If you have no union-represented employees, if you don’t expect to lend to, acquire or merge with an employer that does, and if you don’t worry about union organizing, this article may waste your time.  Ok, if you’re still reading, rest assured that unions, their lawyers, and the National Labor Relations Board already know what we’re about to cover, and will take maximum advantage of it.  Plan accordingly.

To avoid maximum employer mandate taxes for coverage months beginning January 2015, an Applicable Large Employer (subject to certain transitional relief) must offer minimum essential coverage to at least 70% of its full-time employees and their dependents. Those non-deductible taxes, assessed in 2016, could be as much as $166.67 per month, per full-time employee, in excess of the first 30 or, if the employer is a member of a corporate controlled group, its allocable share of the group’s first 80.

Unless an employer has secured a clear waiver of a union’s right to bargain over health care, and the effects of employer health care decisions, in a current labor contract, an employer must give its employees’ union notice of proposed changes, and an opportunity to bargain about them before making any change.  If bargaining is requested, the employer must bargain in good faith to an agreement, or to an impasse, at which point it may implement its proposals.  The National Labor Relations Board (“NLRB”), a five-member federal commission, administers this law.  Under President Obama, it has a 3-2 Democrat majority.  Its regional offices are union shops. 

In most labor contracts, the parties waive their rights to bargain, during the contract term, regarding subjects that were, or could have been covered in negotiations for that agreement.  So, if an employer proposes group health plan changes during a labor contract term, a union may refuse to bargain and file NLRB charges if the employer makes changes unilaterally.  If the NLRB agrees with the union, it may order the employer to rescind the changes and make employees whole for any related losses.

If the employer proposes group health plan changes during labor contract negotiations, the union may bury the employer under reams of related, NLRB-enforced, information requests.  If that does not work, the union might invite friendly insurance or ERISA regulators to audit the employer’s group health plan. The bargaining process normally takes months and requires difficult compromises to produce any resolution.  Investigation and litigation maximize cost and delay.

The IRS employer mandate final rule makes this situation even worse for employers, because it refuses to treat an employer’s contract proposal of qualifying, affordable coverage as an “offer” of that coverage for employer mandate purposes.  As a result, a union may subject an employer to employer mandate taxes by refusing to accept any employer proposal of qualifying, affordable coverage.  Consider this scenario.

Acme Rocket Sleds and Skates has 1,000 full-time employees, 400 of whom are union-represented.  All are eligible for coverage by one, fully-insured, group health plan.  In 2014 labor negotiations, Acme proposes cost-saving changes to that plan, based on its broker’s premium increase forecast.  The union proposes to exclude union-represented employees from the plan and to raise wages by the amount of reduced employer premium contributions. If union-represented employees are excluded, the employer may face a non-deductible 2016 employer mandate tax assessment of $740,000.

In July, MeepMeep Zoom!, an IT holding company with just 40 employees, enters acquisition talks with Acme, looking forward to a December 2014 closing.  It expects to retain the existing plan, unless the union rejects the proposed changes, in which case it will terminate that plan and provide coverage to non-union workers under a new, self-funded plan.

Unless both employers have due diligence counsel who understand both ACA and NLRB rules, they may fail to value adequately the union’s leverage.  Imagine the disruption that could be caused by an NLRB order to reinstate the fully-insured plan (making the self-funded plan untenable) while also making all affected employees whole for their losses (ignoring their gains) attributable to coverage and cost-sharing changes.

Unless you have negotiated union contracts, you may ask why a union would do this.  To extract employer concessions, certainly, but, starting this year, unions might actually want employers to drop coverage, so that their members may access federal premium and cost sharing subsidies available only to Exchange QHP purchasers.  For union-represented employees who are members of families with household annual incomes less than $45,000, the employer may be unable to offer a group health plan that beats the Exchange subsidy deal.

If you have union-represented employees and hope to make group health plan changes, during a current contract term or in the course of upcoming labor negotiations, consider how you would bargain if you were on the other side of the table, armed with these new advantages.