Cornerstonemunicipal.com | 248.878.2100 | [email protected] LEGISLATIVE CHANGES AND COLLECTIVE...

cornerstonemunicipal.com | 248.878.2100 | [email protected]

LEGISLATIVE CHANGES AND COLLECTIVE BARGAININGHow have state and federal changes impacted bargaining – current and future?Co-Presented by:

John Vance – Account Director | Practice Leader

Howard L. Shifman – PC


• Overview

• State Changes

1. Public Act 152 – original, amended, and ongoing court cases

2. Public Act 54 – original and amended

• Federal Changes

1. PPACA affordability and intersection with PA 152

2. Minimum value plans

3. Troop

4. Metal tiers

5. Cadillac tax

6. M&G Polymers USA v Tackett

• Summary

02

Agenda


OVERVIEW

Public sector healthcare becomes more

complicated every day. It is not enough to just

understand the law. We must also understand

how the law may change and how this fluid

landscape may impact costs over the next 2-3

years as well as 20 years into the future.

Collective bargaining agreements negotiated

today have to navigate an uncertain landscape

and must be flexible enough to protect your

organization while being as fair as possible.

Each topic in this presentation will be discussed

and viewed through the lens of a healthcare

consultant and separately a Michigan labor

attorney. 03

Where are we?


PUBLIC ACTS – PA 152

The state of Michigan passed Public Act 152 and Public Act 54 in 2011 and both

have had a dramatic impact on bargaining. Each has also been amended in

recent years.

• Public Act 152

1. Hard Cap, 80/20, and opt out (only local units of government)

• How did we get here?

• Five amendments signed by Governor Snyder on December 30, 2013

2. Court Case – Shelby Township

• 2012: Unfair labor practice through MERC

• 2013: Unfavorable decision and appealed back to MERC

• 2014: Upon receipt of unfavorable MERC appeal, Appellate Court 04

State Changes

PUBLIC ACTS – PA 152 – SHELBY TWP.

• Final MERC decision being appealed

1. May not be appealed : PA 152 Election not a mandatory subject of bargaining

(Decatur – unknown and Shelby not being appealed)

2. Appeal: Bundled/Unbundled Rates – varies across carriers


05

State Changes

EnrollmentActive

Enrollment

Pre Medicare

EnrollmentTotal Rates Active Rate

Pre Medicare

RateTotal

Single 50 20 70 Single $450.00 $450.00Couple 50 30 80 Couple $1,080.00 $1,080.00Family 50 40 90 Family $1,350.00 $1,350.00Total Enroll 150 90 240 Total Annual Cost $1,728,000 $1,144,800 $2,872,800

EnrollmentActive

Enrollment

Pre Medicare

EnrollmentTotal Rates

Active Rate80%

Pre Medicare

Rate 130%Total

Single 50 20 70 Single $360.00 $585.85Couple 50 30 80 Couple $864.00 $1,406.04Family 50 40 90 Family $1,080.00 $1,757.55Total Enroll 150 90 240 Total Annual Cost $1,382,400 $1,490,400 $2,872,800

BUNDLED RATES

UNBUNDLED RATES



• Final MERC decision being appealed

2. Appeal: Bundled/Unbundled Rates – varies across carriers

• MERC ruled that Shelby overcharged by using bundled rates, which include

active and retiree costs

• Claim credibility, legislative intent, carrier variations, and inequity based on

group size

• What does Treasury say? MERC dismissive of treasury’s position

• Treasury: Can rely on carrier provided rates

• Can we rely on treasury?

• Key consideration when choosing PA 152 election

06

State Changes



• MERC decision being appealed

3. Appeal: Distribution of PA 152 Contributions by Employee Group

• Case deals with 80/20 group, but findings could potentially apply to hard cap

employers

• Is there a duty to bargain the distribution of 152 costs across unions?

• …”allocation of health care costs to members of that bargaining unit may be

more than or less than twenty percent, as long as the total amount of health

care costs to be paid by the employer is no more than eighty percent.”

• Employer may implement 20% share if no bargaining agreement reached

DECATUR RECENT DECISION07

State Changes


PUBLIC ACTS – PA 152 – DECATUR

Decatur

• Is the bargaining obligation different for 80/20 vs. hard cap groups?

• Decatur decision regarding contribution distribution - dicta.

