Government, Courts, and the World of Work

President Obama’s health care proposal focuses on employers’ responsibility as health costs eat into their ability to hire workers, invest in and expand their businesses, and compete locally and globally.

Most employers would be involved in health care reform.  Under the Senate bill, there is no mandate for employers to provide health insurance. However, the Senate bill requires large employers (i.e., those with more than 50 workers) to make payments only if taxpayers are supporting the health insurance for their workers. The assessment on the employer is $3,000 per full-time worker obtaining tax credits in a newly created purchasing exchange if that employer’s coverage is unaffordable, or $750 per full-time worker if the employer has a worker obtaining tax credits in the exchange but doesn’t offer coverage in the first place.

The House bill requires a payroll tax for insurers that do not offer health insurance that meets minimum standards. The tax is 8% generally and phases in for employers with annual payrolls from $500,000 to $750,000; according to the Congressional Budget Office (CBO), the assessment for a firm with average wages of $40,000 would be $3,200 per worker.

 Under the President’s Proposal, small businesses will receive $40 billion in tax credits to support coverage for their workers beginning this year. Consistent with the Senate bill, small businesses with fewer than 50 workers would be exempt from any employer responsibility policies.  

The President’s Proposal is consistent with the Senate bill in that it does not impose a mandate on employers to offer or provide health insurance, but does require them to help defray the cost if taxpayers are footing the bill for their workers.

 The President’s Proposal gives employers somewhat of a break. Employers with 50 or more workers can subtract out the first 30 workers from the payment calculation (e.g., a firm with 51 workers that does not offer coverage will pay an amount equal to 51 minus 30, or 21 times the applicable per employee payment amount). It changes the applicable payment amount for firms with more than 50 employees that do not offer coverage to $2,000 – an amount that is one-third less than the average House assessment for a typical firm and less than half of the average employer contribution to health insurance in 2009. It applies the same firm-size threshold across the board to all industries. It fully eliminates the assessment for workers in a waiting period, while maintaining the 90-day limit on the length of any waiting period beginning in 2014.

One of the suggestions contained in the Labor transition report submitted to Governor Christie is to delete the word “Labor” from the Department of Labor and Workforce Development because the “current name suggests a bias toward organized labor, and a change in the name will help the department more closely align with all stakeholders.”

The Governor wants to focus on job development and presumably the stakeholders to which the report is referring are employers.  But simply issuing an executive order changing the name of the department will not make it more employer-friendly or customer driven, if that’s the goal.

Whatever its name, the department was not legally created as a booster of trade and commerce.  Among other things, it was authorized to administer and enforce Federal and State wage, hour, health and safety laws.  And to no one’s surprise, these laws are complex and conflicting and near incomprehensible to a many employers.

So to be truly employer-friendly, the new commissioner has two choices - streamline existing regulations so that they work better and do not conflict with Federal counterparts, or engage in lax enforcement.

Lax enforcement is a default option until something really bad happens, like worker injuries that could have been prevented or docked paychecks that should never have occurred.  So while banishing the word “labor” is good symbolism, the real work is engaging in a total review of all existing  regulations and to streamline them through executive order when possible or to propose new ones when necessary.

One of the biggest fiscal problems facing the Christie administration - and there are many - is the insolvency of the Unemployment Compensation Trust Fund.  Under federal law, New Jersey must replenish the Fund or risk penalties.  Worse, tens of thousands of unemployed workers in the state could be left stranded without benefits.

While sharing information with some members of  the Christie transition team last month, I suggested that the new Governor would need to work closely with the Obama adminstration to not only implement a short-term fix, but to make the Trust Fund sustainable over the long haul.  Today, the Star Ledger reports that Christie will be asking for a federal bailout.  Without a bailout, taxes on employers would sky-rocket, thus raising the costs of hiring at the worst possible time.

My advice to the Obama administration is to bailout the Trust Fund, but condition the bailout on a fundamental restructuring of the state’s UI system.

The easy part is a constitutional amendment preventing the state government from raiding the Trust Fund to pay for its Medicaid obligations and other social programs, as it has done for over a decade.  The hard part is laying the foundation for a more sustainable system.

Since UI was enacted in 1935, the economy has changed, the workforce has changed, the workplace has changed, the way we work has changed, and employers’ needs have changed.  The only thing that hasn’t changed is the state’s UI system.

Transforming the system from an unemployment system to a reemployment system requires employers, workers and colleges coming together with government to provide value, not just an unemployment check.

Additionally, escalating health care costs will remain a problem for the foreseeable future.  I have written in prior posts that affordable health care and workforce development are inseparable.  Thus, both the health care market and the job market must be fixed together. 

So far the ideas coming out of the business groups in Trenton - which are populated by retired business executives and career lobbyists - are unimpressive - the usual bromides about New Jersey “being open for business.”

