Building on the ACA or Medicare? What’s at stake for organized labor
Federal Democrats are debating how to expand health coverage. While President Biden has opposed national “Medicare-for-All”, he has expressed openness to two other options: making permanent a recent extension of Affordable Care Act subsidies and lowering the eligibility age for Medicare eligibility to 55 or 60. (See this Washington Post article for recent coverage about this debate.) The choice Congress makes will have profound consequences for collectively bargained health plans and for new organizing drives. This briefing summarizes key implications for union leaders.
In short, expansion of ACA subsidies worsens the competitive disadvantage of companies that pay for employee health benefits (as nearly all union employers do) and makes winning collective bargaining agreements and new organizing drives more difficult. By contrast, certain proposals for extending Medicare eligibility to younger workers could give union-bargained plans a new lease on life – reducing costs by 25% or more.
The Affordable Care Act has not made it easier to sustain employer-sponsored coverage
ACA marketplaces are an important source of coverage for many Americans. In 2019, 11.4 million enrolled through these exchangesi. That figure is dwarfed, however, by the 158 million people – 50% of the US population – covered by employer-sponsored health plans.
Despite this, the ACA contained several provisions that made it more difficult for workers to bargain comprehensive health benefits. The now-repealed excise tax on low out-of-pocket plans arguably received the most attention from organized labor but other portions are just as consequential:
“Affordable” health plans are anything but. Employers are encouraged to provide “affordable” coverage but the formula is rigged against working people. For a worker making $24 an hour (the median for non-union employees) an employer could charge $306 monthly for single coverage, offer a plan with deductibles over $10,000, and still meet the ACA’s test.
Families are doubly disadvantaged. Not only does the ACA set a low bar for employers, it disqualifies entire families from help if an employer does the bare minimum. In the example above, if one parent is offered single-only coverage for $306 a month, their spouse and children are ineligible for federal subsidies – even if the employer doesn’t pay one penny toward family coverage.
Employer penalties are minimal. Employers of 30 or more pay a fine if they don’t meet these minimal requirements. But compared to the cost of insurance premiums, the ACA sets penalties so low that there is little incentive to meet even that test. In 2020, employer penalties were just $2,570 per worker (excluding the first 30). For comparison, the average premium for family coverage was over $21,000.ii It’s little wonder there has been no change in the number of employers offering any kind of health plan.
Expanded ACA subsidies put pressure on collective bargaining
Winning and defending high-quality health benefits is consistently a top priority of union members. For non-union employers who don’t feel pressure to match the union standard, though, there is growing motivation to opt out of health benefits altogether. That is especially true when the government offers additional subsidies to purchase low-benefit plans on the exchanges.
The American Rescue Plan does just that. It includes a two-year expansion of ACA subsidies to people with higher incomes – particularly benefiting older working people who face higher insurance costs. Some Democrats in Congress now propose to make this permanent.
This provision will help many who don’t have employer sponsored coverage. However it will do nothing to help unions sustain comprehensive health benefits. Consider the decision confronting the owner of a 100-worker company. To fully fund health benefits provided under the average California union contractiii the employer would have to spend about $7.63 per hour – more than $1.5 million a year. Absent a CBA or strong market pressure from union employers, however, that same company could encourage workers to buy subsidized coverage on the exchange – paying just $0.91 an hour in ACA penalties ($189,000 in total).
As this example illustrates, the more Congress incentivizes workers to buy coverage on the individual market, the harder it will be for union-bargained health plans to remain economically viable. It also encourages employers to fight hard against new organizing drives if they believe those drives will result in collectively bargained coverage.
Lowering Medicare’s eligibility age could mean huge savings for employer-funded health plans
An alternate proposal would offer working families more comprehensive benefits, make more efficient use of taxpayer dollars, and also make it easier for employers who offer health benefits to remain competitive. Under this proposal – endorsed by President Biden during his campaign and recently advanced by Senator Sanders – Congress would lower the age for enrolling in Medicare to 55 or 60 years. Under Sanders’ plan, Medicare would also gain the ability to negotiate prices with pharmaceutical firms (rather than accept the prices those companies dictate) and would start covering dental and vision care.
Paired with another proposal – to allow large or multi-employer funds to provide secondary coverage after Medicare (much as small-employer plans are today) – this strategy could dramatically lower the cost of employer-sponsored coverage.
People aged 55-64 years are 13% of the population, but they make up 20% of all health spendingiv. For a health fund whose membership is representative of the broader under-65 population, people aged 55-64 years make up 31% of health costs. If Medicare were expanded to that demographic, and collectively bargained health funds were permitted to offer supplementary coverage instead, those savings could be dramatic.
Impact on a hypothetical employer-sponsored plan
|Health Plan Costs Today||Under Expanded Medicare 1|
|# of Participant Employees||Per Member per Month Cost||Total Monthly Cost||Per Member per Month Cost||Total Monthly Cost||Savings to the Plan|
|Age 54 and less||850||$1,074||$907,500||$1,074||$907,500|
In this example, the plan’s demographics are representative of the wider population, and it provides health benefits equivalent to the average California welfare fund. Medicare assumes primary responsibility for people aged 55 and up and the plan extends supplementary coverage for out-of-pocket costs and benefits not otherwise covered (assumed to cost $250 per month).
The savings to the fund are 28% of total health costs – equivalent to $375 per month or $2.17 per hour for every employee. For unions that have sacrificed year after year to pay fast-escalating insurance premiums, this would mark a sea-change in collective bargaining.
Medicare expansion should be a top priority for organized labor
There are many reasons expanding Medicare coverage makes more sense than building on the ACA. For one, Medicare offers more comprehensive benefits than most ACA-purchased plans. For another, Medicare does a better job of controlling costs – for instance, it pays hospitals and other providers as much as 50% less than what private-sector plans are typically compelled to payv.
For organized labor, which has long battled the collapse of employer-sponsored coverage, this debate is especially important. Union leadership should pay close attention and encourage Congress to strengthen their hand in protecting working people’s health care.
i Kaiser Family Foundation, State Health Facts – “Marketplace Enrollment” (2020)
ii Kaiser Family Foundation – “2020 Employer Health Benefits Survey”
iii Analysis of most recent ERISA and OLMS filings (Taft Hartley plans associated with California-based unions)
iv Kaiser Family Foundation Health System Tracker (based on analysis of Medical Expenditure Panel Survey 2016)
v Richard Kronick and Sarah Hoda Neyaz, “Private Insurance Payments to California Hospitals Average More Than Double Medicare Payments”, Westhealth Policy Center, May 2019.