- This Issue Brief discusses recent trends in and the future of employment-based health insurance benefits. It presents recent trends in sources of health insurance, access to health benefits, changes to benefit packages, and retiree health benefits. It discusses the reasons underlying the trends, presents the outlook for employment-based health insurance benefits, and includes a discussion of defined contribution health benefits.
- The percentage of Americans under age 65 covered by employment-based health benefits has been increasing since 1994. Between 1994 and 1999, the percentage of children covered by an employment-based health plan increased from 58.1 percent to 61.5 percent. For adults, it rose from 66.1 percent to 67.6 percent, with the increase mainly occurring between 1997 and 1999. Between 1997 and 1999, the percentage of working adults with employment-based health insurance increased from 72.2 percent to 73.3 percent.
- Despite rising health insurance costs, employers increasingly have been offering health benefits to workers. Between 1998 and 2000, the percentage of small firms offering health benefits increased from 54 percent to 67 percent.
- Health insurance cost inflation has been increasing since 1998. Yet, employers have not started to shift recent cost increases onto workers. The percentage of the premium that workers have been asked to pay has not been increasing, while the benefits package has been improving.
- The strong economy and low unemployment have had an effect not only on the likelihood that an employer offers health benefits and the percentage of the premium that workers pay, but also on certain aspects of the benefits package.
- As a result of FAS 106, many employers began a major overhaul of their retiree health benefits program, and some dropped the benefits completely. Most employers continuing to offer retiree health benefits have made changes in the benefit package. The most common change is in cost-sharing provisions, with employers asking retirees to pick up a greater share of the cost of coverage. The recent case Erie County Retirees Association v. County of Erie may accelerate changes to retiree health benefit programs.
- Two factors will likely play primary roles in driving the future of the employment-based health benefits system: health benefit costs and labor market conditions.
- As long as health benefit costs continue to increase, employers will seek ways to reduce these costs. However, as long as unemployment remains low, employers will likely be unable to significantly modify existing health benefit programs.
Jan. May 2001 EBRI Issue Brief (ISSN 0887-137X) is published monthly at $300 per year or is included as part of a membership subscription Feb. by the Employee Benefit Research Institute, 2121 K Street, NW, Suite 600, Washington, DC 20037-1896. Periodicals postage EBRI rate paid in Washington, DC. POSTMASTER: Send address changes to: EBRI Issue Brief, 2121 K Street, NW, Suite 600, Mar. Chart 7 Chart 9 Chart 10 EMPLOYEE Ch Ch art 1 art 5 Washington, DC 20037-1896. Copyright 2001 by Employee Benefit Research Institute. All rights reserved, No. 233. Chart 16 ChTable 1 art 12 Chart 14 Chart 20 Chart 21 Chart 23 Paul Fronstin of EBRI wrote this Issue Brief with assistance from the Institute’s research and editorial staffs. ChCh art 19 art 3 Chart 18 Chart 17 Just as new federal tax Employment-Based Health Insur The main reason ance Benefits Sponsorship, Offer, Coverage, Percentage of Premium P Premium Increases DC health benefits aid by W by Firm Size, 1988–2000 orkers for Health Benefits, 1988–2000 Percent Provision of Retiree Heal age of Full-T Percent Percent ime Emplo age of American Children, A Aver th Benefits age of W age Annual Deductibles, yees in Medium and Large Priv orkers Employed in Large Firms, Self-Emplo ges 0–17, W by Pl Unemplo an aT te Est ype, 1996–2000 ith Emplo yment Ra ablishments P yment-B te, 1987–2000 yed, ased articipating in Nonelderly Americans With Selected Sources of Health Insurance Coverage, 1987–1999 BENEFIT Average Health Care Spending, by Age and Gender, 1996 Number of Uninsured Americans, Ages 0–64, Percent Vaage of Large Emplo rious Assumptionsyers Requiring Percentage of Retirees A Percentage of W ges 55–64 W Heal orkers, A th Care Cost Infl ith Retiree Hea ges 18–64, W ation, 1987–2000 ith Emplo th Benefits, Public Co yment-Based Heal verage, or Uninsured, th Any views expressed in this report are those of the authors and should not be ascribed to the officers, trustees, Employment-Based Health and Take-Up Rates among Wage and Salary Workers, Ages 18–64, 1988–1999 Apr. by Emplo Non-Heal yers W Heal ith 1,000+ Emplo th Maintenance Organiza th Benefits, Medicaid, and W yees, Part Time or P tion Pl art ithout Heal 8% ans, Year, 1994–1999 by Coinsur th Insur ance Ra ance, 1987–1999 te, 1989–1997 14% About Percentage Uninsured, 1999–2010 Retiree to Pay Full Cost of Retiree Health RESEARCH Benefits, Medicaid, and Without Heal 1994–1999 th Insurance, 1987–1999 $700 policy and economic 20% 40% for the decline in the are often mentioned 7.5% or other sponsors of EBRI, EBRI-ERF, or their staffs. Neither EBRI nor EBRI-ERF lobbies or takes positions on $4,000 1987 1988 1989 The Employee Benefit Research Institute (EBRI) was founded in 1978. Its mission is 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 1991, 1996, and 1998 $3,695 19% 80% 12% Benefits, 1997– 1999 80% $600 6.9% INSTITUTE 80% 90% ho we are 38% 39% ® 70 1988 1993 $605 1996 1998 1999 2000 85% to contribute to, to encourage, and to enhance the development of sound employee benefit 40% W 38% 84% 7% 89% $3,396 40% 83% 79% 17% 74% May specific policy proposals. EBRI invites comment on this research. 83%12% Men 83% 83% 1999 2000 90% 37% 82% 36% Women 1996 $3,500 17% 36% 71% conditions after World 32% Consumer Price Index 32% 32% $600 number of uninsured 66 as a means of (millions) 88% $545 63 50% programs and sound public policy through objective research and education. EBRI is the only private, nonprofit, 36% 6.8% 76.1% 6.2% 1989 1991 1993 10.3% 6.1% 1995 1997 70% 1994 75.5% 1995 76% 1996 61 1997 1998 1999 70% 66.7% 66.5% 65.8% 76% 1994 1995 80% 70% 75% 29% 1996 42% 34% 34% 1997 1998 1999 73.9% 73.9% Benefits: Trends and Outlook 74% 35% $3,000 Medical Consumer Price Index 73.3% 40% 10% 64.0% 28% 85% 15% 35% nonpartisan, Washington, DC-based organization committed exclusively to public policy research and education on 72.2% 62.7% 72.2% 6% 71.8% 72.4% 72.4% 72.3% 72.2% 33% 30% 72.8% Total Population 214.4 216.6 218.5 220.6 222.9 62.0% 225.5 228.0 229.9 231.9 234.0 236.2 238.6 240.7 Jun. 5.6% 61.5% 60% $2,461 27% 60 War II created an $500 Americans appears 59 36% 17.5% 59.6% 60.2% 8.3% giving individuals 59.5% 40% 31% 31% 8.5% 58.9% 35% 68% 58.1% 58.6% Health Benefit Costs 5.4% Employment-Based Coverage economic security and employee benefit issues. EBRI’s membership includes a cross-section of pension funds, 148.5 149.4 149.8 147.7 147.7 145.9 144.9 146.3 147.9 149.8 151.7 154.8 158.4 60% $2,500 70% 60% 12% $2,221 53 5.5% 30% 60% Chart 7, Employment-Based Health Insurance Benefits 5.6% 79% 29% 29% 29% 31% 15% 80% 8% 54% 63% 62% 63% 4.9% 5% Own name 72.5 73.5 74.0 73.1 73.1 71.7 74.9 75.2 75.9 76.9 77.4 79.1 80.3 30% businesses, trade associations, labor unions, health care providers and insurers, government organizations, and 28% $1,906 5.3% 25% 80% 21%incentive to expand 27% 24% 27% 27% $367 Jul. $400 to be the strong 6.9% 20% more control of their$361 $2,000 10% 30% 25% $359 48 Sponsorship, Offer, Coverage, and Take-Up Rates $1,645 23% 50% Dependent coverage 75.9 75.9 75.8 19% 74.7 74.6 23% 74.3 23% 69.9 71.1 72.1 72.9 74.3 75.7 78.1 service firms. 50 23% by Paul Fr 60% onstin, EBRI 4.0% 25% 10% 50% $324 6% 50% 20% $313 $315 75% 4.5% 45 Table of Gradual Decline Individually Purchased 14.3 13.5 14.5 76% 14.3 13.6 14.6 16.6 16.4 16.0 16.0 15.8 8% 15.5 15.8 16% 4% 25% $1,500 8% Among Wage and Salary Workers, Ages 18–64, 46 5.2% 1988 4.2% $267 42 Employment-Based Coverage employment-based $1,188 Medicaid Uninsured $1,145 economy and low 4.8% $3007% 9% 43 health care dollar in Coverage 7% 14% 20% Aug. 9% Public 40% $245 28.5 28.8 28.7 31.9 34.4 36.0 38.1 38.9 38.4 37.4 34.9 34.2 34.1 50% 20% $239 18% 17% 1993 17% 17% 70% 4% 40% Employment-Based Coverage Medicaid Uninsured 40% 1988–1999...................................................................... 16% 6% 16% 8 8% $746 41 38 Constant Increase $1,000 $754 7% Medicare 3.1 11% 3.2 3.2 3.4 3.5 5% 3.9 3.7 3.7 4.1 4.6 4.7 4.8 4.8 40 71% EBRI’s work advances knowledge and understanding of employee benefits and their $190 3% 5% $181 $187 2.1% 39 4% 20% 7% 7% 1997 health coverage, new in Coverage unemployment. 5% $200 and the design of Contents 30% hat we do • This Issue Brief discusses recent trends in and the future of employment-based health 6% Chart 8, Percentage of Nonelderly Americans 10% 4% Medicaid 18.4 18.9 19.2 22.4 24.8 26.5 29.0 28.7 29.0 28.2 26.0 24.9 25.0 15% 40% W 10% 1987 1989 4% 1991 1993 1995 1997 1999 Sep. 5% importance to the nation’s economy among policymakers, the news media and the public. 65% 2% $500 3% All Firms 67% Small Firms (3–199 Workers) 3% 30% a 30% 5% 37 23.9% 1999 3% beneficiaries will forgo medically questions about how this increased ployment drives more employers to offer health significant decline in the percentage of could be an effective way of controlling health care costs (Employee Benefit Research Institute, January 1998). Tricare/CHAMPVA 20% 4% 8.5 8.2 7.9 Health insur- 7.9 7.9 7.5 funded by deductions from workers’ wages. Employers 7.4 8.7 that the quality of care provided will 7.4 programs covered an increasing 19% 6.8 6.6 6.8 6.5 Manning, Willard G., Joseph P. Newhouse, Naihua season, and would also provide tools and resources that (Gabel et al., 2000). This is further insurance benefits. It presents recent trends in sources of health insurance, access to 4% 22.9% 3% 23.2% 22.0 Without Health Insurance, 1987–1999 ........................8 It does this by conducting and publishing policy research, analysis, and special reports on employee benefits issues; 4% 21.8% 15% federal legal policy and 20.8% .08% $79 34 $71 20.5% 3% 20% 30 $– 18.9% their benefits. 