In a move that is likely to deepen labor’s disenchantment with the Affordable Care Act (ACA), the Obama administration on Friday rejected some union leaders’ call to apply certain ACA tax subsidies to participants in multi-employer health plans. On Wednesday, delegates to the AFL-CIO conference adopted a resolution outlining its concerns with the ACA. The resolution calls for, among other changes, an amendment that would allow non-profit multiemployer plans to have the same access to the ACA’s premium tax credits and cost-sharing reductions as other health plans. Without subsidies, these multi-employer plans will likely be comparatively more expensive for union workers who participate in these plans, thereby leading these workers to obtain insurance through the future health exchanges instead.

In response to these demands, Finance Committee Ranking Member Orrin Hatch (R-UT) and House Ways and Means Chairman Dave Camp (R-MI) drafted a letter to Treasury Secretary Jacob Lew, explaining why making these allowances would be illegal. According to the lawmakers:

Numerous public reports indicate that the Administration is actively seeking a way to accommodate its union supporters by extending health insurance exchange premium and cost-sharing subsidies provided under the Patient Protection and Affordable Care Act (PPACA) only to unionized workers (non-unionized workers would not receive this additional benefit) already covered by employer-sponsored health insurance. As you know, PPACA does not, as written, provide exchange subsidies for any individual already covered by employer-sponsored health insurance. That being the case, a deal such as this by the Administration for the unions would be illegal.

Individuals covered by “Taft-Hartley” multiemployer health plans – union plans – are not taxed on the contributions their employers pay into the plans on their behalf. The contributions are excluded from the worker’s income for tax purposes. The exchange subsides under PPACA were based on and designed specifically to ensure the principle that no individual may receive both the longstanding health insurance tax exclusion and the PPACA exchange subsidies. Giving union workers exchange subsidies in addition to the income tax exclusion would be “double dipping.”

Evidently, the Administration agrees. According to an article in Politico, the Treasury Department concurred that carving out an exception for union plans, which already receive favorable tax treatment, would not be permissible. In a statement, the White House conceded that “The Treasury Department issued a letter today making clear that it does not see a legal way for individuals in multi-employer group health plans to receive individual market tax credits as well as the favorable tax treatment associated with employer-provided health insurance at the same time.”

This decision will not affect all unions the same way. Taft-Hartley plans are widely used by union members in the building trades. Therefore, if the changes called for by the AFL-CIO’s resolution do not come to pass, industry employers may take an aggressive position during contract negotiations to opt out of the union plans and encourage employees to take advantage of the state Exchanges. In addition, the 40% excise tax on high cost (“Cadillac”) plans that is slated to take effect in 2018 could impact many employers in this industry. Having their employees move to Exchanges, therefore, might be a welcome development.

As a result, merit shop (nonunion) contractors will have an enormous competitive advantage over their competitors who do not adapt to the new healthcare reality.

Large, mature industries with long-term union relations will face a similar situation. Once union plans become less attractive, employers may steer clear of the multi-employer bargaining plan design.

The hospitality industry is another sector that will be affected by the Administration’s decision. In most major cities, multi-employer plans include “most favored nation” clauses providing that if one employer receives more favorable treatment under the plan than another, the more favorable deal applies automatically to all participants in the plan. Therefore, making Taft Hartley plans less attractive in this industry will impinge upon the organizing efforts of unions such as UniteHere.

Other unions – such as the SEIU and NNU -- that do not typically rely on multi-employer plans, have not been as vocal about the ACA’s treatment of Taft-Hartley plans. Generally, the healthcare industry has the most to gain from the ACA. The more individuals participate in the healthcare system, the more healthcare workers will be needed, thus expanding the unions’ potential membership base.

It will be interesting to see which, if any, of the remaining items in the AFL-CIO’s healthcare resolution the Administration will address.