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How to make the Employee premium contribution for health insurance benefits: “Very fair and very balanced”

With the Affordable Care Act (Obama Care) coming into our lives, perhaps Governor Kasich’s opinion about the government employees’ share of health of care cost not being “fair” was right. (Did I really just write that?).

During the Senate Bill 5/Issue 2 fiasco, in an interview at the Fox Toledo studios, the Governor said about health care:

“What we are asking government workers to do is to help share in the solution here and we’re asking them to pay 15% for their health care…”. (Open the attached YouTube site and listen @ 24 seconds http://www.youtube.com/watch?v=X6TxuiXHz_o)

During the same interview he justifies his idea of employees paying 15% by saying:

“So, I think it’s very reasonable and very balanced”. (YouTube above @ 56 seconds).

During this interview, and in many other interviews and commercials, the Governor used the phrase “it is only fair”. Well Governor Kasich, you got my attention.  First of all, there is a need for change.  There is also a need to re-examine the way health care costs are shared by the government employees.  Of course, this change may not be acceptable to many employees, but it will definitely make the higher paid employees reevaluate the Governor’s take on fairness.

Using the City of Cleveland as an example, I think it is only fair that employees of the City pay their fair share of taxes, whether that employees is earning $35,000.00 per year or $150,000.00 per year.

  • Each employee pays 2% of their wages in city income tax:  That is fair.
  • Each employee pays 10% of their wages to PERS or a little more to Police and Fire and PERS-LE. That is fair.
  • Each employee pays 1.45% of their wages for Medicare. That is fair.
  • Each employee pays 3% of their wages for Ohio income tax. That is fair.
  • Each pays 12% of their wages in Federal withholding. That is fair.

*(State income tax and Federal withholding may vary, but similarly situated people are paying the same).

Additionally, consumers in Cuyahoga County pay the same rate of sales tax. A person buying a Rolls Royce will pay much more in sales tax than another person buying a Chevy Cruze.  However, the tax rate is equal, so it is fair.

The same holds true in property tax rates.  For example, I looked at the Kent school system tax millage of 102.73.  As you know, the vast majority of property tax is for the school millage.

The owner of one house in the Kent school system, valued at $315,000.00, paid $4,622.00 in property tax.   The owner of another house in the same school district, valued at $130,000.00 paid $2,554.00 in property tax.  Needless to say, the family in the mobile home park down the road paid even less.  However, all are paying towards the schools and regardless of the value of your house, or the number of children you have in the school system, if any, the formula is equal and therefore; that is fair.

In fact, if you do not want to pay the above property tax rate, move from Kent to the next town over, Ravenna.  The Ravenna school millage is only 66.22.

With the Governor’s quest for fairness in mind, I went to the websites http://buckeyeinstitute.org/state-salary and http://buckeyeinstitute.org/local-salary .  Many of you are aware this is the location where you can find out the pay of “some” public employees.  The salaries posted are total compensation, including bonus and overtime.

I first looked at the local level salary site. I obtained information as to how many employees fell into a particular pay range in the City of Cleveland during the year 2010. (Most recent data available).  Keep in mind, I am not comparing the pay people receive, just how much they pay towards their health care.

Below are the pay ranges and how many employees fell into each range.

PAY RANGE NUMBER OF EMPLOYEES IN RANGE

$25,000.00 - $30,000.00                                  382

$30,000.00 - $40,000.00                                  1522

$40,000.00 - $50,000.00                                  1616

$50,000.00 - $60,000.00                                  1327

$60,000.00 - $70,000.00                                  1243

$70,000.00 - $80,000.00                                  594

$80,000.00 - $90,000.00                                  311

$90,000.00 - $100,000.00                                157

$100,000.00 -$100,000.00 PLUS                     129

The next step in this equation is that the City of Cleveland offers their full-time employees, regardless of position held or rate of pay, six (6) choices for health care.  The monthly contribution per plan is as follows:

Individual Family

Coverage Coverage

Monthly cost Monthly cost

MMO Plus                           $52.50                                   $105.00

HMO Health Ohio                $62.50                                   $125.00

Kaiser                                $67.50                                   $135.00

Next, I took the medium pay  of each earnings group. The lowest paid group, $25,000 - $30,000 has a medium of $27,500.00 and the second highest range of $90,000.00 - $100,000.00 is $95,000.00.

