with older members often have relied on current incoming contributions to subsidize benefit costs for aging workers and retirees, and as current membership has shrunk, such a juggling act has become increasingly difficult. Health reform requirements may result in more changes to union programs, with some being discontinued. We have already seen the push for new members increase.  Interestingly, unions are now shifting their position and have begun to express dismay over the unanticipated impact that health care reform could have on their plans.