3% 20.0% No Health Insurance 10% $100 31.8 33.6 34.3 35.6 36.3 3%Source: U 38.3.S. Dep 39.3 artment of Labor 39.4 , Bureau of Labor Statistics. 16% 40.3 $41 41.4 19.8% 43.1 43.9 42.1 16% 0% 30% 3% 2% 60% 17.8% 17.8% 17.8% 17.6% 18.2% necessary drugs when out-of-pocket liability (and the prospect of resolving benefits and to improve the benefits package they Fox, Daniel M. “Managed Care: The Third Reorganiza- for an employer. uninsured Americans since at least 0% 16.8% ance provides 16.8% had a practical interest in providing health services to 17.3% 3% 17.5% improve. On the other hand, sponsors percentage of Americans prior to 18.1% 17.5% 2% would enable employees to make informed decisions Duan, Emmet B. Keeler, Arleen Leibowitz, and Susan evidence that employers cannot simply holding educational briefings for EBRI members, congressional and federal agency staff, and the news media; and 15.5% health benefits, changes to benefit packages, and retiree health benefits. It discusses 28 Oct. 20% 16.0% Chart 9, Premium Increases by Firm Size, 2% 12% 2% EBRI 15.6% 15.9% Ages 18–24 Ages 25–34 Ages 35–44 Ages 11% 45–54 Ages 55–64 20%10% 10% 10% Introduction ....................................................................... 10% 14.6% 3 Early Retirees Medicare-Eligible Retirees 1991 1996 1998 0% 19889% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 9% 8% 7% 9% (percentage) sponsoring public opinion surveys on employee benefit issues. EBRI’s Education and Research Fund (EBRI-ERF) 10% economic conditions at injured or ill workers, who often worked in remote many medical decisions and benefit offer, in order to attract employees. As mentioned costs for those drugs increase (Adams 1987, but it is also the first time that the number of tion of Health Care.” 5% DC health benefits are also often mentioned as a 10% Journal of the American Americans with 1993, the growth in these programs was not enough to about health plans and health care providers. These new Marquis. “Health Insurance and the Demand for cut back on their contributions to of health plans counter that when a 0 0% the reasons underlying the trends, presents the outlook for employment-based health 1988–2000....................................................................10 0% 5% 20% 4% 4% 4% 4% 3% 3% 3% –1% Recent Trends ....................................................................4 3% 3% 3% Early Retirees performs the charitable, educational, and scientific functions of the Institute. EBRI-ERF is a tax-exempt organization Source: Emplo 20 Medicare-Eligible Retirees yee Benefit Research Institute estimates from the 1996 Medical Expenditure Panel Survey. 10% Nov. E Total Population MPLOYEE 10% Fee-for-Service 100.0% , 100.0% Fee-f Emplo 13.6% or-Service 100.0% yee Onl , y Coverage 100.0%Pref 100.0% erred 100.0% Pref 100.0% erred 100.0% Famil Point-of-Service y Coverage 100.0% 100.0% , Point-of-Service 100.0% 100.0% , 100.0% 13.1% 13.3% geographic regions. Early employment-based programs in the introduction, health benefits were first issues in state or federal courts) would affect health et al., 2001). Employers might benefit uninsured Americans has declined. means of giving individuals more control of their health Geriatric Society. Vol. 46, no. 3 (March 1998): 314– financial 13.2% health plan makes a benefit determination, it is inter- 13.7% offset the erosion in employment-based health insurance, technologies may also give rise to new types of products Medical Care: Evidence from a Random Experiment.” health benefits when health care 14.9% 15.4% insurance benefits, and reviews defined contribution health benefits. 12.9% 12.7% 4.0% 14.2% 4.0%13.8% 4.2% 14.8% 1997 1998 13.9% 1999 Introduction 3.4% 3.7% Chart 10, Percentage of Premium Paid by Workers 3.2% 3.4% 3.2% 3.6% 3.5% 3.5% 0% 2.4% 2.4% Source: Jon Gabel et al., “Job-Based Health Insurance in 2000: Premiums Rise Sharply While Coverage Grows,” The Uninsured 0% .............................................................. Single 1999 Family 2000the beginning of the Provider 8 2005 2010 Provider In-Plan Out-Plan supported by contributions and grants. The American Savings Education Council (ASEC) and the Consumer Health Employment-Based Coverage 5% 69.2 69.0 68.6 67.0 66.3 64.7 63.5 63.6 63.8 64.0 64.2 64.9 65.8 10% benefit costs. from DC health plans if they use them offered to employees as a means of recruitment care dollar and the design of their benefits. As a result, 317. The main reason for the decline in the number of security against preting a contract between the health plan and the plan occasionally covered general medical care for workers, so more individuals were uninsured. In contrast, be- Chart 22 None 80% 85% and may enable employers to assume new roles more in American Economic Review. 90% expenditures are increasing, because Vol. 77, no. 3 (June 1987): Other Health Affairs Retiree Health , Vol. 19, no. 3 (September/October 2000): 144–151. Organization,Public Organization, Uninsured Source: Jon Gabel et al., “Job-Based Health Insurance in 2000: Premiums Rise Sharply While Coverage Grows,” for Health Benefits, 1988–2000 ..................................11 BENEFIT –5% Own name 0% 33.8 33.9 33.9 33.1 32.8 31.8 32.9 32.7 32.7 32.9 32.8 33.1 33.4 Benefits Package Source: McArdle et al., Retiree Health Coverage: Recent Trends and Education Council ........................................................... 0% (CHEC) are programs of EBRI-ERF. They are coalitions of private- and public-sector institutions 8 Source: William M. Mercer, Mercer/Foster Higgins National Survey of Dec. st Coinsurance Rate In-Plan Out-Plan Source: Employee Benefit Research InstitutePercent . age of Small Employers Reporting Health Benefits Health Affairs, Vol. 19, no. 3 (September/October 2000): 144–151. their families, and the community as well. Employment- to cap their health benefit costs. If the and retention during the labor market shortage of Fronstin, Paul. “Employment-Based Health Insurance under this type of plan, individuals (and providers) uninsured Americans appears to be the strong economy The Employee Retirement Income Security Act 1987 1988 1989 1990 losses that often 1991 21 1992 centur 1993 sponsor on what benefits are covered under that con- 1994 y may tween 1993 and 1998, the portion of Americans covered line with emerging health consumerism. New technology 251–277. 1995 1996 any savings from reducing health 1997 1998 1999 2000 Dependent coverage • 35.4 The percentage of Americans under age 65 covered by employment-based health 35.0 34.7 33.8 33.5 Chart 11, Percentage of Full-Time Employees 32.9 30.7 30.9 31.1 31.2 31.5 31.7 32.4 Employer Perspectives on Future Benefits 0% 1987 1987 (Menlo Park, CA: Henry J. Kaiser 1988 1988 1989 1989 1990 1990 1991 1991 1992 1992 1993 1993 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 Source: U.S. Department of Labor with the goals of public education on saving, retirement planning, health insurance, and health quality. , Bureau of Labor Statistics. Source: Emplo 0% yee Benefit Research Institute estimates from the March 1995–2000 Current Population Surve Employer-Sponsored Health Programs ys. (New York: NY: William M. Mercer, Retiree Health Benefits ..............................................12 that cannot afford health benefits will simply drop them. Rinduced demand for health care services. ESEARCH Positive Impact on Various Aspects of Their Business Individually Purchased Source: Jon Gabel et al., “Job-Based Health Insurance in 2000: Premiums Rise Sharply While Coverage Grows,” 6.7 6.3 6.6 6.5 6.1 6.5 7.3 7.1 Health Affairs 6.9 , Vol. 19, no. 3 (September/October 6.8 6.7 6.5 6.6 Family Foundation, October 1999). Sponsorship Rate Offer Rate Coverage Rate Take-Up Rate Self-Employed 1,000 or More Emplo based health insurance benefits did accelerate, though, yees Part Time or Part Year World War II. Health benefits can be thought of cost of health insurance increases of 1974 (ERISA) established the federal government as accompany unexpected serious illness or injury. Employ- should have more control over medical necessity deci- and low unemployment. More workers and their depen- For Children: Why Did Coverage Increase in the Mid- tract. The health plan is not preventing that participant by employment-based health insurance increased, but McArdle, Frank, et al. may also enable new types of health plans to emerge, benefit costs will likely be offset by Retiree Health Coverage: Recent benefits has been increasing since 1994. Between 1994 and 1999, the percentage of 2001). in Medium and Large Private Establishments Source: U.S. President, Economic Report of the President (Washington, DC: U.S. Government Printing Office, 2001); and William M. Mercer, Mercer/Foster 2001 Source: Employee Benefit Research Institute estimates from the March 1988–2000 Current Population Surveys. Trend Drivers 2000): 144–151. ...................................................................15 In contrast, large employers will probably not drop • Public Fourth, health care providers and insurers have been Source: Emplo 13.3 yee Benefit Research Institute estimates from the March 1988–2000 Current Population Surve 13.3 13.2 create an incentive 14.5 15.5 16.0 16.7 16.9 16.6 16.0 ys. 14.8 14.3 14.2 78% percentage of near-poor children covered by these the primary regulator of private-sector employee benefit as just one form of total compensation. When faster than real wages, or faster than ers offer health insurance as an employee benefit for a sions. While there are several types of DC arrangements, dents are being covered by employment-based health INSTITUTE 1990s?” Higgins National Survey of Employer-Sponsored Health Programs Health