I then found the percentage of the employees’ annual income each group was paying for medical insurance. With the monthly premium selection outlined above, the percentage of the annual income of an employee in the $27,500.00 range would pay per year is:

Single Rate % of Employee’s Family Rate % of Employee’s

Per month Annual Income Per month Annual income

MMO Plus                               $52.50                   2.26% $105.00 4.58%

HMO Health Ohio                    $62.50                   2.72% $125.00 5.45%

Kaiser                                   $67.50                    2.95% $135.00 5.89%

Again, from the table of monthly heath care contribution, employees in the $55,000.00 range paid as follows:

% of Employee’s % of Employee’s

Single Rate Annual income Family rate annual income

Monthly for health care Monthly for health care.

As you can see, the lowest paid employees paid twice as much of their annual income for health care as the group of employees earning twice as much per year.

The employees that are making $105,000.00 paid the following percentage of their annual income for health care.

% of employee’s % of Employee’s

Single Rate annual income Family Rate annual income

Monthly for health care Monthly for health care

MMO Plus                           $52.50                   .59% $105.00             1.20%

HMO Health Ohio                $62.50                   .71% $125.00             1.43%

Kaiser                                $67.50                   .77% $135.00             1.54%

The lowest paid group paid three (3) times as much of their annual salary as a person earning $105,000.00 did.


Mayor Jackson earns $132,000.00 per year and pays the following:

% of employee’s % of Employee’s

Single Rate annual income Family Rate annual income

Monthly for health care Monthly for health care

MMO Plus                           $52.50                   .47% $105.00 .95%

HMO Health Ohio                $62.50                   .56% $125.00 1.13%

Kaiser                                $67.50                   .61% $135.00 1.22%


Finally, Mr. Ricky Smith, the City of Cleveland’s Director of the Port Control earned $208,000.00.  His percentage of annual earnings for health care is:

% of employee’s % of Employee’s

Single Rate annual income Family Rate annual income

Monthly          for health care Monthly for health care

MMO Plus                           $52.50                   .30% $105.00 .60%

HMO Health Ohio                $62.50                   .36% $125.00 .72%

Kaiser                               $67.50                    .39% $135.00 .77%

Clearly, when looking at the percentage of annual earnings paid towards health care, fairness does not exist. Would the Governor feel each group paying the same percentage of their annual income towards health care as the lowest paid group would be fair?  If so, this is a sample of what the monthly premium would be if paid at the same annual percentage:


Annual wage          $27,000.00 Vs.  $55,000.00 $27,500.00 Vs.        $55,000.00

Single Single Family Family

Monthly Monthly Monthly Monthly

MMO Plus                $52.50                      $103.58                                 $105.00                       $209.91

HMO Health Ohio      $62.50                     $124.66                                  $125.00                       $249.79

Kaiser                     $67.50                      $135.00                                  $135.00                      $269.96


How about the employee making $105,000.00?

Single Single Family Family

Monthly Monthly Monthly Monthly

Annual wage $27,000.00 Vs.  $105,000.00 $27,500 Vs.          $105,000.00

MMO Plus                 $52.50                    $197.75                                  $105.00                        $400.75

HMO Health Ohio      $62.50                     $238.00                                 $125.00                        $476.87

Kaiser                      $67.50                    $258.12                                  $135.00                        $515.37


How about Director Smith?

Single Single Family Family

Monthly Monthly Monthly Monthly

Annual wage $27,000.00 Vs.  $208,000.00 $27,500 Vs.       $208,000.00

MMO Plus                $52.50                   $392.74                                 $105.00                         $795.91

HMO Health Ohio     $62.50                   $472.00                                 $125.00                         $947.00        

Kaiser                     $67.50                   $512.65                                $135.00                          $1,023.55


I cannot believe this, but I not only find myself agreeing with Governor Kasich, but I also agree with the Americans for Tax Reform (and other conservative groups) that the ACA is a tax.

Governor Kasich was looking for the government workers to help find the solution in making premium payments fair. Well, obviously HEALTH CARE CONTRIBUTIONS SHOULD BE TREATED THE SAME WAY AS A TAX, BY A PERCENTAGE OF INCOME.

The great news is that everyone does not have to pay 5.89% of their annual income for the highest cost health package.  Actually, they can pay less than 3.3%.