The reality is that New Jersey cannot fix its UI and health care problems on its own.  That’s why the new Governor should be splitting his time between Trenton and Washington, D.C..  Political differences aside, New Jersey is at a tipping point and it will require smart people working in good faith to succeed. �

On January 19th, New Jersey will have a new governor - Chris Christie.  His job will be enormously complex, perhaps more difficult than any predecessor in living memory.

New Jersey faces short and long term economic challenges and potential opportunities.  The two-year recession has accelerated long term trends and its aftershocks will leave a permanently altered business environment for the state.  Chief among these trends are the continued depletion of manufacturing, the decline of private sector labor unions, outsourcing, and the consolidation of big corporations.  

Additionally, the federal health care reform will most likely permit New Jersey to opt out of whatever government- administrated health care exchange is likely to emerge. This decision will be extremely complicated  and will have a big impact on the health and welfare of the workforce. The new Governor will need to collaborate on health care and labor issues.

There is also a massive workforce development component in the health care reform.

Governor Christie has an opportunity to refocus on job training and workforce health, wellness and productivity.  He should look carefully at how existing job training money is being spent and begin an immediate dialogue with Washington, D.C.  The U.S. Department of Labor has a big fund for worker retraining. So there cannot be an adversarial relationship with the Obama administration. There has to be a very close working relationship in order to transform the state’s unemployment insurance program into a retraining and reemployment program.

New Jersey cannot afford to go it alone.  It will require collaboration at all levels of government to succeed.

While the focus of health care reform has now moved to the U.S. Senate, it is a good time to start thinking about what it means for New Jersey.

New Jersey is a small business state. About 95% of the state’s businesses, or 249,448 firms, employ 50 or fewer employees.  These firms employ eight out of ten working people in the state, or nearly 1.36 million people.  Most of the adult citizens who are uninsured are employed, primarily by a small business.  According to federal statistics, 54.3% of New Jersey employers with fewer than 50 employees provide health care coverage. This represents about 135,550 employers that employ 737,500 people. 

New Jersey employers have stated that the primary reason for offering coverage is to attract and retain qualified workers. Rutgers Center for State Health Policy (2004). Most employers that do not offer health insurance indicate that the cost is too high. Id.  Research indicates that even a 30% reduction in premiums would cause only about 15% of currently uninsured small employers to offer coverage. See The Commonwealth Fund, Task Force for the Future of Health Insurance (2002).

In 1992, New Jersey reformed its individual and small group insurance market. All insurance carriers (other than HMOs) are required to offer five standardized contracts on a guaranteed issued, community rated basis.  Carriers may not consider the health status or past claims experience of a group in determining premiums. The law requires carriers to limit variation in cost to a two to one ratio. Thus, the rate for the highest cost group (based on age, gender, and geography) may not be more than two times the rate for the lowest cost group of the same size.   

The number of individuals insured by these small employer plans peaked in 1999 at 937,784 but has since declined to about 884,000. Health Affairs “Community Rating and Sustainable Individual Health Insurance Markets in New Jersey” Vol.23, No.4.

New Jersey’s health care reform has done little to mitigate health care inflation. According to the N.J. Business and Industry Association Health Insurance Survey, the average cost per employee in 2008 was $7,861, nearly double the cost in 2002.  The cost of health care premiums in New Jersey rose nearly five times faster than wages this decade, according to Families USA, a Washington-based nonprofit group. Their report issued in 2008, found premiums in New Jersey rose 71 percent while earnings increased just 15 percent between 2000 and 2007.

New Jersey ranked 28th among states in the rate of growth in premiums compared with earnings.New Jersey may likely receive tens of millions of dollars in subsidies, Medicaid funds, tax credits and direct grants to cover the costs of expanded coverage, the creation of community health clinics, training of primary care providers and nurses, and other programs. In return, states must comply with substantial administration and record keeping requirements across the entire health care industry and conform its insurance laws to federal standards.

The biggest risk for New Jersey is that small employers who are already providing health care insurance to their employees will simply choose not to sponsor a health care plan knowing that their employees will still be covered by a mandated plan.   Advocates of federal health care reform have taken a big leap of faith in believing that small employers will not respond to this incentive to cut back or drop coverage entirely. They believe that the competition for talented employees will maintain the status quo. For small knowledge-intensive firms, where talent is scarce, health care benefits will be a big attraction.  But for many small employers, the skills of an uninsured workforce weighed against the increasing costs of health care may cause them to drop coverage altogether, particularly with the assurance that every employee will have access to the mandated plan.   The complexity and enormity of the health care reform will require states to develop the public and private infrastructure to implement the law.  Conceivably, every important state government agency will be impacted. While New Jersey’s insurance laws already substantially conform to federal standards, at present the state bureaucracy may be incapable of administrating federal health care funds, particularly in the urban areas that will be targeted for clinics and for wellness and prevention programs.    Moreover, even if comprehensive reform is not enacted, the trajectory of health care inflation will continue to be a drag on New Jersey economy for the indefinite future. In terms of policy, the state cannot risk creating the perverse incentive for some employers to cancel employer-sponsored coverage simply to shift the costs onto the employers who continue to provide insurance. An employer tax when the state’s economy is losing jobs is untenable.   Therefore, whatever happens in the Senate, health care reform will remain at the top of the policy agenda.  