Affairs. Vol. 18, no. 5 (September/ (New York, NY: William M. Mercer, 2001). from receiving care or telling the participant not to get during World War II. By the end of the war, health the percentage of those without health insurance cover- 76% Source: Employee Benefit Research Institute estimates from the May 1988, April 1993, F ® 1998. According to data from a recent study (Gabel et al., much as the Internet already is giving individuals ebruary 1997, and F Trends and Employer Perspectives on Future Benefits ebruary 1999 Current P higher recruitment and retention 75% opulation Surveys. . children covered by an employment-based health plan increased from 58.1 percent to 80% Participating in non-HMO Plans, by Lifetime Medicare 1.4 1.5 1.5 1.6 1.6 1.7 1.6 1.6 1.8 2.0 2.0 2.0 2.0 Health Benefit Costs ................................................... EBRI Issue Briefs 15 are monthly periodicals providing expert evaluations of health benefits, but they may respond in other ways, (Gabel et al., 2000) found a slight reduction between consolidating. Health care providers are now in a Source: Employee Benefit Research Institute estimates from the March 1995–2000 Current Population Surve raising lifetime benefit limits. The percentage of workers ys. ur publications 67% insurance coverage in the United States had tripled programs increased from 39.3 percent to 40.5 percent. employers are competing for employees, total employer contributions, employers plans (Copeland and Pierron, 1998). Individuals under number of reasons. Besides providing financial security insurance because of a strong economy. Between 1998 the most important difference among them is whether October 1999). Medicaid 8.6 8.7 8.8 10.2 11.1 the care, but simply stating whether the contract covers 2000), health insurance costs increased 8.3 percent for 11.8 age also continued to grow. During this period, the information about various health care services that they Menlo Park, CA: Henry J. Kaiser Family Foundation, 12.7 12.5 costs. 12.5 12.1 11.0 10.4 10.4 O 61.5 percent. For adults, it rose from 66.1 percent to 67.6 percent, with the increase to limit employment- Maximum Limit Amount, 1989–1997 ........................11 employee benefit issues and trends, as well as critical analyses of employee 70% through 2000, except for point of service (POS) and ers are dropping retiree health benefits. However, new other components of total compensation) in order to coverage for early retirees since 1994. In addition, the small proportion of total compensation. employment-based health insurance coverage will Labor Market Conditions It will be a few more years before sufficient data ...........................................17 Medicare benefits to early retirees. such as increasing the employee share of the premium, with a lifetime limit above $1 million has increased 1996 and 2000 in the percentage of the family premium better position to negotiate fees with insurers and a Tricare/CHAMPVA 4.0 3.8 3.6 3.6 3.5 3.3 3.3 3.8 3.2 2.9 2.8 2.9 2.7 58% However, it appears that expansions in employment- nies accounted for their retiree health benefits. It retirees (pre-Medicare) declined from 46 percent in 1993 (Weir et al., 1988). However, it was not until 1954 that might save money in the long run but compensation is bid up. As a result, health age 65 with health benefits subject to ERISA totaled ________. “Sources of Health Insurance Coverage and to workers and their families, employers offer health and 1999, the overall percentage of Americans under age the employer or employee controls how contributions are the benefit. Therefore, malpractice law would usually not all firms between spring 1999 and spring 2000, and they decline in are using to challenge medical and benefit decisions October 1999. public Future trends in employ- sources of health insurance would benefit policies and proposals. Each issue, ranging in length from 16–28 pages, thoroughly explores one topic. mainly occurring between 1997 and 1999. Between 1997 and 1999, the percentage of EBRI Chart 12, Percentage of Full-Time Employees preferred provider organization (PPO) out-of-network 60% expand and the uninsured population will gradually large employers most likely never offered retiree health are available to explain how workers and retirees will be reduce costs in a slowing economy. likelihood of their being uninsured remains statistically With the enactment of Medicare in 1965, the The county appealed to the U.S. Supreme Court, Outlook No Health Insurance ............................................................................ 14.8 15.5 15.7 16.1 18 16.3 17.0(chart 11). Furthermore, the percentage of workers with or reducing the benefits package. This likely will result 17.3 17.1 17.4 17.7 18.3 18.4 17.5 1980s and early 1990s, the percentage of Americans workers were required to pay, and a significant reduction employers, and insurers are also in a better position to based coverage. The Uninsured required companies to record unfunded retiree health to 31 percent 2000 (chart 15). In addition, a survey of based health insurance and individually purchased the increased use of DC health plans benefits, a major part of total compensation, are approximately 128.2 million in 1999 (Copeland, 2001). benefits to promote health and to increase worker used to pay for health care services. One option would 65 covered by employment-based health insurance Characteristics of the Uninsured: Analysis of the Notes is a monthly periodical providing current information on a variety of employee benefit topics. apply. the Internal Revenue Code made it clear that employer mostly explain the increase in the uninsured population. EBRI’s Washington increased 10.3 percent for smaller firms (with 3–199 Murphy, Kevin M., and Robert Topel. “Medical Research: made by health care providers and health plans. ment-based health benefits will be working adults with employment-based health insurance increased from 72.2 percent 7 Chart 4 service charges. In return, health care providers were in Medium and Large Private Establishments Health benefit costs increased for a number of deductibles (chart 14). benefits in the first place. Thus, the cross sections that The release of the March 2001 CPS in Fall 2001 unchanged since 1994. employer’s cost obligation for retiree health benefits decline. However, even if the United States experiences affected by cutbacks in retiree health benefits. Many The Economy ...............................................................18 50% which on March 5, 2001, declined to hear the case. At the Chart 2 in fewer workers taking health benefits that are offered covered by employment-based health benefits declined in in the employee-only premium (chart 10). While the two negotiate with employers. no lifetime limit also has increased. Employers and Bulletin provides sponsors with short, timely updates on major federal developments in employee benefits. EBRI’s benefit liabilities on their financial statements in order employers with (mostly) 1,000 or more workers showed Percentage of Workers Ages 18–64 With Emplo spending on employee health benefits was not counted as yment-Based Health coverage had an even larger effect than expansion of changed to attract and retain workers. Today, Patient protection legislation, if passed, would signifi- might also result in care being de- productivity. Health benefits are also a form of compen- increased from 64.9 percent to 65.8 percent, continuing a have employers provide employees with a defined Source: Employee Benefit Research Institute estimates from of the March 1988–2000 Current Population Surveys. March 2000 Current Population Survey.” EBRI Issue workers) (chart 9). When health benefit costs increase, What’s It Worth?” For example, the percentage of nonelderly Health care costs could either decline or increase driven not just by work force and Milken Institute Review (First to 73.3 percent. Participating in non-HMO Plans, by Coinsurance guaranteed high volume because they would be provid- reasons. Under the traditional fee-for-service system, include these new employers are not examining employer may add to the confusion over the impact of rising health Percentage of American Adults, Ages 18–64, W declined significantly, because employers were able to five more years of declines in the uninsured similar to The apparent inconsistency between fewer ith Employment-Based Chart 6 In 1999, for the first time since at least 1987, the per- workers may never qualify for retiree health benefits The Uninsured ............................................................19 40% time this insurers also have been increasing their share of coinsur- to them. Issue Brief went to press, the federal district large part because of health care cost inflation. In the • studies report different findings, both support the Fifth, the so-called “managed care backlash” may have Fundamentals of Employee Benefit Programs offers a straightforward, basic explanation of employee benefit programs Note: Details may not add to totals because individuals may receive coverage from more than one source. Insurance Benefits, by Source of Coverage, 1994–1999 S-CHIP. Specifically, the percentage of near-poor chil- to comply with generally accepted accounting standards, that the percentage offering health benefits to early employee income. cantly modify ERISA and affect many Americans. ferred, lost productivity and economic output, and higher many small employers understand the value of sation used to recruit and retain workers. longer-term trend that started between 1993 and 1994 amount of money, which the employee would then use to Brief no. 228 (Employee Benefit Research Institute, economic factors, but also by public policy decisions that the percentage of Americans covered by employment- Americans covered by Tricare or CHAMPVA declined in a DC health care environment. For instance, some Quarter 2000): 23–30. Health Benefits, Medicaid, and W 5 ithout Heal Defined Contribution Health Benefits ing health care services to a large group of subscribers. Rate, 1989–1997 th Insurance, 1987–1999 ..........................................................12 health care providers had no financial incentive to a Percentage of Employers Offering Health Benefits, by Firm Size, the decline that occurred between 1998 and 1999, behavior over time as much as they are providing because their employers offer them only to workers hired benefits costs on employment-based health benefits. Public Policy ................................................................ in the private and public sectors. The EBRI 19 Databook on Employee Benefits centage of Americans with health insurance increased: employers offering retiree health benefits and workers integrate their retiree health benefit programs with court had yet to make its finding concerning the extent of is a statistical reference volume on employee Retir Tricare (formally known as CHAMPUS) is a program administered by the Department of Defense for military retirees as well as fam ee Health Benefits ance and lowering deductibles. The percentage of Recent evidence, discussed above and presented ilies of active duty, retired, and late 1980s, health care costs increased at an average rate observation that employers have not started to shift resulted in health insurers relaxing restrictions on 30% beginning with fiscal years after Dec. 15, 1992. FAS 106 retirees declined from 88 percent in 1991 to 76 percent in dren covered by employment-based health insurance costs in the long run. offering health benefits. A recent study found purchase benefits from a range of plans chosen by the (table 1). December 2000). Managed care plans have been criticized because Health insurance is the benefit most valued by from 3.8 percent to 2.9 percent between 1994 and 1998, Today, employment-based health insurance 60% could significantly alter the current legal structure based health insurance is expected to decline, with Salisbury Dallas L., and Pamela Ostuw. “Value of employees may choose less extensive benefits than those • Despite rising health insurance costs, employers increasingly have been offering 1998–2000 deceased service members. CHAMPVA, the Civilian Health and Medical Program for the Department of Veterans Affairs, is a health Chart 13, Percentage of Full-Time Employees Also, health care providers accepted more “risk” because care benefits program for disabled provide health care services in the most efficient setting. benefit programs and work force related issues. 9 snapshots of the availability of retiree health benefits. When these findings are released, the data for 2000 are not necessarily losing retiree health benefits can be Medicare. In more recent years, however, the changing 34 million Americans would still be uninsured in 2005 before a specific date. Furthermore, the recent case Defined Contribution Health Benefits .......................Erie 20 82.5 percent of Americans under age 65 were covered by any potential ADEA violation in the Erie case. Although in chart 6, shows that the percentage of small employers of between 15 percent and 20 percent annually. How- recent cost increases onto workers by decreasing the access to health care services. 80% Furthermore, in 1998, workers in non-health maintenance organization (HMO) 20% Defined contribution (DC) health benefits are emerging also required employers to accrue and expense certain 1998 (chart 16). The rate at which retiree health benefits dependents of veterans and certain survivors of veterans. benefits are the most common source of health insurance increased from 30.5 percent to 34.5 percent between that roughly three-quarters of small employers of the way in which they are able to operate under ________. “Defined Contribution Health Benefits.” workers and their families. Sixty-five percent of workers employer. Under another option, an employer would While the majority of Americans under age 65 EBRI through which the benefits are provided. Just as new employers shifting the cost of coverage onto workers or and continued down to 2.7 percent in 1999, in large part currently provided by their employer. If health insurance Benefits Constant in a Changing Job Environment: health benefits to workers. Between 1998 and 2000, the percentage of small firms in Medium and Large Private Establishments Retiree health benefits were originally offered in the late they had to compete with an oversupply of both physi- Furthermore, technological innovation, improved treat- An analysis of a constant sample of employers (McArdle expected to show that the number of uninsured Ameri- explained, in part, by recent changes in the labor force. demographics of the work force, coupled with increasing (chart 23). In contrast, if the economy continues to 70.3% 70.0% some form of health insurance, up from 81.6 percent in Conclusion County Retirees Association v. County of Erie ........................................................................ 69.8% may 22 (with fewer than 200 employees) offering health benefits plans with 80 percent coinsurance has declined, while the Third Circuit (covering Delaware, New Jersey, and ever, between 1994 and 1997, these costs barely changed. employer share of the premium. growth in HMOs ceased, and POS plans lost market 55.3% 55.3% 55.5% 100% 99% 55.6% 68.3% 67.8% 55.2% 10% 55.0% 99% 67.6% as an alternative to the current employment-based 1998 and 1999, while the percentage of near-poor ERISA. Under traditional fee-for-service plans (the most offering health benefits reported that these future claims’ payments as well as actual paid claims. responding to a recent survey rated health insurance as create an account and the employee would buy services with health insurance in 1999 received coverage through Issue Brief no. 231 (Employee Benefit Research are offered is higher in chart 16 than in chart 15 because in the United States. Nearly 160 million Americans due to downsizing in the military. Similarly, between 66.9% The provision of federal tax policy and economic conditions after World even dropping coverage completely. But as discussed currently acts to induce demand for health care services, Findings from the 1999 ACA/EBRI Value of Benefits 66.1% 66.1% 66.3% 66.2% 50%70% offering health benefits increased from 54 percent to 67 percent. 1998 1999 2000 65.9% 1940s and the 1950s, when business was booming and cians and hospital beds. Managed care plans also shifted 65.3% Participating in Non-HMO Plans, by Deductible ments, consumer activism, quality shortfalls, 100% weaken, unemployment rises, and health benefit costs et al., 1999) shows that there has been a decline in the References accelerate changes to retiree health benefit programs. cans continued to decline. The drop may even be larger ........................................................................22 1998 (calculated from table 1). As a result, 198.6 million Contrary to popular belief, the percentage of workers life spans and rising health care costs, have left many Pennsylvania) is the only circuit to have concluded that Contact EBRI Publications, (202) 659-0670; fax publication orders to the percentage with 90 percent coinsurance or no coin- has been increasing. While the percentage of large In 1998, they started to increase again, but the increase share. It appears that consumers and employers are The strong economy and low unemployment 10, 11 0% The recognition of new liabilities and expenses had a health benefits system. larger firms are more likely to offer retiree health DC health benefits often are children covered by individually purchased plans in- prevalent type of plan at the time ERISA was enacted), benefits had a positive impact on recruitment, the most important employee benefit (Salisbury and with funds from the account. A person could supplement an employment-based health plan, 34.1 million Ameri- Institute, March 2001a). ubscriptions/orders health care under age 65, representing about two-thirds of the 1993 and 1998, the percentage of nonelderly Americans War II created an incentive to expand employment-based above, more workers and their dependents were covered utilization of services could decline. Employees may Survey.” EBRI Notes, no. 6 (Employee Benefit Re- there were very few retirees in relation to the number of S some types of care from costly inpatient settings to less Amount, 1989–1997 ....................................................12 administrative inefficiencies, and an aging population all availability of retiree health benefits, but it was not as than the 1.7 million decline in the uninsured experienced (202) 775-6312. Subscriptions to employed by large firms has not been declining. In fact, employers with rising retiree-to-active-worker ratios, continue to increase, the uninsured population is likely EBRI Issue Briefs are included as part of Like most employers, Erie County classifies its Americans under age 65 had health insurance coverage retiree health benefits are subject to ADEA scrutiny, Recruitment employers offering health benefits has remained essen- Retention Employee Health of Absenteeism does not appear to have affected the percentage of have had an effect not only on the likelihood that an voting with their feet, and moving to other types of surance has increased (chart 12). Similarly, the 60% mentioned in the context of enabling employers to financial impact that was unappealing to many benefits. In fact, the “drop” rate is lower among employ- population, are covered by the employment-based health creased from 7.8 percent to 10.3 percent. the denial of a claim is typically not as critical as it is in retention, employee attitude, and performance reasons: to control future health benefit cost increases, to ________. “The History of Employment-Based Health Ostuw, 2000). cans received health insurance from public programs, the employer’s