In 2010, if all 7,561 employees listed on the Buckeye Institutes’ site paid the current rate for the Kaiser family coverage at $135.00 per month, the City would collect $12,248,820.00 dollars in 2010.    Of course the City did not collect nearly this amount because many employees are single or chose a lower cost plan.

However, if all 7,561 employees actually paid 3% of their pay towards health care in 2010, the City would have collected over $12,000,000.00.  On the other hand, if all employees paid 5.89% of their annual earning, like the people in the $27,500.00 range did, then the City would have collected over

$23,350,000.00. Please remember that the highest wage I used was $105,000.00 and there were 129 employees who earned more than $105,000.00 in 2010.

If health care is a tax, and I am prone to believe it is, then health care premium deductions should be based on a percentage of earnings just like:

PERS                                      10%

Medicare                                 1.45%

City income tax:                      2%

State income tax:                    3%

Health care insurance:              ?%   Well, I’m not sure, but whatever percentage it is, it would be more fair than it is now.

The government entities know how much money they receive in insurance contributions each year.  Therefore, they should have a pretty good idea of how much they should expect year to year.  I’m clearly not an accountant nor a mathematician, however, with the current computer programs and in the hands of a professional accountant, I’d bet my life that Cleveland could meet their needs for employee contributions and still charge the employees less than 5.89% of the employees annual wages.  Actually, I suspect 2.5% would cover the tab.

Let’s be fair.

 

Contract Interpretation: What Do The Words Of A Contract Mean And How Do We Determine That Meaning?

Contracts govern many relationships in our lives.  Our relationships with banks, with businesses, with cellular phone service providers, with utility companies, and with each other are often based on contracts.  We rely on the sanctity of contract performance to insure the good order of society.  The Roman Law maxim pacta sunt servanda (agreements are to be kept) reflects this characteristic in human nature.  The concept of an enforceable contractual relationship is particularly important for those public employees whose employment relationship is governed by a labor contract.

WHAT IS A CONTRACT

Before delving into the intricacies of interpreting labor contracts, one should understand what a contract is, as a legal term of art.  On its most basic level, a contract is formed when:

1)      One party to that potential contract makes an offer;

2)      The other party accepts that offer; and

3)      There exists “consideration,” or a bargained for exchange of value related to the underlying offer and acceptance.[1] 

One court deftly described the peculiar nature of what a contract actually is:

Unfortunately, contracts, like most of the basic terms constituting the intellectual tools of law, is conventionally defined in a circular fashion.  By the most common definition, a contract is a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law recognizes as a duty.  This amounts to saying that a contract is a legally enforceable promise.  But a promise is legally enforceable only if it is a contract.  Thus nothing less than the whole body of applicable precedents suffices to define the term ‘contract.’[2]

HOW TO INTERPRET COLLECTIVE BARGAINING AGREEMENTS

A collective labor contract or collective bargaining agreement (“CBA”) is a contract vehicle, born out of statute, which provides an individual with greater bargaining power than if he or she were to bargain with the employer alone.  Since these CBA’s govern the employment relationship between an employer and perhaps dozens or hundreds of its employees, it is important to take great care in making the final contract product as clear and unambiguous as possible.

However, we all know that, as much as the parties may strive to eliminate ambiguity, there is always more than one way to read a given section in a CBA.  “The language of mathematics is precise.  The English language is not.”[3] It is entirely possible that three experienced, respected labor arbitrators could read the same CBA section and render three different results.

So how does one know what the correct, legally enforceable interpretation of a particular CBA provision is?  Unfortunately, there is no mathematically precise way of knowing.  Disputes often occur because the parties to a CBA have legitimate differences of interpretation.  While one cannot predict with certainty the outcome of a dispute of contract interpretation prior to litigation, it is helpful to understand some concepts and theories which arbitrators use as factors in their decision making process.

  1. A. THE OBJECTIVE THEORY

The objective theory of contract interpretation holds that the meaning of an ambiguous contract term is that which would be attached by a reasonably intelligent person who is acquainted with the operative usages, and knows the circumstances prior to and contemporaneous with the making of the contract.

The legendary judge and judicial philosopher Learned Hand captured the objective theory of contract interpretation in Hotchkiss v. National City Bank, 200 F. 287 (S.D.N.Y. 1911):

A contract has, strictly speaking, nothing to do with the personal, or individual, intent of the parties.  A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent.