The New Jersey Supreme Court has granted EANJ permission to join a case which will have a big impact on the ability of employers to monitor employee emails.  The case, Stengart v. Loving Care Agency, received national attention in June when a state appellate court held that an  electronic communications policy did not convert Stengart’s e-mails with her attorney into the employer’s property, although they were sent via the employer’s computer and through its network during working time. Finding that the policies undergirding the attorney-client privilege substantially outweighed the employer’s interest in enforcement of its policy, the court rejected the employer’s claimed right to the email, likening it to rummaging through and retaining the employee’s personal property.

Stengart’s former employer, Loving Care Agency, a home health-care company in Fort Lee, had an employee handbook, distributed to staff and made available on the company servers, which warned that e-mail and voicemail messages “are considered part of the company’s business and client records” and “are not to be considered private or personal to any employee.”

The handbook prohibited using the e-mail system for job searches, “other employment activities outside the scope of the company business” or for “solicitation of outside business ventures.” It allowed “occasional personal use.” Stengart, the director of nursing, had worked for the company since 1994 and helped create and distribute the handbook.

Prior to leaving her employment, Stengart used the employer’s email systems to access her Yahoo account, sending and receiving emails from her lawyer.  The emails were discovered after wrongful termination litigation was commenced.   The trial court held that the emails belonged to the employer.  The appellate court disagreed and reversed.

EANJ is expected to argue that while most employers routinely monitor and read employee email, the appellate court has created legal uncertainty and imposed an unreasonable legal burden on employers.

With all of the major health care reform proposals now on the table and President Obama having now weighed in, a consensus seems to have emerged on about 90% of the outstanding issues.  However, the continuing disagreement on the remaining 10% may ironically increase costs and make matters worse, at least for the foreseeable future.

Its clear that there is basic agreement on consumer protection.   If enacted, it is likely that the law will provide a basic benefits package that will cover prevention and wellness, which many employers already offer.  Carriers will not be able to discriminate based on a pre-existing condition and will not be able to cancel policies when people get sick.  Out of pocket expenses will be capped and life time limits will be eliminated.  And for the first time, nearly every American will be required to have health insurance.

An insurance exchange will be created, thus creating a pool of consumers who are expected to leverage the group buying power.  Private carriers will sell within the exchange, which will be regulated either statewide or nationally.  It is likely that some modest form of “public” or nonprofit option will be available but limited to people who can not obtain insurance through an employer, Medicare or Medicaid.  Small business may have this option available to them as well, capped at about 5% of the overall consumer market.

People who cannot afford to buy insurance will receive a subsidy. Employers who do not offer insurance to their employees will contribute to the subsidy either directly or indirectly, with exemptions for small business.  

There is wide disagreement on how to fund the subsidies but a mixed bag of taxes will probably be approved.  Debt-spending is certain.  More importantly, however, there is little agreement on how to control health care inflation.

While universal coverage will increase demand for health care, there is no agreement on how to rationally allocate health care resources.   Government regulation of how providers get paid, and for what services, has raised the emotional issue of rationing, even though Medicare already does that.  Others say giving the insurance industry this power is no better - although that’s how HMOs already operate. 

Americans are ambivalent.  Most are covered under an employer plan.  Employers shop for the  coverage, negotiate the insurance and offer it to employees on a take-it-or-leave-it basis.  The employer subsidizes the premium 80% on average.  The employee contribution is often unnoticed through incremental deductions from a paycheck.  At the point of service, the employee pays about 10 cents for every dollar of health care that is consumed.  This, ironically, is socialized medicine and Americans understandably love it. The illusion is that employer-sponsored health care can be consumed as virtually a free resource with little or no incentive to maintain heathly lifestyles or to consume wisely.

Similarly, Medicare and Medicaid are single-payer, government health care programs.  Understandably, people love these programs too, particularly Medicare, even though tens of billions of dollars are spent on over treatment every year.  The illusion here is that as a public entitlement, health care is virtually inexhaustable.

In short, at least on some level, most Americans believe that health care is a basic public entitlement, like “free” public education, and that limitations imposed either by government or corporations is unfair, illegitimate, or both.

The consensus reform, therefore, increases and expands the health care entitlement through universal coverage but has only a modest impact on cost control, primarily through pilot programs, because there is no agreement on what additional role, if any, government or the insurance industry should play in allocating the supply of health care.  

