Tentative Agreement Reached Between Labor and the White House on Employer-Provided Health Care Excise Tax

January 15, 2010 – Late yesterday, a tentative deal was struck between labor and the White House, regarding the excise tax provision in the proposed health care reform legislation. This deal is exactly that—tentative. Some fine points need to be worked through as this legislation is extremely complex.

Before going into the details, it’s important to understand that given the differences between the House-passed bill (which has no excise tax on the value of employer-sponsored health coverage) and the Senate bill (which has an excise tax equal to 40% of the value of employer-sponsored health coverage that exceeds the applicable threshold), and given the strong desire of the White House to enact a bill now, some type of compromise was going to be reached. It was clear that the House position of no excise tax was not going to prevail. The unprecedented pressure applied by the labor movement resulted in a negotiated deal that protects ALPA members and their health care plans from being treated unfairly.

The tentative agreement raises the initial excise tax threshold to $24,000 for family coverage and $8,900 for single coverage. The threshold will be adjusted annually for inflation, beginning in 2013, based on CPI + 1%. (This works out to approximately 3% today.)

Significantly, the White House accepted labor’s demand that unions be given time to make adjustments to healthcare plans that have been negotiated through the collective bargaining process. They agreed that coverage under collective bargaining agreements will be exempt from the excise tax until January 1, 2018, a full five years after the effective date for non-union coverage. This is a good development for ALPA members as it will provide time to work with their employers over the next few years to develop ways to continue to provide quality affordable healthcare for ALPA members, while taking the excise tax into consideration. It will also allow pilots to consider other changes made by the healthcare legislation. For example, plans will not be able to discriminate based on pre-existing conditions or charge excessive premiums based on the age, gender or occupation of a person. It is assumed that these will have positive effects on healthcare inflation.

It should also be noted that the value of dental and vision plan coverage will not count against the threshold, as was originally proposed in the Senate bill. The value of these benefits is estimated to be around $2,000 annually. This provision takes effect in 2015.

Labor unions also worked to ensure that healthcare premiums are not increased inappropriately prior to 2013, when the excise tax first takes effect (for non-union plans). If premiums rise at rates higher than the rate of inflation, the threshold will be adjusted upward accordingly. The expected rate of inflation is estimated to be somewhere between 5% and 6%. If premiums rise by 8%, for example, the threshold will increase by 2-3% for that year. If premiums rise by 9% the following year, the threshold will increase by 3-4%. However, if premiums rise at less than expected rates, the threshold will not decrease accordingly.

One more adjustment that has been made is the consideration of the location and composition of the bargaining unit. Older workers, female workers and workers located in urban areas sometimes face inordinately higher premiums. Labor is working on a formula to present to the White House to address these discriminatory practices on behalf of all people.

ALPA’s Government Affairs Department and Retirement and Insurance Department led the way to ensure that collective bargaining agreements negotiated under the Railway Labor Act are included in this tentative agreement.

Some in the media have called this a “sweetheart deal” for labor only. The only portion of the deal that is aimed solely at labor is the delay in the effective date until 2018. All of the other adjustments in the tentative deal apply to everyone, whether they belong to a union or not, demonstrating once again that it is up to labor to fight for all working families. Union plans are often more expensive and more complex than non-union plans, and contracts expire at different times in the future. The delayed effective date is necessary for unionized employees to ensure that they are not penalized for having a multi-year contract and for negotiating good benefits.

Labor unions, including ALPA, have bargained for good benefits for their members and families to ensure that when they need to use a doctor or hospital they can. There is no reason to be ashamed of this. This choice was made at the bargaining table and it is the right choice. Health insurance premiums have increased more than 100% over the past decade for many union health plans. It is a union’s job to protect its members from experiencing harm. This tentative agreement moves union members in the right direction.