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Collective Bargaining Reporter

All for One and One for All: Taft-Hartley Health Insurance Plans

2000 Number 3

One way private sector unionized employees can get health and other benefits is through a Taft-Hartley Multi-employer Health and Welfare Plan. Taft-Hartley Plans can be formed by a single employer, but this is unusual. Multi-Employer funds are almost always set up under Section 302(c)(5) of the Taft-Hartley Act, more formally known as the Labor Management Relations Act of 1947, which covers private sector employees. Taft-Hartley plans have five basic characteristics:

Note: Taft-Hartley plans are not the same as Multiple Employer Welfare Arrangements (MEWAs). MEWAs are established by two or more employers outside of a collective bargaining agreement. MEWAs generally provide health benefits alone while multi-employer plans often provide health, welfare, and pension benefits.

Federal Regulations

Because multi-employer funds are subject to the Employment Retirement Income Security Act (ERISA), they are exempted from state insurance laws. This is important because many multi-employer plans operate across state lines, and even those that do not may end up with multi-state operations through their participation in reciprocity agreements.

History of Taft-Hartley Funds

The original goal of multi-employer health and welfare funds was to provide workers with uninterrupted health coverage during temporary periods of unemployment. Funds typically covered workers employed by more than one employer and in more than one bargaining unit during the year. The most prominent funds were, and still are, in the construction trades. Some were established in industries with many small employers and mobile workers, such as trucking and manufacturing, while others covered workers in industries in which employment is not necessarily sporadic, such as health care, hotels and building maintenance. Today, the coverage of mobile employees is still the main purpose of multi-employer funds. However, labor/management parties with more stable workforces are examining these funds as a way to provide cost efficient health benefits. Taft-Hartley plans typically cover workers in a metropolitan area, but can be regional, statewide or nationwide in scope.

Employer Contributions

Unions negotiate for employer contributions to a Taft-Hartley plan, rather than for specific benefits and cost sharing provisions. Typically, employer contributions are a flat rate based on covered employment, such as $1.75 per hour of covered service. In this case, the actual employer contribution rises and falls with the number of covered hours worked. Some unions negotiate for monthly contributions towards health benefits to provide for more financial stability. Contri-bution amounts may differ among employers. Plan rules determine whether the benefits provided to members will differ based on each employer’s contribution.

The employer’s contribution is typically fixed for the term of the collective bargaining agreement although unions have negotiated for escalators if costs exceed a specified level, or for scheduled increases at specified times. An agreement may also require “maintenance-of-effort,” which allows the funds’ trustees to increase employer contributions without further negotiations, if necessary to maintain benefit levels. Employee contributions are rarely required in multi-employer plans.

A new Taft-Hartley cannot provide benefits to its members until sufficient reserves have been accumulated. In some cases, reserves from an old plan are used for start-up money for a new plan. The amount of reserves needed is typically determined by an actuary. The actuary will consider factors such as the size and past health benefit usage of the group, benefits provided by the plan and administrative fees. If the plan is self-insured, the actuary will also consider the amount of “stop loss coverage” purchased by the plan. Stop loss insurance covers plan costs exceeding a specified amount. Because costs are more predictable in large plans, they usually require lower reserves (as a percentage of plan costs) than smaller plans. The fund must have reserves to pay current benefits and administrative fees and sustain coverage during lean times or when claims are higher than expected. Because actual contribution income fluctuates with the level of covered work, multi-employer plans may need more reserves than plans with more consistent funding.

Eligibility Requirements

The number of hours that employees must work during a given time period to be eligible for coverage is negotiated with the employer. While these plans are established through collective bargaining, they must cover all employees that are covered by the bargaining agreement, not just the union members. They can, and often do, also cover employees of the health plan itself, employees of sponsoring unions, and, in some instances, exempt employees of the contributing employers. For plans established after 1985, federal law requires that at least 90 percent of the plan participants be covered by collective bargaining agreements. Plans established earlier have stricter union participation rules.

