Unions and Obamacare, Part 1: Why Unions Want Exemptions

Summary: Unions are largely responsible for the passage of Obamacare, but once the program was passed, they fought to get themselves excluded from it because of the costs it would impose on them. They have already succeeded in receiving hundreds of waivers, and now they’re proposing even more extreme waivers that would cost taxpayers billions.

Leaders of labor unions provided the political muscle that got Obamacare through Congress. They furnished the troops at the grassroots level and in the nation’s capital to block efforts to repeal or reform the program. They declared that Obamacare is the law of the land and must not be altered or abridged.

Today some of those same union officials say that Obamacare is a disaster that will harm working people in general and union members in particular. Now—surprise!—they want Obamacare changed in ways to benefit their unions.

President’s promise ‘simply not true’

Through the 2010 and 2012 elections, unions kept their concerns under wraps with regard to the Patient Protection and Affordable Care Act (often called the ACA or Obamacare). But in September, at the quadrennial convention of the AFL-CIO, the nation’s largest union federation, delegates were speaking openly of the need to reform or repeal the program.

Not even AFL-CIO President, Richard Trumka, one of the President’s closest allies, could quiet his members. The best he could do was to prevent passage of a resolution calling for Obamacare’s outright repeal. The convention called for reforms instead.

One union, the International Longshore and Warehouse Union (ILWU), made its position especially clear. The ILWU withdrew its membership from the AFL-CIO just weeks before the convention and accused the labor federation of caving in to administration pressure regarding Obamacare’s tax on high-cost union health plans. (ILWU also cited the federation’s position on immigration reform and a local labor dispute.)

Last April, the United Union of Roofers, Waterproofers and Allied Workers International (the Roofers’ Union) called for the “repeal or complete reform” of Obamacare, stating that the healthcare program puts union workers at a competitive disadvantage and threatens their current health plans. A month later, Joseph Hansen, the president of the United Food and Commercial Workers (UFCW), declared in an op-ed in the Washington newspaper The Hillthat the President’s key promise about Obamacare—“if you like your plan, you can keep it”—is “simply not true for millions of workers.”

The President made that promise, by the way, at the previous AFL-CIO quadrennial convention, in 2009.

Unions in jeopardy

Union officials aren’t just concerned that their members will have to pay higher premiums under Obamacare or that their health plans won’t be able to compete. They believe Obamacare threatens the very existence of their unions.

At the AFL-CIO’s quadrennial convention in September, Joseph Nigro, president of the Sheet Metal, Air, Rail and Transportation Union had some frank words on what Obamacare may mean for the AFL-CIO in particular: “You allow an ACA bill to go through like this, I guarantee you by your next convention four years from now, you won’t meet a quarter of this room. We won’t be here.”

“If unions’ role in negotiating health coverage is taken over by the government, unions lose a big chunk of their utility,” wrote Forbes health policy expert Avik Roy. Union health plans are fundamental to the success or failure of unions. Roy quoted Paul Starr, author of The Social Transformation of American Medicine, who noted that unions “derive some advantage of good will, power, or profit from serving as a financial intermediary in health care.”

Many unions make health insurance available to their membership through so-called Multi-employer Health Plans (MHPs), which were authorized in the 1947 Taft-Hartley Act and are sometimes referred to as Taft-Hartley plans. Rather than covering all workers within a given company, such plans typically cover workers in different companies, often workers in the same or related industries. By some reports, such plans cover 20 million Americans. Of the 1.3 million members in the UFCW, The Hill reports that 500,000 are covered by MHPs.

These plans must be negotiated as part of a collective bargaining agreement, and each is run by a board of trustees made up of both employer and union representatives. Such a plan has significant advantages. It allows employers, in lieu of salary, to pay for employees’ health insurance with pre-tax dollars. If the plan is self-insured, it cannot be regulated by state insurance bureaucracies. In addition, MHPs make healthcare insurance portable for their union members. Union workers can work for multiple employers within a plan without having to change their insurance each time they change jobs. According to the International Foundation of Employee Benefit Plans, MHPs are common in the “construction, arts and entertainment, retail stores, transportation, service (including lodging and health care workers), mining and communication” industries.

Union officials list several reasons why Obamacare now threatens the existence of these plans.

►First, they point out that they have to compete against small companies (50 or fewer employees) that aren’t subject to Obamacare’s employer mandate and thus aren’t required to purchase insurance for their employees. At the same time, unions are worried that employers with 50 or more employees may prefer to pay Obamacare’s fines rather than bargain for union health plans. “The concern,” says liberal health law scholar Timothy Jost, “is that employers will be less willing to collectively bargain with unions through Taft-Hartley if the employers believe their employees would be as well off or perhaps better off in the exchanges with the premium tax credits.”

