How Can You Achieve Flexibilty
in Health Care Coverages in a Collective Bargaining Agreement?
By Stewart H. Diamond and Margaret Kostopulos
Typically, employers who enter into collective bargaining agreements with their employees seek agreements with a duration of three, four or even five years, if possible. This provides a stable work force for the employer with no threat of strike, as well as predictability of the employer's contractual obligation over that period of time. Most significantly, longer contract periods provide employers with relief in knowing that they can avoid the bargaining table for three or more years.
The greatest disadvantage to these multi - year contracts is that the employer becomes obligated to certain costs without the ability to predict what the actual costs to itself will be. This is most especially true on the issue of health care. In most bargaining situations, wages and insurance benefits are the two central financial issues negotiated. In part, this is because health care coverage can amount to anywhere from 10 to 15 percent of salary. Unions seek to guarantee the level of coverage and restrict cost increases for their members. Absent language in a collective bargaining agreement which provides an employer with flexibility to change costs or coverage should circumstances require, the employer is bound to provide union members the exact coverage that was agreed to in bargaining for the life of the contract, regardless of whether the employer can still purchase insurance to cover it.
As insurance costs continue to skyrocket, the question is - without knowing how insurance costs or coverage may change in the next three (four or five) years - what is the best way to plan for such changes to avoid unnecessary financial risk for the employer and equitable cost sharing by the employees. These unpredictable situations generally arise in one of the following fashions:
1. Unions make unreasonable demands to control costs to its members because its members are unfamiliar with the economic reality of insurance costs today.
2. Carriers increase rates beyond those forecasted resulting in unanticipated costs to the employer
3. Self insurance pools limit or change plan options
4. Governmental/legislative changes occur during the life of a contract
5. Employees seek new types of coverage about which the employer has no history on which to determine claims or costs.
While an employer can not plan for all possibilities, when entering into the initial negotiation or renegotiation of a collective bargaining agreement, thought must be given to planning for unexpected changes in insurance coverage or costs. Our goal is to develop language that can be bargained and ultimately included in contracts which provide the maximum amount of protection possible against these unpredictable situations:
I. Educate the Members.
While unions are savvy to costs of insurance for each of its members, many employees are not so savvy. Even members of the bargaining team occasionally register a look of shock when they learn that their employer spends $850-$1,000 a month on insurance for each employee.
A short course in the costs of insurance is often beneficial as a prelude to bargaining the issue. Some specific facts on where insurance costs have been in the past and how much of that was contributed by employees and what insurance costs the employer expects in the future can provide some needed perspective for employees. To reinforce the fact that the cost of insurance paid by the employer is an actual component of total compensation is important to stress. No matter how much the employer pays for employee insurance, that cost will be higher for individual employees should they need to buy similar insurance on their own.
Many employers have been able to require union participation in cost containment measures. When employees participate in examination of the costs of insurance, claims and the costs for providing certain favorable coverage components, it brings a greater understanding and realism to the table. Most importantly, it creates union members who can carry the message back to the membership that health care costs is an issue that must be attacked collectively. An obligation to participate in these endeavors which would apply where there are multiple bargaining units can be created with the following language:
The Union will appoint two bargaining unit members as permanent members of the Health Insurance Advisory Council. The Council will be comprised of members of each union representing employees along with management representatives. The purpose of the Council will be to analyze health care costs, benefit options and available funds and advise the employer of its recommendations relative to employee health care coverage. The recommendations, if approved by a majority of both union and management representation, if adopted by the employer shall be binding on the union without further negotiations. This shall apply to all issues of benefits, premiums, employee contributions to premiums and changes in the law which may require changes in benefits levels.
Not only does this assure employee education, participation and "ownership" of health care costs concerns, if this committee works well, and recommendations are adopted, it totally removes the issue from the bargaining table. While this type of committee may not be optimal in every workplace, it can often create a collaborative atmosphere on a issue that was previously viewed as just an employee's right.
