Obamacare will cost Delta Air Lines $100 million
Delta Air Lines sent a letter to the Obama Administration in June warning them that the mandates and taxes in Obamacare will cost the company $100 million.
The letter, recently made available via Erick Erickson at RedState, followed a meeting between Robert Knight, a Delta executive, and an Obama administration official at Grady Hospital in Atlanta, where the airline is based. In the letter, Knight breaks down the various provisions of the law and associated costs that Obamacare will impose on the airline and what it could mean for employees.
“The [Affordable Care Act] requires large employers to pay an annual fee of $63 per covered participant in 2014,” wrote Knight to the unnamed administration official with whom he met. “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.”
Knight noted that the fee, which is essentially a tax, provides no benefit to Delta’s workers and is “a direct subsidy” from the company and its employees “to those who participate in [Obamacare’s state] exchanges.” He also explained that the requirement to cover children until they’re 26 years old and the individual mandate will cost the company a total of $28 million.
Another problem outlined in the letter is the law’s tax on generous health insurance plans, often called the “Cadillac tax.” Knight explained that the end result of this provision would be employers reducing benefits to escape the tax, something Delta has already done with one of its plans.
“Employers are reducing or eliminating rich plan designs in order to ensure that they do not pay the tax, since doing so would represent a significant waste of money,” noted Knight. “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’s 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,” he continued. “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,” Knight added.
While Knight explained that Delta doesn’t plan to reduce employee hours to escape Obamacare’s 30-hour employer mandate, as other businesses have done, he does note that the provision is “one of the negative unintended consequences” of ObamaCare.
The employer mandate requires businesses with 50 or more full-time employees, defined as someone working at least 30 hours per week, to offer health insurance benefits or face a punitive tax. Knight expressed support for raising the definition of a full-time employee to 40 hours per week.
Knight added that the costs of Obamacare are “very real” to both Delta and its employees, virtually all of whom can expect to pay higher premiums and/or changes in coverage because of the law.
“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,” wrote Knight in the closing of the letter.
Erick Erickson, who has fielded calls from Delta employees on his Atlanta-based radio show, notes that the airline industry has struggled in recent years and, even though profits are beginning to return, the profit margins are still relatively low.
“In 2012, Delta had $1 billion in profits, but with a profit margin of less than 10 percent. Liberals may say Delta should not then worry about its profits, but a $100 million expense in one line item is significant for any business and more so for one with a low profit margin,” wrote Erickson at RedState. “Only a few years ago, though, Delta saw net losses of $9 billion. The airline industry is notoriously fickle with very tight margins.”
Delta isn’t the only company facing higher costs because of ObamaCare. UPS, another Atlanta-based company, announced that it was ending employer-sponsored health insurance coverage for the spouses of 15,000 employees.