Unions are now admitting that Obamacare’s employer mandate will cause people to lose their jobs. As The Hill reported:

. . . ACA includes a fine for failing to cover full-time workers but includes no such penalty for part-timers (defined as working less than 30 hours a week). As a result, many employers are either reducing hours below 30 or discontinuing part-time health coverage altogether. This is a cut in pay and benefits workers simply cannot afford. For example, a worker making $10 an hour that has his or her schedule cut by six hours a week would lose $3,100 a year in income. With millions of workers impacted, this would have a devastating effect on our economy.

You would expect, then, that unions would have greeted President Obama’s July decision to delay the implementation of the employer mandate with enthusiasm. They did not. On July 3, the AFL-CIO’s Trumka called Obama’s decision to delay the employer mandate “troubling.”

Perhaps unions are more concerned that the Obama Administration is making concessions to businesses and not to unions. The Wall Street Journal reported that James Hoffa Jr. of the Teamsters called the President’s decision “a huge accommodation for the employer community,” while union requests for special favors have been “disregarded and met with a stone wall by the White House.” In a statement the UFCW called it “a significant hand-out to employers,” but added that the decision encouraged the union to continue seeking changes from the Obama Administration, since it “appears open to changing the rules.”

►Second, Obamacare taxes high-cost healthcare plans, so-called “Cadillac” plans, by setting a limit on cost. Plans that cost more than the limit are taxed at 40% of the amount beyond the limit. Cadillac health plans often have small or no co-pays or deductibles.

Unions often enjoy Cadillac plans for reasons that go back, like so many problems connected with healthcare, to World War II. Wartime federal wage-and-price controls forced employers to give “raises” to their employees in the form of benefits like healthcare instead of in cash. Unions were happy because they could claim they obtained those benefits for their members. The government could have taxed the value of healthcare coverage as income, but instead it let employers purchase health insurance for their employees tax-free. This began a system that greatly distorted the health insurance market by linking insurance coverage to a person’s job—something that became a major problem as society changed and people stopped spending their entire careers with the same employer.

Today, because of this tax benefit for employer-provided health insurance, many unions have negotiated generous health benefits instead of higher wages. Naturally, unions dislike the idea of taxing any of those benefits. As first drafted, the Cadillac tax would have gone into effect this year, but unions successfully lobbied for a five-year delay. Instead of starting this past January, the tax won’t start until 2018.

Originally, the tax would have charged 40 percent of a health plan’s cost that went over $23,000 a year ($8,500 for individuals). Health Affairs calculated that those thresholds would hit one in five large employer health plans. Now, in another change, the thresholds have been raised to $10,200 a year for individuals or $27,500 a year for families.

►Third, unions complain that their employees don’t have access to the health insurance subsidies offered in the health insurance exchanges created under Obamacare. Exchanges are online insurance marketplaces where private health insurers can sell and individuals can purchase health insurance. Obamacare requires most individuals to have health insurance in the form of a plan meeting strict requirements set by the federal bureaucracy (including many things that consumers don’t want, such as maternity coverage for a 60-year-old woman or drug-addiction counseling for non-addicts).

For people who have incomes between 100% and 400% of the federal poverty line (an arbitrary line set by bureaucrats) and whose employers are not providing affordable health insurance (“affordable” as defined by bureaucrats), access to the subsidies is limited. These individuals can only take advantage of the federal health insurance subsidies if they purchase insurance through a government health insurance exchange, rather than, say, through a union.

►Finally, unions are particularly annoyed that Obamacare requires their healthcare plans to pay a tax of $63 per employee to pay for their share of the new federal reinsurance program. That reinsurance program is one of three programs in Obamacare that attempt to keep insurers from seeking out healthy individuals to the exclusion of others. These three programs (risk adjustment, risk corridors, and reinsurance) are sometimes referred to as the Three Rs.

The Three Rs are complicated, but here’s a brief explanation: Because Obamacare requires insurers to take all comers, regardless of people’s current health conditions, some insurers could end up with a high percentage of customers with serious health risks, which has the potential to put insurance companies out of business. To avoid this, Obamacare uses the Three Rs to transfer money from health plans that have fewer high-risk individuals to plans that are spending more because they have more high-risk individuals.

Of course, someone has to pay for running these transfer programs, hence the reinsurance program to shift the risk. In 2014, HHS will raise $12 billion dollars for the reinsurance program alone by taxing all health plans $63 dollars per enrolled person per year.

