Looking At The Labor Deal: Why Would Anyone Want To Move To The Exchange?

Late yesterday the labor unions struck a deal with the White House about the excise tax. The key points seem to be: raising the threshold, exempting dental and vision benefits from the excise tax, adjusting for age and health status, adding a carve-out for collectively bargained plans until 2018, and starting in 2017, plans created under collective bargaining agreements can move to the exchange.

The indexing problem was not fixed. It will stay at “consumer price index plus 1%.” Therefore, changes like the raising of the threshold or exempting vision benefits do not fix the problem--the tax will eventually start hitting more and more middle class families as time goes on. This deal just means they’ve kicked the can further down the road by several years. It is still very possible this will turn into another alternative minimum tax problem in the next decade.

Exempting dental, in effect, further raises the threshold, but I don't think this concession was really designed just for the labor unions. I have no proof for this, but I would not be surprised if this change has as much, or even more, to do with keeping dentists happy.

I think the most important change is the adjustment for age, gender, health status, and workplace risk. Very little about the cost of a health care plan has to do with how generous the plan is. Price is most affected by the age and gender of the people being insured. Without knowing the details of how they will calculate this adjustment, I can't say how good the change is, but ideally, it is structured so the tax tends to hit generous plans, and not just companies that employee a lot of older women.

Moving to the Exchange

The temporary collective bargaining carve-out for the unions is self-explanatory. The provision that allows for the possible moving of collective bargaining plans (i.e. labor union plans) to the exchanges in 2017 seems very fishy. It is especially strange comsidering that the White House seems to be lightly walking back its commitment to this provision.

I don't understand why unions would want to move to the exchange. Exchanges have so far failed to reduce the growth rate of health insurance. There is little reason to believe they would in the future especially if they are small, state-based exchanges like the ones created by the Senate bill. Most importantly, exchanges add just another middleman, and another layer of waste. Most very large employers self-insure, and only contract out their administrative work to private insurance companies. If, instead of self-insuring, companies gave their union employees vouchers to buy insurance from a private insurance company on the exchange, that would just add a few percentage points more waste to the cost of the care. Also, at this point, I have very little confidence that insurance on the exchange will be good or properly regulated.

Why would anyone want to move from a large employer plan to the new exchanges? I honestly don't know. My strong suspicion is that there is another very important part to this provision we currently don't know about. It could be that large unions are planning to move all their members off of multiple employer plans and onto a single, massive plan for the whole union. Maybe the unions got the right to collective bargain on the exchange with insurers. I know in the Netherlands there is a similar system with an exchange for individuals, but large employers are able to collectively bargain for even lower prices. Either way, I get the sense that there is much more to this moving-to-the-exchange provision than we know right now.

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