contribution with his or her own funds services may percentage of children covered by employment-based health coverage, new federal legal policy and economic by employment-based health insurance coverage in 1999 covered by Medicaid (the federal-state insurance pro- choose health plans that forgo preventive and routine search Institute, June 2000): 5–6. EBRI membership, or as part of a $199 annual subscription to • Health insurance cost inflation has been increasing since 1998. Yet, employers have Chart 14, Average Annual Deductibles, by Plan Type, EBRI Notes and EBRI Issue Briefs. Individual copies are active workers. These benefits emerged as part of 40% 80% costly outpatient settings. Attitude and Employees contributed to rising costs. While the annual growth rate large as that portrayed in chart 16. The important point between 1998 and 1999. As mentioned above, between it may be rising. According to the data in chart 5, the and have increased employers’ retirement liabilities. to start to increase again. Even those who keep their jobs in 1999, while 42.1 million were uninsured. The percent- retirees into two groups: early retirees (those younger percentage of workers in non-HMO plans with no tially unchanged, that is because nearly all large many employers may start to make changes to retiree Americans with employment-based health benefits. More employer offers health benefits and the percentage of the health plans, notably PPOs. The combination of the Tables and Charts 67% st control their outlay for health benefits by avoiding Performance a managed care setting, because claims are generally (chart 22). respond to employee demands for more choice, and in companies. and, depending on the type of plan, purchase a richer and an additional 15.8 million purchased it directly from Insurance: The Role of Managed Care.” It was during World War II that many employ- available with prepayment for $25 each (for printed copies) or for $7.50 (as an e-mailed electronic file) by calling have advan- Benefits health benefits increased from 58.1 percent to ers with 1,000 or more employees than among the insurance system (Fronstin, 2000). An additional gram for the poor) declined from 12.7 percent to conditions at the beginning of the 21 than in 1998. In fact, employers have not been shifting Weir, M., A. Orloff, and T. Skopol (eds.). health care in order to save money. However, it should century may The Politics of not started to shift recent cost increases onto workers. The percentage of the premium collective bargaining agreements, and employers were Own Employer Coverage Emplo 1996–2000 yer Coverage from F Currently, health benefit costs are once again .................................................................... amily Member 13 in employer spending on health benefits declined after 50% 60% 60% would be affected, as small employers are likely to drop is that although employers are not necessarily dropping than 65) and Medicare-eligible retirees (generally those 1998 and 2000 the percentage of firms with 3–199 age of Americans under age 65 without health insurance percentage of workers employed by firms with 1,000 or health benefits as a defensive precaution. In December 1990, the Financial Accounting employers already offer health benefits. In addition, the deductible has increased (chart 13). More recent data research needs to be conducted in this area to under- premium that workers pay, but also on certain aspects of © 2001. managed care backlash and the return of health care Conclusion EBRI or from www.ebri.org. 55% Change of Address: EBRI, 2121 K Street, NW, Suite 600, Washington, DC 20037, (202) As a result of FAS 106, many employers began a 54% increases in health care costs. DC health benefits are sample with 500 or more employees. paid or denied some cases to distance themselves further from health ers began to offer health benefits, and subsequently the an insurer. Twenty-five million Americans participated benefit plan or more services. Quarterly Between 1998 and 1999, the percentage retrospectively (forthcoming 2001b). , after the treatment has tages that go 61.5 percent (chart 1). For adults, it rose from 66.1 per- 11 million individuals ages 65 and older have employ- 10.4 percent as welfare reform, coupled with the strong 60% Source: Paul Fronstin and Ruth Helman, “Small Employers and Health Benefits: Findings from create an incentive to limit employment-based coverage. the cost onto workers. An annual survey by William M. be noted that preventive and routine health care services Social Policy in the United States. Princeton, NJ: that workers have been asked to pay has not been increasing, while the benefits willing to provide them because the cost was such a Benefits Package Chart 15, Provision of Retiree Health Benefits by rising faster than the CPI and MCPI, and many employ- 1988, it continued to outpace the CPI and the MCPI, and 30% retiree health benefits, fewer workers will have them Table 1, Nonelderly Americans With Selected Sources employees that offered health benefits increased (Gabel 49% more workers increased from 27 percent in 1994 to Standards Board (FASB) approved Financial Accounting health benefits and large employers are likely to shift age 65 and older). Because the early retirees were coverage declined from 18.4 percent in 1998 to 17.5 per- Employee Employment-Based Coverage percentage of the premium that workers have been Medicaid Uninsured stand the trade-offs employers face between rising health the benefits package. According to data from the Bureau cost inflation are in part to blame for the stagnation of than that provided in charts 11 through 13 show that the 775-9132; fax number, (202) 775-6312; e-mail: Publications Subscriptions@ebri.org. Membership Information: Inquir- 2 the 2000 Small Employer Health Benefits Survey,” also often mentioned in the context of giving individuals EBRI Issue Brief no. 226 (Employee Benefit major overhaul of their retiree health benefits program, 40% The data presented in charts 15 and 16 actually ment-based health insurance coverage, mostly as care decisions. This of Americans with employment-based health taken place. But in a managed care setting (the domi- ________. “The Erosion of Retiree Health Benefits and number of persons with employment-based health in the Medicaid program, DC-type health plans have existed as cafeteria Issue Brief and 6.5 million received their discusses recent trends in beyond simply cent to 67.6 percent, with the increase mainly occurring Mercer indicates that the worker share of the premium economy, resulted in fewer people on the welfare roles sometimes detect conditions and diseases at early stages, Princeton University Press, 1988. package has been improving. Employers with 500+ Employees, 1993–1999 ...........13 ers are reluctant to absorb the cost increases. Health remained above 10 percent. As a result, employers of Health Insurance Coverage, 1987–1999 ..................4 available when they retire because the work force et al., 2000). In addition, S-CHIP will continue to expand 29 percent in 1999. It is generally true that small Statement No. 106 (FAS 106), “Employers’ Accounting the cost of coverage onto workers, resulting in fewer Benefit cent in 1999 (table 1 or chart 8). Not only is this the first provided PPO benefits and the Medicare-eligible retirees ies regarding EBRI membership, and/or contributions to EBRI-ERF should be directed to EBRI President Dallas Research Institute, October 2000). asked to pay has declined or remained constant (chart 10 trend toward lowering deductibles has continued Two factors will benefit costs and the other costs of operating a business. of Labor Statistics, employers and insurers have been HMOs and POS plans. 3 It is notable that the decline in the uninsured occurred 5 more control of their health care dollar and the design of 17.7% insurance benefits increased, and the benefits and the future of employment-based health insurance improving health. Research has shown that advances in nant form of health plan enrollment today), most claims This section is based in part on Paul Fronstin, “The Erosion of Retiree and some dropped the benefits completely. An annual insurance started to increase. Because the National War health insurance through the Tricare and CHAMPVA plans since the 1980s. A cafeteria plan gives each Retirement Behavior: Implications for the Disability 40% between 1997 and 1999 (chart 2). overstate the extent to which employers are dropping supplements to Medicare benefits. and more former welfare recipients moving into private- has been virtually unchanged since 1993 (table 2). In when both the treatments and costs are less intense. If Adams, Alyce 17.2% 17.3% 17.1% 17.1% Chart 16, Provision of Retiree Health Benefits by benefit costs are increasing by almost 10 percent annu- 17.2% looked for alternatives to fee-for-service health benefits. Table 2, Average Percentage of Medical Plan Salisbury at the above address, (202) 659-0670; e-mail: email@example.com 20% Research workers accepting coverage. If the uninsured rate appears to be moving away from firms that offer benefits were provided HMO benefits, some of the Medicare- health insurance coverage. This combination of more 30% employers are creating jobs and that large employers for Postretirement Benefits Other Than Pensions.” FAS likely play and table 2), while the benefits package has been im- • Finally, the strong economy likely had an impact on Health Benefits and Retirement Behavior: Implications for the Disability at a time when health insurance costs were going up. survey of employers with 500 or more workers shows their benefits. These benefits have also been discussed in retiree health benefits. When broad cross sections of medical technology that have improved life expectancy benefits. The next section presents recent trends in package improved, despite the fact that the cost decisions are made Labor Board froze