Unions May Get to Keep Better Medical Benefits : Labor: White House plan reportedly will ‘grandfather’ coverage in contracts. But cuts are likely in new pacts.

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, knowledgeable sources said Monday.

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.”

However, such cuts would become likely once existing contracts expire, and unions would probably attempt to negotiate new wages or other benefits to compensate their members for the loss.

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 movement 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. “You could call it ‘being grandfathered,’ ” said an Administration official.

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 already signed by business and labor unions. Health benefits have become an increasingly important issue in recent years.

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

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

“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 health 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.

Unions would presumably 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% of its payroll on health care. Under proposals being considered by the Administration, that expenditure would be replaced by a 7% payroll tax paid by all businesses.

The unions might then ask for the 8% difference in the form of benefits or wages, at least partially to offset a new 3% 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. “You could put the money into other forms of compensation.”

The Administration will devise a standard package of medical benefits that would be available to all Americans, with every business required to provide coverage to its workers, regardless of any health problems they may have. The money paid by businesses and their workers--the payroll charges of 7% on businesses and 3% on employees--would go to local health purchasing groups, called health alliances.

The alliances would negotiate with networks of doctors and hospitals and health maintenance organizations to deliver health care under a concept called “managed competition.”

Under that concept, the networks--some owned by insurance companies, some operated under the Blue Cross or Blue Shield systems, some independent such as Kaiser--would compete for enrollment. An individual would decide annually which network to join, and would be required to receive all care for that year exclusively from the doctors and hospitals in the network.

A person could purchase benefits not covered by the standard package but would have to pay substantially extra from personal funds. If cosmetic surgery or acupuncture treatments, for example, were not covered by the universal package, individuals could get access to them by making special monthly payments to their health network.