“80/20” Employers Must Bargain Over Calculation and Allocation of Health Insurance Costs

The Michigan Employment Relations Commission recently ruled that a township violated Public Employment Relations Act (“PERA”) when it refused to bargain over the calculation method and to­tal amount of the employee contributions related to its implementation of the “80/20” cost-sharing arrange­ment used to comply with the Publicly Funded Health Insurance Contribution Act, MCL 15.561 et seq.  Shelby Twp, MERC Case No. C12 D-067 (August 18, 2014). Un­der the “80/20” compliance method, a public employer may “allocate” its employees’ share of its total health insurance costs among its different employee groups as long as the public employer does not contribute more than 80% toward the total health insurance costs of all of its employees.

The Act requires public employers to limit their contributions toward employee health insurance plans by implementing either a “hard cap” or “80/20” cost sharing arrangement. In a case decided earlier this year, Decatur Public Schools, MERC found that a public em­ployer’s decision to unilaterally impose the “hard cap” cost-sharing arrangement upon the CBA’s expiration did not violate PERA because the decision over the method used to comply with the Act is a permissive bargaining subject. In other words, a public employer may choose to bargain, but does not have a duty to bar­gain, over the PA 152 compliance method it selects. The Shelby Twp decision does not alter this conclusion, but explains how the Act interacts with PERA, especially when an employer selects the “80/20” compliance method.

The Act took effect on September 27, 2011.  The township’s CBA expired on December 31, 2011, at which time the township had to comply and elected to use the “80/20” compliance method. After the township an­nounced its decision, the union demanded to bargain over the method used to calculate the employees’ con­tribution and the total amount of its members’ contri­butions. The township refused to bargain, believing that the Act obviated the duty under PERA to bargain over those specific issues. The union subsequently filed an unfair labor practice charge.

MERC again recognized that public employers have no duty to bargain over the selection of a compliance method. MERC then considered whether the township had a duty under PERA to bargain over the calculation method used to determine the employee contribution and the total amount of the employee contribution once the township selected the “80/20” compliance method. MERC noted that health insurance is a manda­tory bargaining subject and that allows a public em­ployer to allocate its employees’ share of total annual costs of health insurance plans among all the employ­ees of the public employer.

Under the “80/20” compliance method, a public employer and union could agree that the allocation of health insurance plan costs to members of that bargain­ing unit may be more than or less than 20%, so long as the total amount the public employer contributes to­ward health insurance plans for all of its employees is no more than 80% of the total cost. Thus, a public em­ployer could favor certain employees by contributing more toward health insurance costs, while conversely contributing less toward health insurance costs for oth­er employees.

MERC found that after the township selected the “80/20” compliance method, and the union demanded to bargain over the employee contribution, the town­ship had a duty to bargain over the employees’ health insurance plan costs, subject to the limitations set forth in the Act (i.e., total employer contributions must be no more than 80% of health insurance plan costs for all employees). MERC also found that the township violat­ed PERA by incorrectly calculating the employees’ share of the health insurance plan costs – specifically, using the “unbundled” health insurance plan rates that in­cluded retiree health insurance costs to calculate the employee contribution under its “80/20” compliance method – and refusing to bargain with the union over a correction.

School officials confronted with compliance issues should be aware that they may, but are not required to, bargain over whether a school will select the “hard cap” or “80/20” compliance method. There may, however, be a duty to bargain over the impact and effect of those decisions. See article entitled Public Employer’s Refusal to Bargain Impact of PA 54 Implementation Violates PE­RA in the August 2014 issue of School Law Notes. More­over, if a school implements the “80/20” compliance method, school officials should be aware that there is a duty to bargain over the calculation and allocation of employee health insurance plan costs. Finally, school administrators must be aware of the rules for non-union employees, which may prevent allocation of a greater share of health insurance costs to lower paid employees in favor of highly compensated employees.  Bargaining over health insurance costs can be an in­credibly complex issue with wide-ranging implications.  If you have any questions please contact your Thrun labor and employment attorney.