LOA 12 - Medical Rate Setting

LETTER OF AGREEMENT

BETWEEN

UNITED AIRLINES, INC.

AND

THE FLIGHT ATTENDANTS

IN THE SERVICE OF

UNITED AIRLINES, INC.

AS REPRESENTED BY

ASSOCIATION OF FLIGHT ATTENDANTS-CWA, AFL-CIO

This Letter of Agreement is made and entered into in accordance with the Railway Labor Act by and between United Airlines, Inc. (the “Company”) and the Association of Flight Attendants – CWA, AFL-CIO (the “Union”). 

W I T N E S S E T H:

Whereas, the Company and the Association have entered into a Joint Collective Bargaining Agreement (the “JCBA”); and 

Whereas, the Company and the Union wish to state the agreement they have reached with respect to the annual rate setting process applicable to the Flight Attendants’ medical, dental and prescription drug programs; 

Now, Therefore, the Company and the Union mutually agree as follows, effective on the effective date of the Collective Bargaining Agreement: 

1. The following provisions apply to Medical rate setting under Section 29.B.4.: 

1. In the implementation of the provisions of Section 29.B.4. of the Collective Bargaining Agreement, the determination of the Required Monthly Contributions for years after the One-time Cost Share Reset as defined in the last sentence of Section 29.B.4.c.(1)., the Company and the Union will annually follow the procedures set forth in this Letter of Agreement, subject to any transitional rules in the Collective Bargaining Agreement that override the terms of this Letter of Agreement. 

2. Contributions For Calendar Years After One-time Cost Share Reset for Flight Attendants in Active Service. For each calendar year, the Required Monthly Contribution in a Core Medical Option, the Traditional Medical PPO Option or the Select Regional Medical Plans shall not exceed 20% of the actuarially-determined “Total Projected Cost” of the Option or Plan for such calendar year, for each Coverage Tier, subject to the adjustments, limitations and permitted variances hereinafter set forth. Total Projected Cost shall be determined in accordance with Paragraph I.D. below and the Experience True-up to correct for deviations of actual from projected cost as provided in Paragraph I.E. below. The rate of Required Monthly Contributions is subject to the permitted deviation and the limitation on maximum year-over-year increases in Required Monthly Contributions provided in Paragraph I.F. below.

3. Definitions. For purposes of Paragraphs I.A. through I.G. the following terms will have the meanings ascribed to them:

1. “Claims Experience”: For purposes of determining Total Projected Cost of any self-insured medical plan or program in which active employees of the Company and/or pre- Medicare retirees of the Company are eligible to participate, the term “Claims Experience” means the per-capita rate of actual claims paid and incurred plus unpaid claim liability during the Experience Period by all active employees of the Company and pre-Medicare retired employees of the Company, enrolled in a domestic medical plan (U.S. and territories) including employees enrolled in the medical plans set forth in Sections 29.B.1.b. and 29.B.1.c. For any insured plan or the insured portion of any plan, “Claims Experience” is 85% of the most recent available gross premium rate. Total Projected Cost of any medical program offered to Medicare-eligible retired employees of the Company will be determined as a separate risk pool.

2. “Costs of Administration”: For self-insured plans or programs, and for the self-insured component of any hybrid plan or program, “Costs of Administration” means the actual charges of any third-party claims administrator, pharmacy benefits manager, behavioral health manager, disease management/smoking cessation vendor, and wellness vendor including any “load” or other charge for administration of the wellness initiatives. For fully-insured plans or programs, and for the insured components of any hybrid plan or program, “Costs of Administration” shall be a maximum of 15% of the gross premium paid. “Costs of Administration” include any excise tax relating to medical plans imposed upon the Company pursuant to Section 49801 of the Internal Revenue Code of 1986, as amended by Section 9001 of the Patient Protection and Affordable Care Act of 2010, Public Law 111.148 (the “Excise Tax”). “Costs of Administration” does not include any other cost, fee, charge or expense of the Company in connection with maintaining the plan or program, including, without limitation, any charge or expense of any third-party vendor (other than the vendors listed in the first sentence of this subparagraph) or for wages or benefits of Company employees providing ancillary, administrative, record keeping or other support services for the plan or program. Should the Company pursue a re-insurance (stop-loss) coverage, the expected net cost of coverage, which is calculated as gross premium minus expected recoveries, will be included in the costs of administration. For purposes of determining Total Projected Costs, Costs of Administration for fully-insured and self-insured options are pooled and applied as a level percentage of Total Projected Cost.