wages, employers sought ways to get programs and other government programs designed to employee the opportunity to determine the allocation of Insurance Program.” prospectively Social Security Bulletin , through the utilization (forth- and public-sector employment. The likelihood of a child being covered by Because of double-digit health benefit cost contrast, an annual survey by the Kaiser Family Foun- conditions and diseases are first being treated at later S., Stephen B. • The strong economy and low unemployment have had an effect not only on the Trend ally (chart 19), and are expected to continue increasing Employers with 1,000+ Employees, 1991, 1996, Managed care (which by then had existed for decades, Institute- Insurance Program,” to firms that do not. employers adding health benefits and more children Premium Paid by Employee in Firms of 500 Social Security Bulletin (forthcoming 2001). have downsized, but when small employers create jobs 106 dramatically changed the way most private compa- returns to its 1999 level of 17.5 percent of the nonelderly 19.7% 19.7% eligible retirees filed suit alleging unfair treatment. The 19.0% 18.9% 19.1% primary roles in 18.9% 18.8% proving (charts 11–14). Other recent evidence, also 18.5% enrollment and health care spending, resulting in 17.4% 17.8% Health insurance cost inflation has been increasing since 20% 16.6% Chart 8 terms of e-commerce: The growth of the Internet can that the percentage offering health benefits to early 16.4% employers are studied over time, it appears that employ- 20% 15.6% increases during the late 1980s and early 1990s, employ- review process. This has led to the frequent criticism of providing those benefits was rising. Given the eco- sources of health insurance, access to health benefits, have had a significant positive impact on the economy. around the wage controls in order to attract scarce provide coverage for retired military members and their his or her total compensation (within employer-defined coming 2001c). employment-based health insurance benefits increased dation and the Health Research and Educational Trust outweighs the cost savings that can be attributed to stages, the cost of providing health care may actually be Despite expansions in the State Children’s Soumerai, and likelihood that an employer offers health benefits and the percentage of the premium and 1998 ......................................................................14 Education Chart 11 at this rate (if not more) in the future. There are several although mostly in the West and Pacific Northwest) or More Employees, by Plan Type, 1993–2000 ..........10 covered by S-CHIP will result in continued expansion of Most employers continuing to offer retiree health 10% they often become large employers and thus are able to population, 45 million Americans would be uninsured. In Editorial Board: Dallas L. Salisbury, publisher; Steve Blakely, managing editor; Cindy O’Connor, production and distribution. Any Erie case addresses the following question: Does provid- discussed above and presented in charts 9 and 19, shows driving the more employees enrolled in less-restrictive PPOs as Percentage of Nonelderly Americans Without Health Insurance, 1987–1999 enable employers to move to a benefits structure that that a denial of coverage by a plan is the denial of care. nomic conditions at that time, it is likely that low changes to benefit packages, and retiree health benefits. Murphy and Topel (2000) found that improvements in Fronstin, Paul, and Ruth Helman. “Small Employers and workers. In 1943, the National War Labor Board ruled limits) among the various employee benefits that are families. for a number of reasons (Fronstin, 1999). The percentage ment-based health benefit plans began to move workers Health Insurance Program (S-CHIP), public health Percentage of Full-Time Employees in Medium and Large Priv cutting back on health benefits. higher in the long run. Furthermore, if it is less costly to ate Establishments Particip Dennis Ross- ating in and Research that workers pay, but also on certain aspects of the benefits package. 7.8% 7.9% 7.8% 7.8% views expressed in this publication and those of the authors should not be ascribed to the officers, trustees, members, or othe 7.3% Chart 17, Percentage of Large Employers Requiring reasons why these costs will continue to increase: 6.9% r promised to control costs through improved coordination Chart 1, Percentage of American Children, Ages 0–17, Drivers 6.4% 7.0% contrast, if the downturn in the economy is severe and 6.4% 6.2% benefits have made changes in the benefit package. The ing different retiree health benefits to retirees of the health insurance coverage. This decline in the uninsured add employee benefits to their compensation packages. References future of the 5.7% 5.7% that the cost of providing health benefits to employees they enjoy rising real income and become able to pay 10% 5.6% 0% Non-Heal sponsors of the Employee Benefit Research Institute, the EBRI Education and Research Fund, or their staffs. Nothing herein is th Maintenance Organization Plans, by Lifetime Maximum Limit Amount, 1989–1997 takes full advantage of new technology. to Courts appear to be making distinctions between benefit life expectancy due to technological innovations in unemployment rates had a stronger impact on employer The third section discusses the reasons underlying the that employer contributions to insurance did not count offered (primarily retirement or health). The Federal Health Benefits: Findings from the 2000 Small Prior to 1999, the uninsured population grew for 20% Chart 13 of children with a working parent increased, the percent- into managed care arrangements. Between 1992 and insurance coverage did not increase overall between Fund. treat a disease in its early stage, there is an opportunity Degnan. “Use of • Retiree to Pay Full Cost of Retiree Health Benefits, First, the U.S. population is aging. While this does not and efficiency by reducing the inappropriate or unneces- most common change is in cost-sharing provisions, with and rise in employment-based health insurance benefits With Employment-Based Health Benefits, Medicaid, On the other hand, when large firms downsize, they uninsured individuals represent 25 percent of the same employer violate provisions of the Age Discrimina- 0% 3–9 Workers 3–199 Chart 15 Workers 200+ Workers 18.4% employment- Table 2 has been increasing. Economists, and others, assume for better benefits and additional health care services. 18.3% be construed as an attempt to aid or hinder the adoption of any pending legislation, regulation, or interpretative rule, or as legal, Percentage of Full-Time Employees in Medium and Large Private Establishments Participating Some employers already are considering a DC All rights 1999, the percentage of workers enrolled in traditional 17.7% 17.5% determinations and administration, which are pre- trends in employment-based health insurance benefits. behavior toward health benefits than the cost of provid- medical care added $2.4 trillion per year (in 1992 dollars) as wages. Health insurance benefits were an attractive Employees Health Benefits Program (FEHBP) has a number of reasons. For instance, between 1987 and Employer Health Benefits Survey.” EBRI Issue Brief age of children in families with incomes below the 1998 and 1999. The percentage of nonelderly Americans cost of late detection in the form of resources being 17.4% Antihypertension 0%• 1994 As a result of FAS 106, many employers began a major overhaul of their retiree health 1995 1996 17.3% 1997–1999 1997 17.1% .................................................................... 1998 1999 14 60% have a major impact on health benefit costs on a year- sary use of health care services, reviewing proposed and Without Health Insurance, 1987–1999 18% Provision of Retiree Heal ................ 17.0% 5 The Economy th Benefits by Employers employers asking retirees to pick up a greater share of may be confusing because the data are often misinter- Average Percentage of Medical Plan Premium Paid by Employee in Firms of 500 often remain large firms, and former employees from population under age 65, a total of 63 million Americans accounting, actuarial, or other such professional advice. tion in Employment Act (ADEA)? The federal district that when the price of a product increases, consumers based health benefits system: health benefit costs and Employers offer health benefits as a form of compen- in Non-Health Maintenance Organization Plans, by Deductible Amount, 1989–1997 Source: Jon Gabel et al., “Job-Based Health Insurance in 2000: Premiums Rise Sharply While Coverage Grows,” 16.3% approach to health benefits in response to rising health reserved. 