In other words, under the objective theory, a judge or arbitrator would essentially insert the intent of the parties based on the usual and customary uses of the words contained within the contract itself.  The parties’ own meaning and intent is not relevant; rather, the words are enforced in accordance with the way in which an ordinary reasonable person would understand and enforce them.

  1. B. TOTALITY OF THE CONTRACT

The American Law Institute’s influential legal treatise Restatement (Second) of Contracts offers us further guidance as to how contract language is to be read and interpreted in context.

§ 202.         Rules in Aid of Interpretation

(1)   Words and other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight.

(2)   A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together.[4]

Essentially, adherents to this Restatement view of contract interpretation would read a contract as a whole.  Conflicting provisions within the same document must be reconciled and respective contract provisions must be weighed appropriately.

For example, a CBA has one provision which requires shift bidding by seniority.  That same CBA has another provision which infers that it is a management right to determine when, or even if, that shift bidding process ever takes place.  Under the Restatement view, those incompatible provisions must be reconciled in light of the totality of the circumstances.  The union’s position would be that it is incongruous to believe that the parties intended to include shift bidding by seniority language in the CBA, yet allowed for a mechanism which would prevent the implementation of that shift bidding process.

  1. C. EXTRINSIC EVIDENCE TO CLARIFY THE MEANING

In the realm of labor arbitration, parties often raise or attempt to raise evidence as to the intent of the parties when litigating a contract interpretation case.  This extrinsic evidence is that which is not expressly contained within the “four corners” of the CBA, but which may help a neutral arbitrator understand why the CBA says what it says.

Parties may wish to cite the bargaining history of the parties as evidence.  In such an instance, first-hand participants in the bargaining process would be necessary witnesses to advance a party’s interpretation of the bargaining process and that which was born of it.  The contemporaneous notes or minutes of a past bargaining session might also prove valuable.  Keep in mind that the parties may have discussed the disputed language at length, but made a conscious decision not to alter it in an effort to secure agreement on a total agreement.  Often, sources of annoyance and discord between the parties will ultimately be glossed over at the bargaining table in favor of dealing with the greater issues of compensation and health insurance.

A party may also argue that a past practice controls a situation.  Past practice is also a legal term of art.  In order to be considered an enforceable past practice, “a practice must be perfectly clear and unequivocal, consistently followed with frequent repetition over a long period of time so that it is inferable that both parties had accepted the practice as part of their collective bargaining agreement.”[5] It may very well be that, by virtue of a clearly-established past practice, the parties themselves understood a contract provision in a certain way.  Thus, an arbitrator should enforce that long-held understanding.

Ultimately, as the old saying goes, there is more than one way to skin a cat.  There is more than one way to interpret a contract.  The best way to insure a lack of ambiguity is to be clear and precise during the process of contract formation, if that is possible under the bargaining circumstances.  If you have questions of contract interpretation, the first step is consulting with your OPBA representative to help assess the situation.



[1] Restatement (Second) of Contracts (1)  To constitute consideration, a performance or a return promise must be bargained for.  (2)  A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.  (3)  The performance may consist of (a) an act other than a promise, (b) a forebearance, or (c) the creation, modification, or destruction of a legal relation.

[2] Loevinger, J. in Baeh v. Penn-O-Tex Oil Corporation, 258 Minn. 533, 537-39, 104 N.W.2d 661, 664-66 (1960).

[3] Elkouri & Elkouri, “How Arbitration Works,” 6th ed., (Alan Miles Ruben, Editor-In-Chief, 2003) at 441.

[4] Restatement (Second) of Contracts § 202 (1981).

[5] Elkouri, supra, at 608-609.

 

The SERB 2013 Report on Health Insurance Costs

The Research and Training Section of the State Employment Relations Board has released its annual report on the cost of health insurance in Ohio’s public sector.  The 2013 report analyzes health care surveys completed by 1,226 public employers in the state representing about 394,388 employees.  Such amounts to a 92.5% employer participation rate.  The survey answers are representative of public sector medical insurance plans in effect on January 1, 2013.  The report is necessary reading for negotiating committee members as it offers useful comparative data and background information for numerous healthcare issues.