The collective bargaining agreement specifies a minimum number of hours, days or months that union members must work to meet the eligibility requirements of the plan. That number is typically less than the number of hours actually worked. For example, the eligibility requirement for union members could be that they work at least 25 hours per week. In reality, the members may work 40 hours per week. For non-union members, employer contributions are usually the same rates (e.g., $1.75 per hour) that are contributed for union members. However, most trust agreements require that eligibility requirements for non-members be based on a higher number of work hours — perhaps the full 40-hour workweek — so that employers do not cover themselves or other non-bargaining unit employees at the minimum number of hours that union members must work to establish eligibility.

Portability and Continuation of Coverage

One of the biggest advantages of Taft-Hartley plans is their portability. Employees can change jobs without losing their health care coverage as long as their new employer participates in the same plan.

Eligibility is typically based on total service during a specified period, whether or not the worker is employed continuously. Some funds allow members who work more hours than necessary to meet the eligibility requirements to bank extra hours and then draw on them during periods of temporary unemployment. In some funds, coverage is extended for a certain period of time without accessing the bank. Many funds have reciprocity agreements, which allow members to maintain coverage under their “home plan” while working temporarily for another employer, in a different location and under a different bargaining agreement. Others allow self- payment for some period of time, with premiums almost always lower than they would be under the Consolidated Omnibus Budget Reconciliation Act. COBRA is a federal law that allows terminating employees to purchase health coverage by paying the full premium plus a 2 percent administrative fee. COBRA premiums are usually higher than self payment because they are more of a true premium amount (plus 2 percent), while self-payment rates are based on the employer’s contribution, which may be lower because of fund reserves or investment earnings.

Types of Benefits Provided Under Taft-Hartley Health and Welfare Funds

Coverage of all of the following can be funded under a Taft-Hartley:

Pensions are the most common benefits provided by Taft-Hartley plans followed by health, prescription, dental, vision and temporary disability benefits.

Administration of Taft-Hartley Funds

Single-employer benefit plans are typically administered unilaterally by the employer and the union typically bargains over contributions and benefit levels. By law, Taft-Hartley plans must be jointly administered by a board of trustees with equal representation from labor and management. The board acts as the sponsor and the fiduciary of the plan. Because board members may have jobs outside of the fund and may not have benefits expertise, the plan usually needs attorneys, actuaries, accountants, consultants, and investment managers to handle setup and operation. Taft-Hartley plans are typically administered by third- party administrators. Some work full time for the fund while others may work on a contract basis for more than one trust fund.

Funding

Taft-Hartley plans have a long history of self-funding. Approx-imately 93 percent are wholly or partially self-funded. Self-funding saves money through the elimination of state insurance premium taxes (2-3 percent of premium), the elimination of risk charges imposed by health carriers and savings of investment earnings on reserves. One possible disadvantage is that self-funded plans are exempt from state jurisdiction in the regulation of insurance. As a result, benefits mandated by the state need not be provided under self-funded plans. While most mandated benefits are beneficial, the plan trustees may agree that significant cost reductions can be achieved by reducing or eliminating certain mandated benefits without undue hardship on the members. Another possible risk is that of insolvency. To minimize that risk, many trusts buy “stop-loss” insurance. The policy insures the plan against excessive losses in the event of abnormal claims experience.

Conclusion

Taft-Hartley plans may be one way for AFSCME to obtain benefit coverage for workers we are organizing in the private sector. For more information on Taft-Hartley plans, contact the Department of Research and Collective Bargaining Services at (202) 429-1215.

ENDNOTES

IFEBP Basics. 2nd Quarter 1996. Characteristics of Multi-employer Plans

IFEBP Basics. 4th Quarter 1996. Understanding Multi-employer Plans

Benefits Law Journal. Volume 10, No. 4/Winter 1997. Multi-employer Health Plans: Why and How Do They Work?

The Handbook of Employee Benefits; Third Edition