1987 198816.1% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 empted by ERISA, and medical decisions outside of The fourth section presents the outlook for employment- ing these benefits. to national wealth between 1970 and 1990. There could means to recruit and retain workers. Unions supported 1993, this increase can be attributed to the erosion of operated as a DC-type health plan for years. no. 226 (Employee Benefit Research Institute, October 15.7% poverty level decreased, and more children had a work- indemnity (fee-for-service) plans declined substantially. covered by Medicaid and other government-sponsored Drugs by Medicare Enrollees: Does Type of Drug devoted to health care that could be more productive benefits program, and some dropped the benefits completely. Most employers continu- With 500+ Employees, 1993–1999 or More Employees, by Plan Type, 1993–2000 Chart 18, Percentage of Retirees Ages 55–64 With to-year basis, it will affect spending over time because health care services before they were provided, increas- Chart 2, Percentage of American Adults, Ages 18–64, 15.5% would be uninsured. the cost of coverage. In 1999, 42 percent of employers court ruled that ADEA did preted as representing the current time period rather Source: Emplo not yee Benefit Research Institute estimates from the March 1995–2000 Current Population Surve apply to retiree health these firms often take jobs with other large employers. labor market conditions. ys. 16% Health Affairs, Vol. 19, no. 3 (September/October 2000): 144–151. will demand less of that product. If this is true, then why sation in order to recruit and retain qualified 14.8% 70% 4 EBRI Issue Brief is registered in the U.S. Patent and Trademark Office. ISSN: 0887-137X 0887-137X/90 $ .50+.50 care costs. Furthermore, consideration of a DC approach Whether the currently slowing economy has an impact 1989 1991 1993 1995 1997 benefit determinations, which have increasingly not been be a cost to society in the form of forgone economic based health insurance benefits, and includes a the provisions of employment-based health insurance employment-based 2000). Today, most types of DC health plans currently health benefits. While public ing parent employed in a large firm. The increase in While the movement to managed care brought about health insurance coverage did not change between 1998 Coverage Matter?” elsewhere. Health Affairs. Vol. 20, no.1 50% ing to offer retiree health benefits have made changes in the benefit package. The most 50% Source: Employee Benefit Research Institute estimates from the March 1988–2000 Current Population Surve Retiree Heath Benefits, Public Coverage, or health care use increases with age (chart 20). ys. ing access to preventive care, and maintaining and 47% with 500 or more workers offering retiree health benefits than the period nearly two years prior to its release; in With Employment-Based Health Benefits, Medicaid, So while fewer employers are offering retiree health benefits. On appeal, the Third Circuit found the ADEA 46% would more small employers offer health benefits and employees and as a way to improve employee produc- 1989 1993 1994 1995 1996 1997 1998 1999 2000 1991 1993 1995 1997 14% may accelerate if Congress were to pass patient protec- 43% on employment-based health benefits depends on a declines in the rate of health benefit cost inflation, at pre-empted, although the courts have not settled the output if mortality and morbidity are higher because discussion of defined contribution health benefits. Fronstin, Paul, and Sarah C. Snider. “An Examination of benefits, and workers’ health benefits were not subject to being discussed could be provided within the current As long as employment-based coverage among children can in part and 1999, remaining at 10.4 percent in 1999. While the (January/February 2001): 276–286. On the other hand, some employees might 60% common change is in cost-sharing provisions, with employers asking retirees to pick 46% Uninsured, 1994–1999 ................................................15 • Second, new technology, including pharmaceuticals improving the quality of care. and Without Health Insurance, 1987–1999 ................ 41% 5 required retirees to pay 100 percent of the premium for this case, the March 2001 CPS (released in late 2001) benefits, the decline may be offset by the movement of 54% 40% 53% 53% did apply to retiree health benefits, and remanded the Public Policy make the benefits package richer at a time when the cost 53% tivity. Locking employees into a plan that limits 49% 45% Health Benefit Costs tion legislation. These plans essentially would change issue. In fact, the Supreme Court is currently seeking fewer Americans receive quality health care services. income tax (or Social Security payroll taxes), as were 2 employment-based health insurance system, with or the Decline in Employment-Based Health Insurance health benefit be attributed to a combination of welfare reform and the number of factors. Massive layoffs have yet to have a least temporarily, this movement has not occurred data used in this analysis currently do not allow re- 40% Bennefield, Robert L. “Health Insurance Coverage: choose more extensive benefits and ultimately pay more 12% Indemnity up a greater share of the cost of coverage. The recent case 43% Erie County Retirees 8 health benefits from a family member’s employer (“de- occurring among the smallest of the small firms The estimate for Medicaid likely also includes children enrolled in Chart 19, Health Care Cost Inflation, 1987–2000 and imaging, will continue to be developed. New offering health benefits and the increase in the percent- .........16 Chart 3, Percentage of Workers, Ages 18–64, With Managed care, it seems, was able to reduce the health insurance benefits. For example, between 1994 coverage, up from 31 percent of employers in 1997 case back to the district court. On remand, the district will report on data for calendar year 2000. 41% workers from small firms to large firms. 50% of providing those benefits was increasing? The answer choice and perhaps reduces their satisfaction may be Did you read this as a pass-along? Stay ahead of employee benefit 40% S-CHIP. It is currently impossible to obtain separate estimates of Medicaid Could we send a friend or colleague a complimentary Employee-only coverage 24% 20% 23% employer thinking from trying to manage the range of 24% 24% 22% 24% 23% advice from the solicitor general on whether state laws cash wages. without the use of cafeteria plans. They could also allow Between 1988 and 1993.” The degree to which employers can shift the cost Inquiry (Winter 1996/97): costs continue to The percentage strong economy, both of which resulted in fewer adult substantial impact on the unemployment rate. While the without controversy. Not only are health benefit costs searchers to count the number of children enrolled in for health insurance. If health insurance currently acts 1997.” Current Population Reports. P60-202. Washing- 40% Association v. County of Erie may accelerate changes to retiree health benefit pendent” coverage) increased from 17.3 percent in 1998 (chart 6). Most small employers report that offering Chart 20, Health Care Spending, by Age and Gender, and 1999, the percentage of workers who were self- technology for the delivery of medical services either age of workers and their dependents covered by The rising cost of health benefits may not be the only rate at which health care costs were increasing. Accord- 38% (chart 17). health insurance increased from 72.2 percent to 73.3 per- Employment-Based Health Benefits, Medicaid, 10% various sources of employment-based health benefits During the late 1980s and early 1990s, health benefit EBRI Issue Briefs for only $49/ 30% court is instructed to find if both retiree benefit plans issues with your own subscription to is that the relationship between the provision of health and S-CHIP from the CPS. Medicaid (and Medicare) estimates are under- less costly, but it may not be cost-effective in terms of 29% Family coverage 28% 33 25 33 32 32 29 35 30 40% 40% copy of EBRI Issue Brief? covered health care services and utilization through the 40% 35% unemployment rate jumped from a 30-year low of 36% 30% rising again, but policymakers are considering legislation requiring an independent review of medical necessity of coverage onto employees will vary with the strength of employees to purchase health insurance directly from 317–325. Historians often suggest that the tax-preferred increase, of Americans women on welfare and more adult women working. S-CHIP, it appears that some children benefited from ton, DC: U.S. Department of Commerce, Economics to induce demand for health care services, utilization of 27% programs. 1996 ............................................................................17 to 17.7 percent in 1999. Overall, the likelihood of a replaces existing technology, which was usually less employment-based health benefits between 1997 and factor resulting in the future erosion in employment- year electronically e-mailed to you or $99/year printed and mailed. 35% ing to chart 19, employer costs for health benefits barely cent, despite the apparent return of health care cost health benefits helps with recruitment and retention and reported in the CPS, according to comparisons of these data with enrollment and Without Health Insurance, 1987–1999 ................6 6 employed declined, the percentage of workers employed costs increased faster than the overall consumer price While there is no doubt that fewer employers Health Maintenance Organization follows the trend for total employment-based health (i.e., pre-Medicare and post-Medicare) provide equal The change in the likelihood of being covered by retiree health benefits was benefits to employees and the cost of providing those 24% The Uninsur an employer’s recruitment, retention, and lost produc- ed 8% 35% Outlook 23% way benefits are designed to setting limits on employer decisions made by a health plan conflict with ERISA. the economy and the labor market. Because health Gabel, Jon et al. “Job-Based Health Insurance in 2000: status of employment-based health insurance benefits insurers, or they could drive new technologies and new and participation data provided by the Health Care Financing Administra- employers will under age 65 28% 3.9 percent in October 2000 to 4.3 percent in March that would provide consumers with certain rights. There expansions in government-funded programs. Findings Between 1994 and 1997, the percentage of 28% and Statistics Administration, September 1998. services could increase. This concept is known as moral For more information about subscriptions, visit our Web site at Employee-only coverage 23 22 22 22 23 23 22 21% 22 worker having coverage from his or her own employer not statistically significant; furthermore, the survey does not allow researchers Chart 21, Unemployment Rate, 1987–2000 expensive, or brings something new to the medical 1999 are both not surprising and surprising. They are based health insurance benefits. Public policy can play a ...................18 changed between 1994 and 1997. One major factor that Chart 4, Percentage of Workers Ages 18–64 With inflation in 1998 and 1999. keeps workers healthy, which ultimately reduces absen- 30% 35% at firms with 1,000 or more employees increased, and the benefits. The percentage of workers receiving health index (CPI) and faster than the medical portion of the 20% 31% offer retiree health benefits today and that the percent- benefits or if the costs to the employer of both plans are Send an issue to benefits is not simple. It is complicated by other factors, tivity costs. 