II. Sharing Increased Costs:
While unions and employers seek multi-year collective bargaining agreements, most primary or excess insurance costs are guaranteed for only a single year. At most, employers may receive a guarantee of maximum premium rates for a second year. In the current hardening market this possibility will not be available for some time. Unions, on the other hand, still try to lock in the cost of contribution for health insurance by their employees for the life of the contract. This is an area that the employer must remain firm.. While it is easy to insert provisions into a contract which contain increasing percentage obligations for employee contribution, another way to achieve the same goal is with the following language:
If the monthly premiums for group health care coverage increase by more than 15% over the premium costs as of the date of execution of the contract, such excess shall be shared 50/50 by the Employer and Employee.
Equally beneficial language can trigger the cost sharing when greater than a 10% increase occurs. Likewise, the costs can be shared at 60/40 or some other combination as long as agreement exists to share costs should significant increases occur beyond those for which were reasonably anticipated.
One advantage to this language over a fixed percentage increase over the life of the contract is that it will cover the employer more fully if it experiences a spike in insurance costs. Additionally, unions sometimes prefer it because it only obligates their members if the costs increases occur, rather than obligating its members to a percentage increase regardless of actual cost increases.
One caveat though is that it is best not to agree to any language that allows for a reopener on the issue of health insurance if costs increase by a certain predetermined amount. Not only does bring everyone back into the discomfort and expense of negotiating, it puts creates no better situation for the employer than when negotiations first began. The best result is to have all issues addressed before the contract is signed, to preclude the union from the opportunity of attempting to later negotiate a better deal.
III. Unfunded Statutory Mandates:
From time to time, the legislature, usually upon pressure from unions or other special interest groups, mandates that insurance policies issued in the State of Illinois contain certain provisions. Some examples of this are mandatory two day hospital maternity stay, and coverage for prostate examinations. Suppose, for instance, that the legislature mandates insurance coverage for birth control. How will that effect premium rates?
There is little doubt that all public employers would have to comply with the legislative mandates. The problem that exists is that these mandates are rarely funded by the State. Rather than wait to see what the legislature might do next, this is another example of a situation which must be addressed beforehand. With carefully drafted language in the collective bargaining agreement, added costs created by these types of unfunded mandates will be divided between the parties by agreement. An example of such language is as follows:
Should the State legislature or the U.S. Congress enact legislation benefitting employees or families of employees covered by this Agreement, where the effect is to increase costs to the Employer beyond those which exist at the time of execution of the contract, such increased costs shall be charged against the total compensation package of the employees covered by this agreement at the time such legislation becomes effective. The Employer may thereafter deduct from wages or benefits provided in this agreement such increased costs. Legislation benefitting employees or their families shall include, but is not limited to, pensions or other retirement benefits, health insurance, workers compensation or other disability programs, sick leave, holidays, other paid leaves, certification or educational incentive compensation.
Now, again, this is the best language that an employer could hope to include in a contract. Some acceptable variations would include a split of costs, again either 50/50 or some other type of split.
But as another caveat, it is best to avoid contingent situations such as what a very large Illinois school district included in their agreement as "If... there is enacted any federal or state legislation which has a significant impact on the health care program provided herein,... either party may by written notice to the other, delivered within 60 calendar days of the enactment of such legislation, reopen negotiations for the sole purpose of negotiating such changes. ..If the parties cannot reach agreement on such changes within 90 days of the delivery of said notice, then either party may invoke interest arbitration.." Of course, the only situation worse than a reopener is to wind up in interest arbitration which is not statutorily mandated.
While courts have held that a union may waive certain statutory provisions on behalf of its members, this is rarely an option for two reasons. Unions are loathe to waive any rights of their members. Secondly, rarely is an entire workplace unionized under the same bargaining unit. Even with waiver by one union, most often other employees will still retain the rights of the legislation.