The statewide average for an employee’s share of the medical and prescription drug premium is 11.2% for single coverage and 12.2% for family coverage. In terms of actual dollars and cents, employees are statewide paying $59 per month for single coverage and $171 per month for family coverage.  Among political subdivisions, employees of townships pay the least amount at approximately 6.3% of the premium for single coverage and 6.4% for family coverage.  This translates into township employees paying $28 per month for single coverage and $84 per month for family coverage.  Employees in cities are paying 9.6% for single coverage and 9.8% for family coverage.   This amounts to city employees paying $49 per month for single coverage and $135 per month for family coverage.  Employees of counties are paying 13.3% of the premium for single coverage and 14.4% of the premium for family coverage.  These percentages require county employees with single coverage to pay $72 per month for single coverage and $217 per month for family coverage.

SERB also analyzes employee contributions by eight geographical regions in the state.  Employees in the Dayton region pay the greatest share for medical and prescription drug insurance.  Employees with single coverage in the Dayton region are paying 13.2% of the premium while employees with family coverage pay 14.4% of the premium.  These employees are paying $69 per month for single coverage and $200 per month for family coverage.  The employee share of the premium is least in the Warren/Youngstown region with employees contributing 6.9% of the premium for single coverage and 6.8% of the premium for family coverage.  This equates to $36 per month for single coverage and $102 per month for family coverage.

It is also interesting to examine SERB’s report on medical plan design.  The report identifies the number of medical plans by deductible amounts.  Statewide, 29.7% of medical plans have deductibles for single in-network coverage in the amount of $100 or less, while 26.8% of the plans have deductibles for such coverage in an amount between $125 and $400.  23.0% of the plans have deductibles for such coverage in an amount of $1,200 or greater.  For in-network family coverage, 28.2% of plans statewide have deductibles in the amount of $200 or less, while 27.2% of the plans have deductibles between $250 and $800.  23.7% of the plans have deductibles for such coverage in an amount of $2,400 or greater.

After the deductible is reached, the percentage of costs paid by employees until they reach their out-of-pocket maximum amount is called co-insurance.  33.4% of plans statewide for in-network coverage do not require an employee co-insurance contribution while 32.5% of plans require a maximum employee co-insurance share of 10%.  Only 2.6% of plans require a maximum employee co-insurance share over 20%.  The statewide median out-of-pocket maximum amount for in-network coverage is $1,350 for single coverage and $2,600 for family coverage.

The SERB report also provides plan data for prescription drug costs.  The statewide median co-pay amounts for a 30 day drug supply under the “three tier” option most common in Ohio are as follows:  $10 for generic; $25 for brand and $40 for non-formulary brand.   SERB notes, as explained herein, that the employee premium contribution for prescription drug coverage is figured into the employee’s medical insurance premium contribution in 87.5% of reporting jurisdictions.

While the employee contribution to health care costs is always of prime concern in labor negotiations, it is also useful to look at the history of premium costs for medical and prescription drug coverage.  For 2013, the average premium for medical and prescription drug coverage statewide is $520 for single coverage and $1,370 for family coverage.  This represents a 2.8% increase for single coverage and a 2.3% increase for family coverage in comparison to 2012.  SERB shows in its report that from 1993 through 1999, premium increases were modest at around 4% per year.  From 2000 through 2005, annual increases in premium amounts were close to 15%.  Increases have moderated since then, as the increases from 2006 through 2013 have averaged only 4.8% per year.

The report also touches on dental and vision insurance.  When dental insurance is carved out from medical and prescription drug coverage and employees contribute to the premium, employees statewide are paying $5.00 per month for single coverage and $13.98 per month for family coverage.   The majority of dental plans statewide have annual maximums of between $1,000 and $1,500.    When vision insurance is carved out and an employee is required to contribute, the employee is statewide paying $2.00 per month for single coverage and $5.35 per month for family coverage.

Opt-out provisions are often discussed by employees in anticipation of negotiations.  Under these provisions, employees are paid by the employer for not enrolling in the employer’s health insurance plan.  According to the SERB report, opt-out provisions are offered statewide in 43.9% of jurisdictions.  The average incentive payment for an employee opting-out of single coverage is $1,344 per year while the average incentive payment for an employee to opt-out of family coverage is $2,048 per year.

