GMFC is a multidivisional company with over 50,000 employees. Given its size, it has chosen to self-insure its health care coverage and subcontract administration to Vesuvius Heath Care (VHC), one of the five largest health care insurance companies in the United States. In addition to paying claims, VHC is also the gatekeeper for what procedures are covered by the plan and for negotiating payment levels with major health care providers. Prior to the effective date of various Patient Protection and Affordable Care Act (PPACA) provisions, the GMFC health care plan had a lifetime benefit of $2 million per covered employee or dependent and offered coverage to dependents up through the age of 22 if enrolled in a full-time degree program. The PPACA has required GMFC to change its coverage to accommodate new benefit and age limit requirements, adding some cost to the company for the current plan. Looking forward, GMFC wants to make sure that its coverage includes the essential health benefits required by PPACA, but is concerned with the rate of health care cost inflation. Local 384 is looking toward 2018 and is concerned that the company may abandon the plan because it might be vulnerable to the “Cadillac tax.” GMFC is considering dropping health care coverage and paying the federal penalties instead. This would leave employees in the situation where they would need to purchase insurance from one of the virtual exchanges. If GMFC were to do this, Local 384 would demand a large wage increase to offset the reduction in contributions from the company. In any event, there would be significant labor relations problems associated with a drastic change like this. Assuming that these issues will be major ones in the upcoming negotiations, prepare either a union or a management position on the issue of future health care benefits at GMFC, recognizing that the employer will be decreasingly able to compete if total compensation costs continue to increase and regulatory mandates become more cumbersome. Be sure your paper follows APA style according to the CSU-Global Guide to Writing and APA Requirements; the paper should be 4-6 pages in length, not including the cover and reference pages. Use three credible sources. The CSU-Global Library is a good place to find these sources. You may not use Wikipedia for any CSU-Global assignment. For this assignment, a credible source is defined as:
• A scholarly or peer-reviewed journal article
• A government-based website or publication
• A trade or industry journal article, publication, or website, including those from trade organizations.
The employer-employee should share a harmonious relationship with each other for the effective operation of the business entity. There is a need to provide effective HR management to the employees. The human resources department liaison between the the employees and the management. It is important to establish the human resources laws and regulations regarding several parameters such as pay equity, minimum wage, compensation/benefits and others (Ehrenberg & Smith, 2016). This case study is regarding the labor relations issues of GMFC. The issue is regarding the decision of discontinuation of the health care coverage and the consequent demand of a significant salary increase. This paper is prepared from a management point of view which outlines the issue of the health care benefits of GMFC in detail.
Discussion
Issues at GMFC
GMFC is a large company with over 50,000 employees. It was handling the employee benefits themselves. The employees were provided lifetime health insurance benefit of 2 million $ per employee. It implemented recently, decided to outsource the health care insurance coverage of the employees to Vesuvius Health Care (VHC). In the new healthcare plan, the company was asked to change the health care benefit plan, which was more expensive for the company. GMFC wants to adopt cost cutting strategies since they are perturbed by the rising costs of the health care expenses. The management is considering discontinuing the health care coverage, which have raised a lot of controversies including a salary hike. The labor union is creating a pressure on management for an increase in the compensation package.
Alternatives for GMFC
The management of GMFC is correct in its stand as the increasing expenditure and fierce competition is forcing the organizations to reduce their expenditures. The cost cutting measures would allow the company to maintain its competitive position. It also helps in the survival of the firm in the long run.
In this scenario, there is a need for high involvement of the human resource department. The human resources team should take active participation in resolving the issues of the labor union. There are three probable actions which can be undertaken by GMFC-
Accept the new process- The employer should implement the new strategic structure of the compensation, as proposed by PPACA. The compensation package should be designed keeping in mind the medical insurance alternatives, basic pay, retirement options, house rent allowance, conveyance and others (Fatima & Ali, 2016). It would allow the employer to determine the total cost per employee and make comparison with the competitors (Fatima & Ali, 2016). It would also allow them to adhere to the benchmarks of the industry. This would also enhance the employee satisfaction levels and there would be a subsequent drop in the attrition rate.
Pay the federal penalties- In case, the company decides to cancel the health benefit scheme, they would need to pay federal penalties including the Cadillac Tax (Elliott, 2015). This would mean a reduction of the burden of the employer. The cost savings can be invested for other important purposes. There is a downside of this option too. The company might damage its brand image and company reputation (Elliott, 2015). There may be lowering of the employee morale and a subsequent lowering of the employee productivity. The human resource team may find it difficult to recruit suitable candidates due to the tarnished image of the company.
Remodelling of the workforce- The organization can opt for layoffs or hiring temporary employees (Cahuc, Charlot & Malherbet, 2016). This would lower their compensation packages and there would be a significant reduction in the health care benefit costs. The recruitment drive should aim for qualified and competent employees only (Cahuc, Charlot & Malherbet, 2016). The remaining employees should be motivated so that they can give their optimum performance.
Effects of labor unions on compensation and benefits
The labor unions possess great powers for creating an impact on the compensation and benefits of the organization. The labor unions possess excellent bargaining capabilities (Bluestone & Kochan, 2014). They often demand a compensation package which is above the market standards. They plead for the addition of “benefits” component in the total compensation package. If they are not eligible for employee health benefit scheme, then they would demand a higher package. They would create constant trouble until their demands are fulfilled by the organization (Bluestone & Kochan, 2014). The unions have great impact on the compensation and the professional life of both the unionized as well as the non-unionized workers (Fossum, 2014). The labour unions reduce the inequality of the wages. The unionized labors get more valid health benefits.
The labour unions have great impact on the functioning of an organization. The National Labor Relations promote the establishment of labor unions. The employees have the fundamental right to form, organize, join or provide assistance to the labor organizations (Scott & Davis, 2015). They are also free to use collective bargaining so that they are protected from the unfair employee practices. The organizations cannot terminate employees randomly during the economic downturn as they would be subjected to the union’s bargaining agreement (Bluestone & Kochan, 2014). The organizations may need to engage in specific negotiations skills in order to reduce the size of the workforce.
Cadillac tax
The Cadillac tax is a high cost health benefit plan that is provided by the employers to the employees. It has an excise tax of around 40% on the health care plans (Drake, 2016). This system enciuyrages the companies to spend on the various tax free benefits (Vistnes, 2014). The economic benefits aid the companies to limit their expenditures. The tax distortion would increase the take home package. It is accost control measure in the medical domain in the U.S.A. and came into existence during the health care reforms of the United States of America (Vistnes, 2014).
Course of action
There are some probable solutions that can be considered under such existing issues-
The management should analyze the impact of the PPACA and its revised compensation structure. It should also scrutinize the effect of Cadillac tax on the company (Armstrong & Taylor, 2014). It should also be determined if the employees are eligible for any federal tax subsidies in the event that they opt for the exchange process.
The voluntary benefits should be measured. A review of the existing and proposed benefit structure should be done.
The management must engage in successful employee negotiations (Armstrong & Taylor, 2014). It should value the human resources as they are the reason for the success of the firm.
There should be an established benchmark model of compensation and benefits, which would give the employees a sense of pride and also acts as a source of inspiration.
Conclusion
The conflict of labour relations is common in the organizations. There are several issues evident at GMFC which have direct impact on the smooth functioning of the organization. There are three courses of actions that are identified. The organization can select any one of the three possible courses of action. The labor unions affect the decision making activities of the organization. The concept of Cadillac tax is discussed. There are some possible solutions that can be undertaken by the management. The issue of labour relations needs to be addressed by the management on an urgent basis. The rising debate over the continuation or the discontinuation of the health care insurance should be discussed and one consensus should be reached. The organization would continue to suffer until and unless the issue of labor unions is resolved.
References
Armstrong, M., & Taylor, S. (2014). Armstrong’s handbook of human resource management practice. Kogan Page Publishers.
Bluestone, B., & Kochan, T. A. (2014). Toward a new grand bargain: Collaborative approaches to labor-management reform in Massachusetts.Members-only Library.
Cahuc, P., Charlot, O., & Malherbet, F. (2016). Explaining the spread of temporary jobs and its impact on labor turnover. International Economic Review, 57(2), 533-572.
Drake, C. (2016, November). The Cadillac Tax: Projections, Policy Alternatives, and Second-Order Effects. In 2016 Fall Conference: The Role of Research in Making Government More Effective. Appam.
Ehrenberg, R. G., & Smith, R. S. (2016). Modern labor economics: Theory and public policy. Routledge.
Elliott, B. M. (2015). Unintended National Security Risks Tied to Healthcare Reform and the Cadillac Tax. University of Miami National Security & Armed Conflict Law Review, 5(2), 226.
Fatima, F., & Ali, S. (2016). Journal of Socialomics.
Fossum, J. A. (2014). Labor relations. Mcgraw Hill Higher Educat.
Scott, W. R., & Davis, G. F. (2015). Organizations and organizing: Rational, natural and open systems perspectives. Routledge.
Vistnes, J. (2014, June). The Cadillac Tax: Targeting. In Health & Healthcare in America: From Economics to Policy. Ashecon.
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