3. “Determination Year”: The year prior to the Rating Year, during which the Company Actuary determines Total Projected Cost and contribution rates to be effective during the Rating Year. 

4. “Experience Period”: The “Experience Period” is a period of 24 consecutive months divided into historical segments of 12 consecutive calendar months each and given equal weight assuming consistent experience. 

5. “Look-Back Year”: The year immediately preceding the Determination Year. 

6. “Margin”: “Margin” refers to any intentional difference between a measure or quantity as used and the same measure or quantity reflecting “best estimate” assumptions. Margins may be implicit (derived using modified assumptions or elements) or explicit (derived by modifying the end result). 

7. “Offsets”: “Offsets” shall include discounts and manufacturer, vendor and other rebates and payments, together with any other amounts determined by the Company Actuary as being properly treated as an offset to costs. Government subsidies received by the Company, such as subsidies under the federal Medicare Part D Retiree Drug Subsidy Program administered by the Centers for Medicare and Medicaid Services (“CMS”) pursuant to the Medicare Prescription Drug Improvement and Modernization Act of 2003, Public Law 108.173, shall be applied as offsets at such time as any Excise Tax becomes includible in Costs of Administration. 

8. “Rating Year”: The “Rating Year” is the year for which total costs are being projected, and in which the contribution rates being established, by the methodology provided in this paragraph I, will be charged to Flight Attendants. 

9. “Total Projected Cost”: “Total Projected Cost” means the Claims Experience for the Experience Period, drawn from all health care programs offered by the Company during the Experience Period, across all Coverage Tiers, adjusted for differences in plan design between the Experience Period and the Rating Year, normalized using relative values, consolidated, trended to reflect reasonably anticipated changes in health costs, and actuarially projected to the Rating Year, subject to such other adjustments, if any, as are determined by the Company Actuary to be actuarially appropriate, plus expected Costs of Administration, less Offsets, without explicit or implicit Margin. Rates per unit of coverage in the Core Medical Options and Traditional Medical PPO shall be derived from Total Projected Cost. True-up amounts in accordance with Paragraph E are separately determined amounts and are not part of Claims Experience or Total Projected Cost. 

4. Determination of Total Projected Cost and Rates Per Unit of Coverage. The methodology and procedure the parties will follow each Determination Year to determine Total Projected Cost for the Rating Year, and to derive from Total Projected Cost the rates of contribution for each Core Medical Option and the Traditional Medical PPO (including the prescription drug component of such Core Medical Option and the Traditional Medical PPO) and Coverage Tier for the Rating Year, will be as set forth herein. 

5. Experience True-Up. In each Determination Year, actual costs incurred in the Look-Back Year are compared to the Total Projected Cost for the Look-Back Year to determine if adjustment is required under the following rules: 

1. Adjustment for Deviations of Actual Enrollment from Expected Enrollment. The Total Projected Cost that was used to set contribution rates for the Look-Back Year shall be adjusted to correct for deviation of actual enrollments in the various medical plans, options and programs from the anticipated enrollments originally used to determine Total Projected Costs for the Look-Back Year (“Enrollment-adjusted Total Projected Costs”). 

2. Gains and Losses. Historical gains and losses (the difference between the Enrollment-adjusted Total Projected Costs and actual incurred costs for the Look-Back Year) are identified and quantified. 