• Dicta: “Opinions of a judge that do not embody the resolution or determination

of the specific case before the court. Expressions in a court's opinion that go

beyond the facts before the court and therefore are individual views of the

author of the opinion and not binding in subsequent cases as legal precedent.” -

http://legal-dictionary.thefreedictionary.com/Dicta

08

State Changes



• Contribution Scenarios

09

State Changes

Scenario 1 - Current Command DPW Police Fire Total Net Ttl Pct

Cost by Union $200,000 $300,000 $400,000 $300,000 $1,200,000 100%

80% (Employer) $160,000 $240,000 $320,000 $240,000 $960,000 80%

20% (Employee) $40,000 $60,000 $80,000 $60,000 $240,000 20%

Scenario 2 - MERC Command DPW Police Fire Total Net Ttl Pct

Cost by Union $200,000 $300,000 $400,000 $300,000 $1,200,000 100%

Negotiated (Er) $180,000 $225,000 $360,000 $270,000 $1,035,000 86%

Negotiated (Ee) $20,000 $75,000 $40,000 $30,000 $165,000 14%

Negotiated Pct 10% 25% 10% 10%


PUBLIC ACTS – PA 54

• Public Act 54

1. Law implemented in 2011

2. Amended in 2014 to exclude Act 312 groups

• Cost share cannot exceed PA 152 employee costs

• Less of an ability to close 312 labor agreements in a timely manner

3. Results of Shelby appeal could impact whether cost pass through based on

bundled/unbundled

010

State Changes


011

Federal Changes


AFFORDABILITY AND MINIMUM VALUE

• Affordability

1. Beginning in 2015 employers must offer affordable healthcare

2. Contribution for lowest cost plan single rate must not exceed 9.5% of income

• Safe harbors – W-2, rate of pay, and federal poverty

3. PA 152 contributions could push contributions over affordability threshold

4. ALTERNATIVE DISTRIBUTIONS OF PA 152 WILL PUSH HIGHER CONTRIBUTIONS ON

LOWER PAID

012

Federal Changes


AFFORDABILITY AND MINIMUM VALUE

• Minimum Value

1. Beginning in 2015, employer plans must meet minimum value, aka bronze plan aka

60% actuarial value

• Minimum value plan example: $6,350 single deductible/$12,700 family

deductible with no employee cost after deductible

2. Merits of implementing minimum value plan – VHE safeguard and affordability with

full time benefit enrollees

013

Federal Changes


TROOP

• Troop Maximum

1. Non-grandfathered plans must have out of pocket limits on member plan exposure

(deductible, copay, coinsurance) beginning in 2014

2. 2015 limit: $6,600 single and $13,200 family

3. These levels index annually

4. THIS WAS A BENEFIT ENHANCEMENT

5. Specific or passive language on indexing?

014

Federal Changes


METAL TIERS

• Metal Tiers

1. Implemented in 2014 for groups < 50 FTEs and < 100 FTEs in 2016 – insured

groups only

2. Plans must fit into one four actuarial buckets

• Platinum 88%-92%

• Gold 78%-82%

• Silver 68%-72%

• Bronze 58%-62%

3. Carriers have dramatically changed menus to create compliant plans

015

Federal Changes


METAL TIERS

• Metal Tiers

4. When going into metal compliance, things to consider:

• Move to self funding to avoid impact?

• Communicate with council

• Meet with union leadership

• Discuss with retirees – will most likely experience disruption

• Cost

016

Federal Changes


CADILLAC TAX

• Cadillac Tax

1. 40% excise tax beginning in 2018

2. Tax on plans exceeding stated threshold ($10,200 single / $27,500 family)

• Indexes annually at CPI-U

3. CBO expects this provision to generate approximately $87 billion over a decade

4. Threshold increases for high risk professions and certain retirees. Increases are

$1,650 single / $3,450 family

• Partial list of high risk professions: law enforcement, firefighters, first responders, and construction

017

Federal Changes


CADILLAC TAX

• Cadillac Tax

5. If insured, carrier responsible. If self funded, employer responsible

6. Applies to active and retirees, medical/Rx, HSA funding, and section 125 pre-

tax costs (employer and employee)

7. Tax liability to be included in PA 152?

8. WAITING ON FINAL REGULATIONS

018

Federal Changes


CADILLAC TAX

• Cadillac Tax

019

Federal Changes

Source: Forbes.com http://www.forbes.com/sites/theapothecary/2014/02/26/obamacares-cadillac-tax-could-help-reduce-the-cost-of-health-care/


CADILLAC TAX

• Estimated Financial Model

020

Federal Changes2018 Cadillac Enrollment Cadillac x

EnrollmentOne $10,200 230 $2,346,000Two $27,500 399 $10,972,500

Three $27,500 320 $8,800,000Total 949 $22,118,500

Year Health Plan CostsTrend +8%

Cadillac LevelTrend +3% O/U Threshold Tax (40%)

2014 $15,024,564 2015 $16,226,529 2016 $17,524,651 2017 $18,926,623 2018 $20,440,753 $22,118,500 ($1,677,747) $0 2019 $22,076,014 $22,782,055 ($706,041) $0 2020 $23,842,095 $23,465,517 $376,578 $150,631 2021 $25,749,462 $24,169,482 $1,579,980 $631,992 2022 $27,809,419 $24,894,567 $2,914,853 $1,165,941


CADILLAC TAX

• Cadillac Tax

1. How do we manage?

• Add employer friendly language in bargaining agreements

• Manage active employee plans and costs

• Negotiated plan changes, dep audits, change spousal coverage,

wellness

• Manage retiree plans if possible

• M&G Polymers USA v Tackett solution (more later)

• MA, EGWP, plan changes, contract review

• Private exchange

• Cafeteria plan with technology

• Defined contribution 021

Federal Changes


M&G POLYMERS V TACKETT

• M&G Polymers USA v Tackett – US Supreme Court Case

1. “When a contract is silent as to the duration of retiree benefits, a court may not

infer that the parties intended those benefits to vest for life.” – Justice Clarence

Thomas

2. Do your contracts explicitly state lifetime healthcare?

3. Example language from a CMAG client:

• “Upon the retirement of an employee whose date of hire is prior to July 1,

1999, the City shall assume the full cost of the coverage for both the retiree

and the spouse.”

4. Pontiac Case

• Read in conjunction with Tackett – can retirees get an injunction?

022

Federal Changes


• Summary and Takeaways

1. The landscape has changed and has become fluid – arm yourself with experts

2. PREPARE and have a plan

3. Be aware of carrier driven plan changes as a result of new laws

4. Determine whether current healthcare labor provisions allow for benefit

flexibility

5. Ge mindful of contract duration – need ability to deal with unforeseen landscape

changes

6. Have an open dialogue with unions on state and federal laws

7. Make sure you ask questions and develop goals in your negotiation process

• Place language in your contracts to protect your organization moving forward0

23

Summary


Questions?Thank you very much for attending!

Please contact us if you have any

questions

John Vance

[email protected]

Howard Shifman

[email protected]

The information provided in this presentation is not intended to be, and should not be construed, as legal advice or legal opinion. It is recommended that you consult with your attorney or other legal advisor relating to your specific circumstances 0

24

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