Because this fundamental political and philosophical issue apparently cannot be resolved at this time,  it is almost certain that the nation will be in the throes of another heated debate about escalating health care costs, inflation, business and personal bankruptcies, and stagnating wages a decade from now, maybe sooner.  A more imminent crisis is certain to realign interests, with the added irony that the players may have changed places by then.  It’s conceivable that the folks who are decrying big government now may be the ones begging for a government bailout then, and that the folks who are calling for unlimited universal coverage now will be the ones calling for entitlement reform.

The greater irony may be that a decade from now, it could be the Republican party afterall that will actually complete the nationalization of  health care.�

The U.S. Department of Labor has proposed regulations implementing Executive Order 13496, signed on January 30, 2009, and which applies to all firms under contract with the federal government to provide goods or services in the amount of $100,000 or more. The regulations define the type of notification covered contractors and subcontractors must give employees about their rights to organize a labor union. Among other things, the proposed notification informs employees that they have a right to take actions to improve working conditions without penalty, including the right to strike and picket.

While labor law is exclusively proscribed by the National Labor Relations Act (NLRA), the proposed regulations state that the President’s legal authority is under the federal Procurement Act, which authorizes executive policies that ensure “economical and efficient” procurement and supply.  Every president dating back to the Roosevelt administration has used this authority to pursue executive policies, including encouraging or discouraging union activity, although the U.S. Supreme Court has held that the Procurement Act does not give the president broad discretionary power to set labor policy.  For example, in 1996, the court held that Executive Order No. 12954, which prevented the U.S. government from contracting with employers who hire permanent replacement workers during a strike, violated the NLRA and the Procurement Act, and was unconstitutional.

Specifically, the proposed regulation states, in relevant part, that the U.S. government:

Has a proprietary interest in ensuring that [government] contracts will be performed by contractors whose work will not be interrupted by labor unrest. The attainment of industrial peace is most easily achieved and workers’ productivity is enhanced when workers are well informed of their rights under Federal labor laws, including the [NRLA].

The Office of Federal Contract Compliance Programs (OFCCP) will enforce the Order when finalized, although it is more than likely that a lawsuit will be filed to enjoin enforcement.

Everyone supports health care reform as a goal.  The costs of health care are growing faster than inflation, wages and the overall economy.  The United States pays more than twice on health care than any other country but 150 million Americans remain uninsured, many of them working full or part-time jobs.

Current reform measures envision near universal coverage with private insurance companies selling coverage to employers and individuals in competition with a government-sponsored plan. Insurance is expanded to millions of uninsured at a cost of roughly $1 trillion over the next decade – mostly for subsidies to low and middle income people and expansion of the Medicaid program for the poor.

Employers, particularly small business, and their employees are greatly concerned about costs.  Nearly 177 million Americans are covered by an employer-sponsored plan.

Health care economists see promise in steps like improved management of chronic diseases, increased focus on preventive care and advances in health information technology, but the Congressional Budget Office believes that savings from these measures will not mitigate the costs of expanding health care.

Fundamental changes such as permitting the government to demand discounts from drug companies and reduce payments to inefficient hospitals have been side tracked by the given and take of negotiation. So employers with payrolls exceeding $400,000 would have to provide coverage or pay an 8% payroll tax.  Employers with payrolls between $250,000 and $400,000 a year would pay a smaller tax, and those less than $250,000 would be exempt.

But for small employers it could be cheaper to pay the 8% payroll tax rather than provide health insurance. The employers who continue to provide coverage will pick up the tab for those who don’t, until they too are driven out of the game.   

In short, the current reform proposals will ultimately shift the costs of health care onto the same workers who can’t afford it now, consumers who are struggling to pay down debt, and onto the already burdened taxpayer. Without controlling costs, health care reform will actually harm the people that it is designed to help.

Attend EANJ’s Webinar,Thursday August 20th What Employers Need to Know.

The Associated Press reports that a bipartisan group of U.S. senators is closing in on a health care compromise that omits a requirement for large employers to offer coverage to their workers. Large employers would not be subject to a penalty if they declined to offer coverage to their workers. Instead, these businesses would be required to reimburse the government for part or all of any federal subsidies designed to help lower-income employees obtain insurance on their own.

The legislation in the House includes both a penalty and a requirement for large employers to share in the cost of covering employees.

Large employers typically offer some form of health care insurance to mostly full time employees.  Breaking ranks with retail lobbyists, Wal-Mart, the biggest employer in the U.S.,  is in favor of an across-the-board employer mandate.  The big retailer claims to be tired of subsidizing other retailers that do not offer insurance and whose employees receive charity care paid for by business taxes.    Wal-Mart’s Statement on Health Care Reform.