3. Amortization of Gains and Losses. For any Look-Back Year in which there are gains or losses, the portion of such gain or loss shall be halved and applied per capita to Flight Attendants in Active Service and retired Flight Attendants in the Before-Medicare Medical Benefits without interest to decrease (in the case of gains) or increase (in the case of losses) the Total Projected Cost levelly over two Rating Years beginning with the Rating Year immediately following the Determination Year in which the True-Up calculation is made. For example, the first true-up Determination Year hereunder will be 2018, with 2017 as the first Look-Back Year and, if an adjustment is required because 2017 gains or losses were ±1%, one-half of one percent (0.5%) of the enrollment-adjusted Total Projected Cost for the Look-Back Year (which is half of such excess gain or loss) would be applied to adjust Total Projected Costs for the 2019 Rating Year, and the remaining excess gain or loss for 2017 as remeasured in 2019 Determination Year would be applied to adjust Total Projected Costs for the 2020 Rating Year. Due to additional runout claims, the second year amortization of the excess 2017 gain or loss may not exactly match the first year amortization. Amortization schedules will be maintained so that, for each Rating Year after 2019, the accumulated net amortizable gain or loss required to be taken into account in that Rating Year shall be subtracted from, or added to, Total Projected Cost for purposes of determining contributions.

4. Aggregate Contribution Adjustments. Required contributions for non-retired Employees for coverage under all medical plans offered by the Company excluding the Core HDHP option, shall be subject to the further limitation that the Company shall pay not less than 80% in the aggregate of the Enrollment-adjusted Total Projected Cost of all medical plans offered by the Company to its employees, provided “employees” for this purpose means in addition to Flight Attendants any other workgroups that subscribed to all of the Flight Attendant medical plan offerings and contributions, in accordance with the following: 

1. Each year beginning with 2020, Enrollment-adjusted Total Projected Costs (excluding Total Projected Costs for the Core HDHP Option), shall be compared to the aggregate contributions, using year-to-date data through October, for coverage under all medical plan options offered by the Company, excluding the Core HDHP. 

2. The contributions for all Company-offered medical options (excluding the HDHP) will be normalized to reflect the assumed level of participation in the wellness credits. This provision will not be used to subvert the basic Aggregate 80%/20% Contribution Limit. 

3. If aggregate employee contributions (excluding the Core HDHP Option) are 20% or less of the Enrollment-adjusted Total Projected Costs (excluding Total Projected Costs for the Core HDHP Option), no adjustment will be made. However, if aggregate employee contributions (excluding the Core HDHP Option) exceed 20% of Enrollment-adjusted Total Projected Costs (excluding Total Projected Costs for the Core HDHP Option), an aggregate contribution adjustment, for the full year, equal to the excess, on a level percentage basis, will be made to employees by the end of the plan year. Such adjustment does not apply to the employees enrolled in the Core HDHP Option, nor those who have left the plan prior to the aggregate contribution adjustment. 

6. Limitation on Year-Over-Year Increases in Required Monthly Contributions for Flight Attendants in Active Service. Any increase in the Required Monthly Contribution for the Core Medical Options, Traditional PPO Medical Plan and Select Regional Medical Plans, from one calendar year to the next, will not exceed 9.25% of the prior year’s contribution (except that this percentage will vary for the individual Flight Attendant after taking into account credits and surcharges), rounded to the nearest penny, consistent with the Core Option and Traditional PPO Medical Plan 80%/20% Limit, in accordance with the following: 

1. In no event will the Participant’s contribution by Coverage Tier on a composite basis exceed the lesser of: (A) 20% of Total Projected Cost, with an upward variation tolerance of 0.1%, such variance permitted, not as a matter of routine, but in order to accommodate rounding, or (B) 109.25% of the prior year’s contribution by Coverage Tier on a composite basis. Composites for the purposes of this Paragraph combine the separate rates for tobacco users and those Flight Attendants who incur spousal surcharges into an overall rate. 

2. The limitations provided in this Paragraph I.F.(2) will be applied after all computations and adjustments described in Paragraphs I.D. and I.E. above have been carried out. 

7. Determination of Total Projected Cost for Retiree Medical Benefits. For purposes of determining the Total Projected Cost for Before- and After-Medicare Medical benefits for all retired Flight Attendants (other than pre-7/1/03 sUA retired Flight Attendants) the procedures described in Paragraphs I.D. through I.F. will apply, except that, for Flight Attendants retiring on or after the effective date of the Agreement, wellness credits and spousal surcharges will be included for Before-Medicare Medical Benefit Coverage and excluded for After-Medicare Medical Benefit coverage.

