By Bill Kerrigan
The passage of the Affordable Care Act (ACA) in 2010 created a new environment to revisit the utilization of multiemployer health plans by large employers with collectively bargained populations. Both the 2018, now 2020 excise tax and the emergence of active private exchanges favors a multiemployer plan structure. This approach potentially supports the mutual interest of both the employer and the union members. For employers, decisions around plan design and vendors are transferred to the multiemployer plan—like a private exchange—eliminating the inefficiency between union negotiation cycles and the rapid change in the health care environment. For the union members, separation is created between health engagement and corporate distrust.
Multiemployer plans established by the National Labor Relations Act of 1947 (Taft-Hartley Act) are maintained pursuant to one or more Collective Bargaining Agreements (CBA) to which more than one employer is required to contribute. A Board of Trustees with equal representation of union and employer trustees manages the plan.
Kerrigan Reid conducted a literature review of employee benefit surveys administered by large national consulting firms since the advent of the Affordable Care Act (ACA) in 2010 to understand the prevalence and interest in a multiemployer strategy for employers with collectively bargained populations. Although multiemployer plans are favored over single employer plans for excise tax purposes, Kerrigan Reid noted the absence of this strategy in the current literature.
The excise tax on high cost plans is significantly different for a multiemployer plan than the same benefits offered through a single employer plan. Unlike a single employer plan that compares the cost of single and family (i.e., other than self-only) coverage to separate thresholds by coverage tier (originally $10,200 for self-only and $27,500 for other than self-only coverage), the multiemployer plan treats any coverage as other than self-only coverage for excise tax purposes. To illustrate the excise tax advantage of a multiemployer plan, we include the following example:
In the single employer plan both single and the family coverage tiers exceed the excise tax threshold while in the multiemployer plan the same costs composite below the family excise tax threshold (cost of $22,840 compared to threshold of $27,500). The multiemployer plan structure provides the union and the company with more time and the opportunity to partner in a mutually beneficial pursuit of high value health care at a lower cost.
Towards this same health care aim, the private sector unveiled exchanges for active employees that offer a combination of standardized plan designs, carriers, and funding arrangements with greater employee choice, the promise of lower health care trend, and potential risk transfer. A multiemployer plan provides a similar structure to deliver these same benefits while not only pooling experience for multiple employers but also engaging the union in health management and fiduciary accountability.
For a multiemployer plan to be a viable strategy for a large employer, the following characteristics must be present:
- Sustainable: Are the current level of plan reserves, demographic characteristics, and plan design features for the multiemployer plan appropriate for the underlying risk and obligations?
- Innovative: Is there a track record of managing costs below historic trends, engaging members to improve health, and implementing programs to reduce waste?
- Efficient: Are fund/third-party administrative costs and vendor agreements (e.g., provider discounts, networks) market competitive?
One of the main challenges with a multiemployer strategy is finding a suitable fund partner that satisfies all of these criteria. Connecting the right multiemployer plan with a defined contribution strategy that ties the employer subsidy to attainment of health cost and utilization goals provides an alternative to CBA iterations of negotiated cost shifting. Employers with union populations particularly in industries like transportation, utilities, telecommunications, education, and manufacturing can find that the risks and opportunities of a multiemployer plan align with their overall benefit objectives.
For more information contact Bill Kerrigan at firstname.lastname@example.org.
This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The comments in this summary are based upon Kerrigan Reid’s preliminary analysis of publicly available information. The content of this document is made available on an “as is” basis, without warranty of any kind. Kerrigan Reid disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Kerrigan Reid reserves all rights to the content of this document.