Negotiated benefits said to be safe amid reform No change now in union contracts

May 18, 1993|By Los Angeles Times

WASHINGTON -- The Clinton administration plans to let existing union contracts remain in force even if they contain medical benefits exceeding those in a standard health reform package that will be proposed by the White House, according to knowledgeable sources.

The decision is expected to end speculation among businesses, employees and unions who were concerned that approval of a health-care reform package would force immediate cuts in coverage.

"Our contracts will be protected, so all of a sudden people won't find themselves without the benefits they negotiated," said a union official. "We are assured that national health care reform won't be used to cut back benefits."

About 14 million American workers receive health-care benefits specified by union contracts, and the administration's plan to honor existing contracts is designed to ease the blow of health care reform on a key political constituency.

Business and labor representatives have been told by high-ranking officials in the administration's health reform planning group that union contracts, which usually run from one to three years, will be fully protected from any changes in health coverage.

The White House is anxious to avoid the political opposition that would come from interfering in the collective bargaining process by trying to alter contracts signed by business and labor unions. Health benefits have become an increasingly important issue in recent years.

Under the administration's plan, businesses would be discouraged from granting benefits that exceed those in a standard benefits package being drawn up by health-care planners. Businesses probably would be prevented from taking a tax deduction for anything they spend in excess of the standard package.

"If it is no longer tax-free, there will be no reason for companies to provide high levels of health care instead of cash," says an executive who attended a recent high-level health care briefing by administration officials.

Currently, companies take a tax deduction for every dollar spent on health care, and the cost of insurance is not counted as income for workers. The administration briefly considered, then rejected as politically unacceptable, the idea of taxing workers directly on the value of benefits above a certain level.

For companies with union agreements, the limits on business tax deductions would not take effect until the expiration of the contracts signed before the health reform plan is enacted into law.

Unions presumably would enter new contract negotiations seeking additional wages or other benefits to replace the value of the money previously spent by their employers on enriched health benefits.

For example, suppose a company had been spending 15 percent of its payroll on health care. Under proposals being considered by the administration, that expenditure would be replaced by a 7 percent payroll tax paid by all businesses.

The unions might then ask for the 8 percent difference in the form of benefits or wages, at least partially to offset a new 3 percent health-care payroll tax the administration is considering levying on workers.

"The money going into the current contract would have to be maintained and subject to bargaining," said the union official.

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