High Deductible Health Plans now make up 21.0% of the plans across the state.  In 2012, such made up 22.3% of plans statewide, compared to 17% in 2011.  When such plans are offered in conjunction with a Health Savings Account or Health Reimbursement Arrangement, 49.3% of employers annually contribute to the account of single coverage employees in an amount between $1,000 and $1,999.  12.3% of employers annually contribute to such accounts in an amount over $2,000, while 38.4% of employers contribute less than $1,000.  For family coverage employees, 41.6% of employers annually contribute to such accounts in an amount between $2,000 and $3,499.  16.4% of employers annually contribute to such accounts in an amount of $3,500 or more, while 42% of employers contribute less than $2,000.

I wrote a similar analysis for Police Beat of SERB’s 2012 report on the cost of health insurance in Ohio’s public sector.  A comparison of the 2012 report with the 2013 report does not evidence any worrisome change in benefits and costs for employees or employers.  While we cannot control the employer’s objectives at the table, the SERB report on healthcare provides a tool to measure the reasonableness of both our position and the employer’s position relative to external comparability.  It is advisable to check out the SERB website to review the report and gain some statewide perspective on the specific issues that are relevant to your negotiations.

 

The New Normal: Negotiating in the Age of Health Insurance Exchanges

As full implementation of the Patient Protection and Affordable Care Act (PPACA) gets closer, the topic of President Obama’s signature legislation is increasingly coming up during negotiations for new collective bargaining agreements and open enrollment periods for the 2014 health insurance coverage.  This discussion may start with the Employer threatening to drop insurance coverage and sending everyone to the Health Insurance Exchange to purchase their own individual insurance.  Other times, it is the members, frustrated with their current health insurance, that are expressing a desire to move onto the exchanges.  Unfortunately, in many cases both the employers and members have been informed by the media outlets they listen to.  Consequently, negotiations on health care are often being driven by misinformation and misconceptions on both sides of the table.  Although a full overview of the PPACA is far too complex to address in this article, the following remarks will hopefully give you a better understanding of how one aspect of the law—the Health Insurance Exchanges—work and how they may affect negotiations.

On October 1, the Health Insurance Exchange began accepting applications for individual insurance coverage for the 2014.  Problems with the rollout notwithstanding, the Exchanges are here to stay.  Because these exchanges were not designed for people that already receive insurance through their employer, this should not apply to most public employees.  Despite this fact, the topic of Health Insurance Exchanges has begun to enter into discussions during contract negotiations.

To understand how the Exchanges may affect bargaining it is first necessary to have a basic understanding of the Employer Mandate.  The Employer Mandate requires any employer with more than 50 employees to offer affordable health care to all full-time employees.  If an employer chooses to not offer insurance to its employees, they will be fined $2,000 for each full time employee minus thirty ($2,000 x (# of employees – 30)).  Although this may sound like a lot, this is probably substantially less than what the employer is paying for insurance coverage.  For example, in 2013, SERB reported that the average public entity paid an average of $5,532 per year to cover an employee getting single coverage and $14,385 per year for an employee on family coverage. Because of this disparity, some public employers have begun to explore the possibility of dropping insurance and paying the fine.  This would then allow employees to potentially purchase subsidized care on the exchange.

While dropping health insurance may present a “win” for the employer, many employees feel that it will also produce a “win” for them.  This feeling among employees is usually predicated on two basic assumptions.  (1)  if the employer drops health care employees will receive the money the employer would have spent on health care in compensation; and (2) employees will pay less for insurance on the exchanges and will be able to “pocket” some of the extra compensation the employer is giving them to purchase health care. A variant of this second proposition is that the employee can “pocket” all of the extra compensation and buy health insurance when they actually get injured or sick.  You may have heard this referred to as “buying insurance at the emergency room.”

First, it is important to note that the “buying insurance at the emergency room” concept is part of the misinformation and misunderstanding as to how the law works.  Insurance in the Health Insurance Exchanges, like the insurance you purchase through your employer, has an open enrollment period.  For 2014 this period began on October 1, 2013 and runs through March 31, 2014.  In subsequent years, the open enrollment period will be from October 15 through December 15 of the year preceding the year in which the insurance will take effect.  If a person fails to sign up for insurance during the open enrollment period, they will not be allowed to sign up later unless they have a major life event such as marriage or divorce that changes their eligibility status.  In other words, you will not be able to “buy insurance at the emergency room.”  You will be uninsured and face paying the full cost of that emergency room visit and subsequent care out of your own pocket.  In addition, people that intend to carry out this “strategy” should be reminded that they will also face a tax penalty that could be as much as $2,085 by 2016.