IV. Changes Imposed by a Carrier or a Pool:
Sometimes, even in the middle of a claim year, or at renewal, an insurance company may decide that it no longer wishes to provide a certain type of coverage or it agrees to provide that coverage at an extra cost or with changed deductible or co-payments. The employer can continue to provide the previous coverage as a completely self-insured employee benefit. As a practical matter, however, the expense which would usually be incurred by a public employer in an effort to administer and pay the deleted parts of a health insurance program are excessive in time if not money. The language of a collective bargaining agreement can be written to protect the employer against this type of unilateral change by a carrier. The union may resist this provision outright, but it certainly will ask for language to prevent the employer from secretly coaxing an insurance company into withdrawing a benefit. The ability to change such benefits is even more pronounced in a situation where the public employer is a member of a governmental self-insurance pool. Under those circumstances, the employer typically sits on a board of directors which itself decides what coverages are to be provided. The union will be highly suspicious of such protective language unless it is assured that the modification had been made system-wide either by the insurance company or by the pool and that all policy holders, at least in the same size and class, had become subject to this modification. The following language can be utilized in such a situation:
The employer reserves its right to modify or adjust the health care benefits previously provided, without bargaining over such modifications, where (1) the health care provider imposes changes on its own or (2) where such a modification would result in coverage becoming less expensive for at least two-thirds of the bargaining unit Members without substantially lessening the levels of insurance coverage or substantially increasing the costs of insurance coverage for the remaining bargaining unit Members. In either case, the right of the employer to modify or adjust the health insurance benefits shall only take place where the health care provider is imposing the change or changes upon all or nearly all of the covered entities which are in the same general size and type as is the employer.
V. Choice of Carrier or Coverage Mode
Perhaps the most important provision to insert into a collective bargaining agreement is the ability of the employer to change the health care provider and the third-party administrator without union approval so long as the principal terms of the health plan are continued. Governmental bodies, like all employers, have discovered that from time-to-time, insurance companies which provide primary health insurance or provide excess insurance to self-insured entities, move to non-competitive prices. In some cases, the increases may be brought about by the actual claims history of the public employer, but more often, the insurance company, or its parent or its parents' parent may be having a bad year because it chose to insure the coconut crop in Indonesia. Under those circumstances, the company may need to increase its premiums simply to stay in business or keep its publicly traded share prices from precipitously falling. In some cases, a carrier may simply have assumed that the insured is so happy with its coverage claims or and that it will remain with the carrier without regard to non-competitive price increases. Under these circumstances, a public employer must have some flexibility under its collective bargaining agreement to entertain a change in carriers. That is especially the case, since, under some circumstances, a health carrier, sensing competition, will reduce its above-market proposed increase to a more sensible figure. A public employer that has agreed on a multi-year contract to provide health coverage through a single carrier has lost a real opportunity to control its labor costs.
The language in a contract may vary in an effort to achieve this result. The strongest "pro employer" language simply gives the right to the public body to provide the agreed-upon coverage levels either through the use of conventional insurance, membership in a governmental self-insurance pool, or through protected self-insurance. This last phrase characterizes a program where a large governmental body chooses to individually self-insure claims up to a certain amount per employee and in the aggregate and then purchases conventional insurance to pay for catastrophic claims or the unexpected aggregation of smaller claims. Language in a contract permitting these options often contains a clause such as:
The Employer agrees to maintain the benefit levels of the group hospital and dental insurance policy currently in effect during the term of this Agreement. The Employer may change the insurance carrier, join a governmental self-insurance pool, or change the third-party administrator so long as the benefit levels remain substantially the same or improve.
The inclusion of language allowing substantially similar or improved benefits is important because it is difficult, if not impossible, to replicate every single feature of the existing policy when moving to another carrier or system. Since health care plan language is complicated, and not absolutely clear, it is somewhat unlikely that a claimant will notice if there is a minor change from one plan to another. This can happen, however, since an individual who makes claims for a chronic illness will quickly bring to the employer's attention the fact that one policy may cover injectable drugs while another may not. The employer can deal with this situation in two ways. First, depending upon the language of the collective bargaining agreement, the employer can argue that a $2.00 change per co-insurance for insulin syringes, for example, is not a substantial change in the health coverage provided. That is because although there may be some changes in a new policy which slightly diminish a coverage, that same employee may receive improved coverages for foot examinations, associated with diabetes under the new plan. Where such an issue does arise, the employer also has the choice of simply self-insuring the small overall differences between the two policies while making sure that the full text of the new policy is accepted by the union during the next collective bargaining series.