2. The following provisions apply to Dental rate setting under Section 29.C.4.: 

1. In the implementation of the provisions of Section 29.C.4. of the Collective Bargaining Agreement, the determination of the Required Monthly Contributions for years after the One-time Cost Share Reset, the Company and the Union will annually follow the procedures set forth below. 

2. Contributions For Calendar Years After One-time Cost Share Reset. For each calendar year, the Required Monthly Contribution in the Core Dental Option shall not exceed 20% of the actuarially-determined “Total Projected Cost” of the Coverage Tier elected for such calendar year, subject to the adjustments, limitations and permitted variances hereinafter set forth. Total Projected Cost shall be determined in accordance with Paragraph II.D. below. The rate of required contributions is subject to the permitted deviation and the limitation on maximum year-over-year increases in Required Monthly Contributions provided in Paragraph II.E. below. 

3. Definitions. For purposes of Paragraphs II.D. through II.E., the definitions in Paragraph I.C. shall apply, except as follows: 

1. “Claims Experience”: For purposes of determining Total Projected Cost of any self-insured dental plans or programs in which active employees of the Company are eligible to participate, the term “Claims Experience” means the actual claims paid and incurred plus unpaid claim liability during the Experience Period by all active employees of the Company. In the event the Company offers an insured plan, excluding dental HMOs, such plan or the insured portion of any plan, “Claims Experience” is 85% of the most recent available gross premium. 

2. “Costs of Administration”: For self-insured plans or programs, and for the self-insured component of any hybrid plan or program, “Costs of Administration” means the actual charges of any third-party claims administrator. For fully-insured plans or programs, and for the insured components of any hybrid plan or program, “Costs of Administration” shall be 15% of the gross premium paid. “Costs of Administration” include any excise tax relating to dental plans imposed upon the Company pursuant to Section 49801 of the Internal Revenue Code of 1986, as amended by Section 9001 of the Patient Protection and Affordable Care Act of 2010, Public Law 111.148 (the “Excise Tax”). “Costs of Administration” does not include any other cost, fee, charge or expense of the Company in connection with maintaining the plan or program, including, without limitation, any charge or expense of any third-party vendor (other than the vendors listed in the first sentence of this Paragraph) or for wages or benefits of Company employees providing ancillary, administrative, record-keeping or other support services for the plan or program. 

3. “Offsets”: “Offsets” shall include discounts and manufacturer, vendor and other rebates and payments, together with any other amounts determined by the Company Actuary as being properly treated as an offset to costs. 

4. “Total Projected Cost”: “Total Projected Cost” means the Claims Experience for the Experience Period, drawn from all dental care programs, excluding dental HMOs (insured or self-insured), offered by the Company during the Experience Period, across all Coverage Tiers, adjusted for changes in plan design from the Experience Period to the Rating Year, normalized using relative values, consolidated, trended to reflect reasonably anticipated changes in dental costs, and actuarially projected to the Rating Year, subject to such other adjustments, if any, as are determined by the Company Actuary to be actuarially appropriate, plus Costs of Administration, less Offsets, without explicit or implicit Margin. Rates per unit of coverage in the Core Dental Option shall be derived from Total Projected Cost. 

4. Determination of Total Projected Cost and Rates Per Unit of Coverage. The methodology and procedure the parties will follow each Determination Year to determine Total Projected Cost for the Rating Year, and to derive from Total Projected Cost the rates of contribution for the Core Dental Option and Coverage Tier for the Rating Year, will be as set forth herein. 

5. Limitation on Year-Over-Year Increases in Required Monthly Contributions. Any increase in the Required Monthly Contribution for the Core Dental Option, from one calendar year to the next, will not exceed 9.25% of the prior year’s contribution, rounded to the nearest penny. In no event will the Participant’s contribution by Coverage Tier exceed the lesser of: (A) 20% of Total Projected Cost, with an upward variation tolerance of 0.1%, such variance permitted, not as a matter of routine, but in order to accommodate rounding, or (B) 109.25% of the prior year’s contribution by Coverage Tier.

3. The following General Provisions apply to Medical and Dental rate setting:

1. Annual Rate-Setting and Aggregate Contribution Adjustments Schedule. The parties shall adhere to the following timeline each year, unless otherwise agreed: