AA has long been a provider of industry-leading health care benefits and is committed to providing one of the best health care and benefit packages in the industry. However, in a period of economic downturn, the company has to reevaluate every aspect of its business, including certain aspects of its health care plan. In order to remain competitive, the company needs health care policies in line with those at other carriers and large employers while continuing to provide our employees with the health care service they deserve.
Health care costs and inflation continue to rise, compounding the difficult financial state of an already ailing airline industry. American is no less susceptible to these market conditions than any other large carrier.
American’s goal is to work with its employees to find innovative ways to contain costs while maintaining a comprehensive and competitive healthcare benefits program. The company has proposed bringing costs in-line with market shares and creating a more efficient and fair way of distributing costs.
Distribution of Costs
All legacy carriers except for American offer a four-tiered structure and therefore not surprisingly, the company proposes converting its current three-tier employee contribution structure to a more standard four-tier. The three-tier structure is out-dated within the industry and other large employers, and generally more cost share is necessary when covering a spouse.
Proposed Restructure of AA Health Care for Employee Contributions
Current Contribution Structure Standard Plans |
Multiplier |
Company Proposal Standard Plans |
Multiplier |
Employee Only Employee + 1 Employee + 2 or more |
1 2 2.65 |
Employee Only Employee + Spouse Employee + Child(ren) Employee + Family |
1 2.3 1.9 3.0 |
Market Based Cost Share
According to a 2007 Mercer study, a majority of employers with at least 500 employees planned to shift health care costs in 2008 by raising employee contribution percentages or other cost-sharing features.
The company proposes a change to the methodology in which the projected plan cost is calculated and an increase in employee contributions to plan costs so that it can align health care costs with industry rates and help offset inflation. Plan costs would be specific to the pilot workgroup and pilots' needs as opposed to calculating differentials based on all AA employees, as is the current system. Employer and employee cost share would be initially set at current industry averages.
*Source: Mercer 2007 National Survey of Employer-Sponsored Health Plans.
(1) AA’s Standard Plan – Option 1 was used for benchmarking purposes. AMS is PPO.
(2) Separate benchmark not available for the Transportation/Communication/Utility industry breakout for all plan types.
(3) Utilized PPO due to data credibility on sample.
