White House Considers Awarding Obamacare Subsidies, Intended For The Uninsured, To Labor Unions

A few weeks ago, I discussed the fact that labor unions have been increasingly vocal about their objections to certain provisions of the Affordable Care Act. Obamacare will “shatter not only our hard-earned health benefits, but destroy the foundation of the 40 hour work week that is the backbone of the American middle class,” wrote three labor leaders in July. Now, according to a report fromInsideHealthPolicy, the Obama administration is considering offering insurance subsidies—intended for the uninsured—to labor union members who already have employer-sponsored coverage.    Unions seek additional subsidies for multi-employer plans

The issue at hand is the way Obamacare affects multi-employer health plans, also known as Taft-Hartley plans. These plans consist of employer-sponsored health insurance that is arranged between a labor union in a particular industry, such as restaurants, and small employers in that sector. Approximately 20 million workers in the United States are covered under such arrangements, including 800,000 of the 1.3 million members of the United Food and Commercial Workers International Union, whose leader, Joseph Hansen, signed the letter I described above.

Workers with employer-sponsored coverage don’t qualify for subsidized coverage on Obamacare’s insurance exchanges. Those subsidies are designed for low-income people who aren’t offered coverage from their employers, and have to shop for insurance on their own. But the labor union leaders want those subsidies to also apply to their members with employer-sponsored coverage, even though they already get those benefits tax-free due to the employer tax exclusion for health insurance.

Administration ‘working to address’ unions’ complaints

Now, according to Rachana Dixit of InsideHealthPolicy, the administration is “working on regulations to address the issue” that people covered under Taft-Hartley plans aren’t eligible for subsidies. But it’s not an “issue” in the sense of being a glitch or a mistake; union leaders are seeking special treatment, and additional taxpayer subsidies, that other participants in employer-sponsored coverage don’t get.

“Democratic aides and sources off Capitol Hill say conversations about unions’ concerns are ongoing, and they say that the administration is working on regulations to address the issue,” Dixit writes. “But, it is not clear if the proposed Department of Labor rule” would satisfy unions’ concerns. “Separately, House Minority Leader Nancy Pelosi [D., Calif.]said to union members earlier this month that she was still working to resolve their concerns about the law, particularly on the Taft-Hartley plan issue.”

Richard Trumka, president of the AFL-CIO,confirmed to Alexis Simendiger of RealClearPolitics that “fixes” to the law were a “topic of conversation among top labor leaders and senior White House officials this week.” “We were talking about health care, and we’ll continue to talk about health care to try to solve problems,” said Trumka. Trumka, James Hoffa, chief of the International Brotherhood of Teamsters, and other labor leaders met with President Obama’s chief of staff, Denis McDonough, on Tuesday.

‘Fixing’ unions’ concerns requires an act of Congress

However, it’s not clear what the White House can unilaterally do to address unions’ concerns. The text of the Affordable Care Act is straightforward; if you have gained coverage through an employer-sponsored health plan, you’re not eligible for subsidized coverage in the exchange, because you already get a subsidy through the tax code: you don’t pay income or payroll taxes on the value of your health coverage.

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.

I would say that it’s inconceivable that the White House would seek to impose such a “fix” to Obamacare without the consent of Congress. But, given the other changes that the administration has made to the health law—of similarly questionable legality—we can’t rule anything out.

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(h/t Michael Cannon.)

UPDATE: Aaron Carroll highlights this PolitiFact piece which elaborates on labor leaders’ concerns. The main one is that because Taft-Hartley plans typically involve small employers who are exempt from the employer mandate, these employers have an incentive to drop coverage and move workers into the exchanges. It would be a better deal for many workers and their employers, but would eliminate unions’ prized role as the dues-collecting middlemen:

These plans are often called Taft-Hartley plans after the federal labor law that created them. And here’s the rub: The Affordable Care Act creates insurance exchanges that will present employers with a new alternative to the current union insurance.

“The unions think it will be cheaper for employers to drop out of the Taft-Hartley plans and go on the health exchange,” said Paul Secunda, a labor law professor at Marquette University School of Law. “This puts pressure on the unions who want to keep workers satisfied and make sure they have a reason to belong to the union.”

Here’s why the unions think that could happen. DeFrehn says 90 percent of the employers in these plans have fewer than 50 workers. While larger employers will face penalties if they don’t offer health insurance, these smaller employers would not. At the end of a union contract, they would be perfectly free under the law to drop coverage and encourage workers to buy through an exchange.

The exchanges could be an attractive option for another reason. In an exchange, workers with family incomes as high as 400 percent of federal poverty level would be eligible for a subsidy from the federal government.

A subsidy calculator from the Kaiser Family Foundation, a nonpartisan health policy group, shows what this could mean in dollars and cents. A family of four making $92,000 a year would get about 25 percent knocked off the premium. That’s a significant discount; one that Secunda says would put the union plans at a competitive disadvantage.

Over the decades, some unions have negotiated successfully for good health care benefits, even at the expense of wages. But if the unions’ nightmare scenario plays itself out as they fear, and employers drop coverage, then workers would find that they can get coverage without the union. The coverage probably wouldn’t be as good but its shortcomings might not be obvious. And maybe these workers would have less reason to belong to the union.

“This could be yet another existential threat to the unions,” said Secunda.

There’s reason to think that some employers would exercise this option. Marshall Babson is a long-time employment lawyer and former member of the National Labor Relations Board, appointed by President Ronald Reagan. Babson represents management. Babson said for the past 20 years, he has been advising his clients to get out of Taft-Hartley plans. He said they are inefficient.

“If the Affordable Care Act is a threat to these plans,” Babson said, “It’s because they have been vulnerable for a long time.”

 http://www.forbes.com/sites/theapothecary/2013/08/30/white-house-considers-awarding-obamacare-subsidies-intended-for-the-uninsured-to-labor-unions/