Court Finds Employer Owes Lifetime Health Benefits
August 21, 2013 (PLANSPONSOR.com) – A federal appellate court has ruled for employees who say their collective bargaining agreements (CBAs) with their employer guarantee them no-contribution lifetime health benefits.
In
affirming a district court ruling, the 6th U.S. Circuit Court of
Appeals found the lower court did not err in interpreting the pre-2005 CBAs between
M&G Polymers and its employees as vesting a right to lifetime
contribution-free benefits to the pre-August 9, 2005 retirees. According to the
court, the agreements indicated an intent to vest lifetime contribution-free
benefits with language promising a “full contribution” to qualifying employees,
and by linking health care benefits to pension benefits.
The
major issue in the case was whether side letters, attempting to place a cap or
limit on the amount of health care costs paid by the employer, were part of the
CBAs. Again, the appellate court found the district court did not err in
finding the cap agreements inapplicable. The court pointed to testimony of a
union representative that, despite “search[ing] extensively,” he could not find
“any document indicating [the letters] had been adopted or ratified by the
local.”
The
court reached the conclusion that retirees had a vested right to health care
benefits and, in the absence of evidence to the contrary, a vested right to
contribution-free health care benefits. Those benefits could not be bargained
away without retiree permission.
The
district court’s decision reinstated retirees to the health plan bargained for
in 2007 (see “Court Moves Forward Retirees’ Case for Lifetime Benefits”), but they argued
that the 2007 CBA illegally increased their copays and deductibles. The court
denied the retirees request to be reinstated into the pre-2007 plan finding
that the changes were “reasonable in light of changes in health care.”
Employers Will Implement New Health Benefit Strategies
August 21, 2013 (PLANSPONSOR.com) – Despite concerns, 82% of employers continue to view subsidized health care benefits as an important part of their employee value proposition in 2014.
Employers revealed, however, they are concerned about a predicted
5.2% increase in 2014 health care costs, as well as the risk of triggering an
excise tax in 2018, according to Towers Watson’s “2013 Health Care Changes Ahead
Survey.” A majority of employers anticipate making moderate to significant
changes in their health benefit programs for all employees and retirees by the
beginning of 2016.
Employers remain committed to sponsoring health care
benefits, and nearly all (98%) plan to retain their active medical plans for
2014 and 2015. However, they will look to private exchanges as a potential
delivery channel.
Nearly 30% of employers have confidence in public
health insurance exchanges as a viable alternative to employer-sponsored
coverage in 2015. In contrast, private exchanges are more appealing, with 58%
having confidence in them as a viable alternative. Employers are intrigued by
the potential of private exchanges to control cost increases, reduce
administrative burdens and provide greater value.
Using exchanges enables them to maintain their role as plan sponsor, but
outsource certain aspects of plan management to an exchange operator. Nearly
three-quarters (74%) of companies reported that as they evaluate private
exchanges for active full-time employees, they will want evidence that private
options deliver greater value than the current self-managed model.
“The health care landscape is changing rapidly thanks to
health reform, continued cost escalation, the emergence of health benefit
exchanges, and new provider contracting and care delivery arrangements,” said
Randall Abbott, a senior health care consultant at Towers Watson. “While
employers are grappling with how to comply with health care reform right now,
they are evaluating new health care designs and delivery approaches for their
employee and retiree populations that will ultimately transform the look of
employer-provided health plans over the next three to five years. In
particular, employers recognize the impact of the excise tax requires strategic
planning now to create a glide path to 2018.”
Initiatives to Avoid the Excise Tax
According to the Patient Protection and
Affordable Care Act, the federal government will impose an excise tax of 40% on
insurers of employer-sponsored health plans, including self-insured employers,
with an aggregate value of more than $10,200 for individual coverage and
$27,500 for family coverage. More than 60% of employers believe they will trigger that
excise tax in 2018 if they do not make adjustments to their current benefit
strategy. Nearly the same percentage believe the excise tax will have a
moderate or significant influence on their strategy.
To combat the increase in employee health care costs and
avoid the excise tax, nearly 40% of employers will be changing their plan
designs for 2014. In addition to emphasizing employee wellness and health
improvement approaches, employers are looking to increase their use of
supply-side strategies and aggressive vendor management techniques. For 2015 or
2016, they are considering providing outcome-based incentives (49%), offering a
benefit differential for use of high-performance networks (47%) and using
value-based benefit designs (40%). Employers will also be focused on reducing
coverage subsidies for spouses and dependents, as well as implementing spousal
coverage exclusions or spousal premium surcharges when other health coverage is
available.
“Employers are balancing many competing factors as they
revisit their financial commitment to health benefits and their ability to
maintain a sustainable plan in the face of annual cost increases and the excise
tax. They see health care benefits as an important part of their total rewards
mix. And as they weigh new options, they will be looking to keep their plans
affordable and viable for the long term,” said Ron Fontanetta, a senior health care
consultant at Towers Watson. “In the next two years, many employers will
evaluate their strategic options for active employees, and wait to see how
exchanges evolve and the broader market responds. We are likely to see a much
different and faster pace of change in retiree medical plans.”
Health Care Coverage for Retirees, Part-Time Workers
With the existence of proven exchange solutions for
Medicare-eligible retirees, the survey found the percentage of employers
that are somewhat or very likely to discontinue their employer-sponsored plan
for post-65 retirees will grow from 25% in 2014 to 44% in 2015. With the advent
of public exchanges making new solutions available for pre-65 retirees, the
percentage of employers that are somewhat or very likely to discontinue their
plan for pre-65 retirees will jump from 10% in 2014 to 38% in 2015.
Less change is expected for part-time employees.
Only 11% are considering changes to their total rewards mix or design for
part-time employees. Many part-time employees are likely to seek coverage
through public exchanges.
Other Notable Trends
The survey also found:
CEOs and CFOs have become increasingly involved in
health care strategy decisions (36% and 46%, respectively).
Seven in 10 employers have a stronger commitment to
improving employee health because of health care reform, while 71% have a
stronger commitment to work with health care providers and suppliers to improve
health care delivery and quality.
The use of personalized digital technologies to improve
employee health engagement is on the rise. Forty-three percent of companies
plan to use the technologies by 2014, and another 31% are considering its use
for 2015 or 2016.
Half the companies surveyed provide employee
communications that go beyond meeting compliance standards in educating
employees on the law and its implications; 36% meet minimum compliance
standards, and 14% go significantly beyond compliance to prepare employees for
planned and potential strategic changes.
The survey was conducted among 420 mid-size and
large companies during July 2013 and reflects respondents’ 2014 to 2016 health
care benefit decisions. The responding companies comprise a broad range of
industries and collectively employ 8.7 million employees.