Waiverland

In the year after it passed, Obamacare began to ban health plans from placing lifetime and annual limits on benefits. The problem was that many of the most affordable plans, called “mini-med” plans, had benefit limits well below the new mandates. Employers and insurers were faced with either raising the plans’ benefit limits—thus making them unaffordable—or dropping the plans altogether because they violate the new law. As a result, Obamacare was poised to take affordable insurance away from millions of employees, including union members.

In an effort to save these plans, the Obama Administration created a waiver program just two months prior to the November 2010 congressional elections. Plans that received a waiver were absolved for one year from having to meet Obamacare’s new lifetime and annual limit mandates.

Soon after these waivers became available, the Wall Street Journal reported that McDonald’s was planning to apply for waivers for its employees. Later it was discovered that many unions were doing the same. The Obama Administration began granting waivers to non-union and union plans alike. Many of the unions now calling for the repeal or reform of Obamacare received these waivers. For instance, both the Roofers’ Union and the UFCW received multiple waivers.

A total of nearly 1,000 health plans have received waivers to date, and those plans cover 3.2 million mini-med enrollees, including 1.5 million union enrollees, according to federal statistics. The Administration issued so many waivers that Obamacare opponents joked about Waiverland, a vast swath of the American landscape metaphorically occupied by waivered plans.

In late 2010 and early 2011, the tally of waivers announced each month by the media generated recurring, unwanted media attention. Administration officials realized that granting yearly waivers on a monthly basis was bad from a public relations standpoint. So in 2011 the Administration required officials who wished to renew their plans’ waivers to request a single waiver that would last past the 2012 presidential election and through the end of 2013.

Come January 1, 2014, these waivers will expire. When they do, affordable mini-med plans will no longer be an option for American workers. Employers and unions will be forced to provide more expensive insurance or high-deductible alternatives to their lower-wage employees and members.

Yet another waiver

In January, the Wall Street Journal reported that unions had been quietly lobbying the Obama Administration to request a different sort of waiver, one that would let their members receive Obamacare’s federal health insurance subsidies. It’s hard to calculate what the unions’ request would cost American taxpayers, but here’s one estimation from Avik Roy of Forbes:

If, suddenly, the 20 million people on Taft-Hartley plans were eligible for subsidies, Obamacare’s costs would skyrocket. If half of those Taft-Hartley enrollees gained $5,000 per year in tax credits along with their tax-free health benefits, we’re talking $50 billion a year in additional insurance subsidies for those individuals. That’s more than half a trillion dollars over ten years, accounting for health inflation.

After news broke that unions were seeking these waivers, House Republicans pressured the Administration to admit that such waivers would be simply illegal. The Congressional Research Service found no legal way to give Obamacare healthcare subsidies to union members under a Taft-Hartley plan.

Undeterred, UFCW officials made it known publicly in May that they were seeking waivers. In July, the administration announced its decision to delay the employer mandate (but not the individual mandate), infuriating the unions. Teamsters President James Hoffa Jr. wrote House Minority Leader Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.) on behalf of the Teamsters, UNITE-HERE, and the UFCW. “Time is running out: Congress wrote this law; we voted for you. We have a problem; you need to fix it. The unintended consequences of the ACA are severe.” Hoffa and the others declared that “perverse incentives” are “already creating nightmare scenarios.”

Republicans took notice of the controversy over whether to grant unions a waiver. In a joint statement, Sen. Orrin Hatch of Utah and House Ways and Means Chairman Dave Camp of Michigan responded:

There has been far too much special treatment for politically favored friends of Obamacare. When it comes to employers and taxpayers picking up the health care tab for labor unions—it appears that is a price that is simply too high. Perhaps even this administration recognizes that there are limits to them stretching the law to reward their friends.

But opponents of Obamacare shouldn’t fool themselves. While some unions are attacking the program, hoping for special fixes that benefit their unions, others such as the SEIU remain wholly in support. And even strong critics among union leaders are likely to stay within the fold. When Sen. Ted Cruz (R-Texas) cited union complaints, Hoffa responded that “we disagree wholeheartedly with the efforts of extreme right-wing Republicans to gut the ACA.”

“Any suggestion otherwise,” Hoffa declared, “is simply political posturing.”

John Vinci is a Virginia attorney, health care policy expert, and former staff attorney for Americans for Limited Government. This post is the first of a three-part series originally published by Labor Watch, a project of the Capitol Research Center, and is published here with permission.