The actual health plan provided by either an insurance company, a pool, or a self-insured employer is generally not included in the text of a collective bargaining agreement. In fact, when a union agrees to a change in health carriers at the start of a new contract period, the "plan of benefit" pamphlet is generally not even available. All parties take it on faith that the language in the one or two page coverage of benefits summary will be fully and fairly fleshed out in the pamphlets which may not be received until some months later. It is often this one or two page plan of benefits sheet which is attached to the collective bargaining agreement, or where an existing carrier is to be retained the collective bargaining agreement often speaks of "a continuation of existing benefits." Problems only tend to occur when an employee presents a health claim which arguably was or was not covered under either the prior plan or the current plan. Ultimately, matters like this are generally resolved either by arbitration, litigation or by the employer making up the difference between the two coverages. If the language of the contract simply requires the employer to provide "substantially similar" health coverages, the idiosyncracies between one plan and another will probably not be found to require the employer to pay a disputed claim.
VI. The Party Ultimately Liable:
What happens in a situation where the employer pays a premium to an insurance company or to a governmental self-insurance pool, which either fails to make the proper payment to an employee or is financially unable to do so? In the case where there is a dispute over a coverage issue, in some instances the employer may be taking the side of the employee, while in other cases it may agree with the insurance company or the self-insurance pool. This issue can come up even in the case of a governmental body which has chosen protected self-insurance. In that situation, the level of claim payments, for an individual employee, may have reached the point at which the excess insurance carrier has agreed to assume responsibility. That carrier may agree to follow the plan of the employer or it may have its own coverage document which may be similar to but not identical to the employer's plan. In all of these cases, it is desirable for the employer to attempt to negotiate language in a collective bargaining agreement which has the employee and the union obligated to undertake its grievance with the pool or insurance company rather than with the employer itself. In effect, such a provision acknowledges that the employer has done its best to provide the coverage, has paid for it, and that the employee must look to the professional organization which has received the premium for his or her relief. Language which should accomplish this result is the following:
The failure of any insurance carrier(s) or governmental self-insurance pool to provide any benefit for which it has contracted or for which it is responsible shall result in no liability to the employer or to the union, nor shall such failure be considered a breach by the employer or the union of any obligation undertaken under this or any other agreement. However, nothing in this Agreement shall be construed to relieve any such provider of health care coverage from any liability it may have to the employer, union, employee or beneficiary of any employee. The terms of any contract or policy issued by an insurance carrier or by a governmental self-insurance pool shall be controlling in all matters pertaining to benefits hereunder.
VII. Requests for New Coverage:
At times union members come to the table with requests for new types of coverage. One that has often arisen recently as contracts come up for renewal is the request for domestic partner coverage. While courts have consistently held that employers are not liable for discrimination if they fail or refuse to provide qualified domestic partner coverage, the concept continues to be more and more prevalent in the bargaining process. Employers who face these requests for the first time are sometimes unaware of reasonable ways in which this type of coverage can be best focused. A number of reasonable conditions which can be incorporated into a contract that should allow coverage for those who were likely intended to be covered. The following is general language which addresses extension of coverage to qualified domestic partners:
To be eligible for coverage as a qualified domestic partner, Members must complete and file with the Employer an affidavit of domestic partnership in which they attest to the following:
1. They are each other's domestic partner, responsible for each other's common welfare;
2. Neither party is married;
3. The partners are not related by blood closer than would bar them from marriage in the State of Illinois;
4. Each partner is the same sex and resides at the same residence (may be optional)
5. Two of the following conditions exists for the partners:
- The partners have been residing together for at least 12 months prior to filing the affidavit of domestic partnership;
- The partners have common or joint ownership of a residence;
- The partners have at least two of the following arrangements:
- joint ownership of an automobile;
- a joint credit account;
- a joint checking account;
- a lease for residence identifying both domestic partners as tenants;
- the Member declares that the domestic partner is identified as a primary beneficiary in the Member's will.
While the new coverage must first be amenable to the self insurance pool or insurance company, it is then within the discretion of the parties to negotiate contract language and some care should be taken to ensure that proper conditions are met to provide cost containment. Most self insurance pools allow the members to change coverages, but only after finding out the cost of the change and agreeing to such added charges. Some pools maintain the right to refuse to accept certain costly changes because they are unwilling to pass on the added risks to the members of the pool.
CONCLUSION
We hope that the information provided in this memorandum will be useful to you in your next collective bargaining negotiations. If you have any questions or concerns regarding the information that has been provided, please do not hesitate to contact us.
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