Another consideration when thinking about going to the exchanges is that although some employees may be able to purchase insurance for less on the exchanges this will not necessarily apply to all members.  As a general rule, the health insurance offered on the exchanges will cost more than what you are paying now.  This is because your current employer subsidizes, or pays a percentage of the premium.  The Health Insurance Exchanges also offer subsidies, but you are only eligible for the subsidies if your employer does not offer affordable coverage (affordable coverage means that no more than 9.5% of your household income goes towards paying insurance premiums) or offers no coverage at all. Generally, if your employer offers health insurance, you may purchase health insurance on the Exchange, but you will pay full price.

If your employer drops insurance, then you may be eligible for subsidies on the exchange.  Subsidies are calculated based on the cost of the second lowest silver plan offered in your ratings area.  The Silver Plan pays for 70% of medical expenses while you pay the rest.  Although you can purchase a more expensive plan than Silver such as Gold (paying 80%) or Platinum (paying 90%) the amount of your subsidy will not change.  You will have to make up the difference out of your own pocket.  Conversely, if you feel you do not need very much health insurance coverage you can opt for a bronze plan (paying 60%).  Again, you will still receive the same subsidy as you would if purchasing a silver plan only now that subsidy will pay for a larger percentage of the premium, costing you less out of pocket.

Three factors ultimately determine the amount of your subsidy.  First, Ohio is broken down into 17 ratings areas.  In each ratings area, there are a different number of plans being offered.  Depending on how many plans are being offered and where you live in the state, the prices for insurance on the Exchange will vary.  In general, plans offered in urban areas will be priced lower than in rural areas.  Because subsidies are based off of the overall costs, a person living in a rural county will receive a larger subsidy than if that same person living in an urban county.   Also, those with a higher household income will receive a smaller subsidy than those with lower incomes.  As a third variant, the larger your family the more likely you will be to receive a subsidy.  If you would like to know approximately how much a Silver Plan would cost you, and how much of a subsidy you are eligible for, the Kaiser Foundation offers a subsidy calculator at  http://kff.org/interactive/subsidy-calculator/.

Finally, many employees believe that the money their employer is saving by cancelling insurance will be passed on to them.  However, this is a risky assumption to make.  First, it is unlikely that the employer will give employees the exact amount that they were paying towards premiums.  At a minimum, employers that choose to go this route will have to pay the $2,000 per person fine.  This, no doubt, would be deducted from any extra compensation you might receive.  Also, employers may wish to pocket even more of the saving to help their bottom line. Some employers will even argue that the subsidy employees will receive from the Federal Government will replace the subsidy the employer was paying making it unnecessary for them to give any extra compensation to employees.

If your employer is considering moving you to the exchanges and brings up these points, a helpful argument might be to point out that the compensation you previously received in insurance was a bargained for exchange.  In many cases, members accepted lower wage increases to ensure that their share of the premium costs did not rise.  To eliminate this compensation now without offering anything in return would destroy that bargain.  Also, as noted above subsidies in the exchanges will affect the members unequally and cannot be counted as a one for one on the exchange.

If the employer does agree to roll some of their cost saving over to employees this can be done in two ways.  One way would be to simply roll it into wages.  The other way would be to provide a stipend.  Without knowing the specific situation, it is difficult to say which would be better.  However, one thing to consider is the long term effects of both options.  If the extra compensation is rolled into wages, this will be a one-time thing.  The next time that the employer negotiates with you they are unlikely to give any additional bump to the wage increase to compensate for the rise in health insurance.  Given that the medical inflation rate for next year is 6.5% this means that a larger share of the insurance costs will land on employee’s shoulders in future years further eroding any wage increase they may see.

You may also consider having the employer provide a stipend for medical insurance.  If this route is taken, it may be easier to bargain for increases in the stipend that keep pace with medical inflation in future years.  On the downside, money paid out in the health care stipend may not be counted towards your wages when determining your pension at the end of your career.

Like it or not, the PPACA is here to stay.  Undoubtedly, as the law matures, so will the negotiation strategies used by the OPBA and the employers.  As negotiations take place under the law, it is important to understand how the law works and what effects your decisions may have.  Although the above information should be helpful in your endeavors you should give careful consideration to any proposals that may have a long term effect on your health insurance, do your own research, and be careful to not fall prey to the misinformation that is out there.