Delta Air Lines letter to the Obama administration
June 13, 2013
I want to thank you for the opportunity to meet with you at Grady Hospital in Atlanta recently to discuss the impact of the Affordable Care Act (ACA) on Delta Air Lines. The small group setting allowed for a good exchange of ideas that I found very valuable. As you know, I and the other large employer representatives in attendance did not agree with your initial assessment that the ACA means “business as usual” for large employers. Since you committed to share our concerns with Secretary Sebelius and the President, I thought it might be helpful to summarize the major points for you here.
As you heard from many of us, the ACA will result in increasing costs, for both our companies and our employees, and will also reduce the benefits provided. Here are some of the major drivers of these effects:
- The Reinsurance Fee — The ACA requires large employers to pay an annual fee of $63 per covered participant in 2014. For Delta’s roughly 160,000 enrolled active and retired employees and their family members, this represents more than $10 million added to the cost of providing health care next year. As we discussed, this fee, which is meant to help stabilize the state exchanges as they get started, provides absolutely zero direct benefit to our participants. It is, essentially, a direct subsidy form us and our employees to those who participate in the exchanges.
- Covering Children Until Age 26 – There is no doubt that this has been a popular provision nationwide and at Delta we have seen more than 8,000 children added to our rolls resulting in a permanent increase in our overall costs of about $14 million per year. We are required to charge the same for these children as we do for any other children covered by our plan. However, our experience shows that, on average, these children are consuming considerably more health care than other children we cover. In essence, we are experiencing adverse selection in this population and that is having an impact on the costs that we and our employees pay for coverage.
- The Individual Mandate – As you know, in 2014, the individual mandate under the ACA kicks in and those not currently covered under any plan must enroll or pay a penalty to the Federal government. Our actuaries have estimated how many of those who currently opt out of our coverage will now opt in. Their estimates are that this requirement will add another $14 Million in costs to our plan each year, net of the premiums paid by these individuals.
- Thirty Hour Rule – As you heard at the meeting, many employers are planning to reduce employees’ hours to less than thirty per week in order to avoid the requirements to either provide health coverage or pay fees for those employees. Delta is not one of those employers, and we do not plan to force employees to work fewer hours as a result of the ACA. For others, however, this represents one of the negative unintended consequences of the ACA and we support efforts to raise the limit to 40 hours per week rather than thirty.
- Pay or Play Penalties – The group health coverage Delta provides to its full time employees more than meets the definition of “affordable coverage” as defined by the ACA. However, the proposed regulations that implement this provision of the law are very complex and, when finalized, may unnecessarily impose HR information systems changes that will be costly to build and maintain. In addition, there are many unsettled principles surrounding this provision of ACA and based on the fact that it is already June, employers will not have time to react should final regulations be issued this year. This puts employers at risk of being assessed these penalties in innocent situations (such as when employees take voluntary leaves of absences) and imposes additional costs, even in those situations where the vast majority of employees are offered affordable, comprehensive coverage.
- Cadillac Tax – Recent data released is evidence of what you heard in the meeting–employers are reducing or eliminating rich plan designs in order to ensure they do not pay the tax, since doing so would represent a significant waste of money. At Delta, we did that last year as we eliminated one of the plan designs available to our pilot group specifically because it would have risked being subject to the Cadillac tax. However, keep in mind that, eventually, it is not just the “rich” plan designs that will be affected. Essentially, the Cadillac tax level represents a “ceiling” on the value of benefits provided in health plans. However, that ceiling rises each year only at the rate of the consumer price index (CPI). On the other hand, medical inflation is rising at a higher rate than CPI. The way the math works, given enough years, all plans will eventually risk being subject to the Cadillac Tax and as they do, the natural reaction will be to continually reduce benefits provided in order to avoid the tax.
At Delta we are doing a lot of positive things to provide a platform for our employees to live healthier, more productive lives. We offer free preventive coverage, we offer telemedicine services, a concierge nurse line and great tools that provide vital data (such as it exists) on quality and cost among the provider community. We provide incentives that reward employees for doing the things that help lead to better long-term health. But make no mistake—the costs imposed on Delta and our employees are very real and they are escalating. The costs mentioned above, when combined with normal medical inflation and the end of the [Early Retiree Reinsurance] program mean that the cost of providing health care to our employees will increase by nearly $100,000,000 next year. Delta will have to absorb the vast majority of that increase in costs so that we continue providing a high value, high quality health plan, but some of it will have to be shared with our employees as well. And of course, the balance that the company pays simply means less left over for other investments that make our business stronger.
In closing, the ACA is anything but business as usual for large employers like Delta. It represents real and significant changes that provide real challenges for both our company and our employees. Thank you for the opportunity to provide this input. If I can be of assistance in any other way, please do not hesitate to contact me.
Robert L. Kight
Vice President, Global HR Services & Labor Relations
Delta Air Lines