23% tion (HCFA) (Bennefield, 1998). 20% Family coverage 33 22% 29 33% 35 33 34 36 34 33 to distinguish between retiree health benefits and coverage under the contributions, and, in some cases, requiring employees to www.ebri.org or complete the form below and return it to EBRI. benefits are a form of total compensation, employers will led to the rise in its prevalence. However, employer forms of risk pooling through which health care services Premiums Rise Sharply While Coverage Grows.” Critics of ERISA believe that denial of coverage 6% seek ways to covered by working adults with employment-based health insurance 2001, it is still a very low level of unemployment. In is a consensus that these “patients’ rights” will increase from the U.S. Census Bureau’s Current Population 16% Copeland, Craig. “ERISA and Self-Insured Employment- hazard—meaning individuals demand a greater quantity 30% • Two factors will likely play primary roles in driving the future of the employment- increased only 1 percent between 1994 and 1999 because teeism and increases productivity (Fronstin and Helman, It is also worth noting that while the uninsured declined Chart 22, Percentage of Small Employers Reporting percentage of workers employed on a part-time or part- field that did not exist in the past, thereby adding strong role as well. For the past few years, Congress has not surprising because the strong economy and low led to the reduction in health benefit cost increases was age of those offering coverage continues to decline, it is Employment-Based Health Insurance Benefits, An examination of total employment-based benefits from their own employer (“own name” coverage) consumer price index (MCPI). In some years, these costs the same. In calculating the cost of the post-Medicare Recent Trends 17% such as labor market conditions. 31% 3 Organization Rising health benefit costs will impact the Preferred provider organization Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). 20% Tricare (formerly known as CHAMPUS) is a program administered by the design their own benefit plans. Thus, DC health benefits 30% contrast, the combination of a slowing economy, rising the cost of health benefits (if they are mandated by law, is equivalent to the denial of care, and that administra- not be able to cut benefits, thereby cutting total compen- interest in workers’ health actually started long before are provided and financed. Health Affairs. Vol. 19, no. 3 (September/October reduce these employment- 13% coverage held steady at roughly 72.3 percent (chart 3). Survey (CPS) indicate that the percentage of children in Based Health Benefits.” Unpublished manuscript. of health care services when health insurance pays for at 11%based health benefits system: health benefit costs and labor market conditions. Health Benefits Positive Impact on Various 11% 12% of an initial drop in coverage between 1994 and 1997. 4% costs which also did not exist. unemployment rates caused more employers to provide been debating proposed legislation known as the “pa- migration to lower-cost managed care plans. Managed 2000). Clearly, many employers realize there is real between 1998 and 1999, more than 42 million Americans year basis decreased (chart 5). 28% not clear that fewer retirees are covered by health insurance benefits among workers can mask important by Source of Coverage, 1994–1999 Employee-only coverage ............................... 24 20 6 25 increased from 55 percent in 1997 to 55.6 percent in 1998 increased nearly 20 percent for some employers, cost 24 23 24 24 23 9% retiree health benefit, the employer may include only Department of Defense for military retirees as well as families of active duty, 7 Name 9% percentage of workers (and dependents) with health 25% 8% Address 10% Some persons in the CPS report their main activity as “Ill or Disabled” tors of health plans make medical decisions based sation, when unemployment levels are low. Today, costs. However, as long as unemployment remains low, the tax treatment of health benefits became an incentive. 2000): 144–151. DC health plans have also been discussed in the 6% based health During this period, health care cost inflation was essen- health care costs, and worker uncertainty about the 6%and depending on how broad the rights are), although families just above the poverty level without health 10% Family coverage Early Retirees 31 28 Medicare-Eligible Retirees 41 Washington, DC: Employee Benefit Research Insti- least part of the cost of receiving care. Findings from the 36 36 38 36 36 5% 5% The likelihood that a worker had dependent coverage retired, and deceased service members. CHAMPVA, the Civilian Health and 4% • Aspects of Their Business Third, demand for services continues to increase. health benefits in order to attract and retain workers, tients’ bill of rights.” Employers and insurers generally This publication is available for purchase ...........................................18 care plans also altered the incentive structure from a fee- Chart 5, Percentage of Workers Employed in Large business value in providing health care coverage to their differences in trends for the sources of that coverage. continue to be uninsured. Even if the number drops (chart 4). Similarly, the percentage of workers receiving increases that many private employers simply did not Despite rising health insurance costs, employers 4% 3% insurance. According to data from the CPS, the percent- those costs that it incurs itself (i.e., Medicare expendi- 3% when they may in fact be retired. Similar to the findings for retirees, there was 2% 2% 24% benefits in two ways. It is likely that small employers 0% Organization Labor Market Conditions 2% Point-of-Service 2% Medical Program for the Department of Veterans Affairs, is a health care City/State/ZIP primarily on financial (rather than medical) factors, and unemployment rates are running just over 4 percent, and employers will likely be unable to significantly modify benefits has been increasing since 1994 (table 1). Over- Institute of Medicine. Early examples of employment-based health programs context of e-commerce: The growth of the Internet can Employment and Health Benefits: tially nonexistent. Working adults finally experienced an future may make it easier for employers to modify health there is wide disagreement about how much the increase insurance coverage declined dramatically, from 27.2 per- 1% 20% tute, 2001. RAND Health Insurance Experiment indicate that as • As long as health benefit costs continue to increase, employers will seek ways to reduce no significant change in insurance coverage for the ill and disabled between online. Visit www.ebri.org/publications or increased 4 percent between 1994 and 1999. workers. Overall, offer rates to employees increased again later this year, when the 2000 data are released, it Chart 23, Number of Uninsured Americans, increasingly have been offering health benefits to Consumers and providers tend to demand the “latest agree that most of the proposed provisions would not and also may have resulted in more workers being able for-service or cost-plus reimbursement scheme to a age of early retirees covered by retiree health benefits Workers can be covered by employment-based insurance Firms, Self-Employed, Part-Time or Part-Year, 0% 10 want to pay (Fox, 1998). For example, in 1988 overall tures may not be taken into account)—a threshold that Employee-only coverage 19 20 20 22 22 24 22 22 benefits program for disabled dependents of veterans and certain survivors of Defined contribution health benefits have also been referred to as “defined 0% 0% 1993 1994 1995 1996 1994 and 1999. Address 1997 1998 1999 2000 benefit programs. Even with low unemployment, if Under $100 $100–$149 $150 or Higher might be. None thus should be held responsible for those decisions existing health benefit programs. With low unemploy- all, this increase in coverage was due in large part to a more small employers are adding health benefits to include the mining, lumbering, and railroad industries enable employers to move to a benefits structure that Your Name A Connection at Risk. Washington, DC: National Copeland, Craig, and William Pierron. “Implications of increase in the likelihood of having employment-based cent uninsured in 1998 to 19.7 percent uninsured in coinsurance rates increased, utilization and expenditures these costs. However, as long as unemployment remains low, employers will likely be Ages 0–64, Various Assumptions About call (202) 659-0570. It is likely that the changing composition of the and greatest” services, and information provided on to afford health insurance. They are surprising because have a significant impact on benefit costs; however, payment scheme in which health care providers were between 1997 and 1999, although employee take-up is likely that 40 million Americans will still be unin- veterans. Family coverage 35 29 32workers. Between 1998 and 2000, the percentage of care,” “consumer driven,” and “consumer-centric.” 34 31 33 33 32 may have decreased slightly between 1994 and 1999 benefits through their own employer, through a spouse’s 1994–1999...................................................................... Under $1 Million $1 Million 7 Over $1 Million inflation according to the CPI was 4 percent, the MCPI The unemployment rate has been declining since 1992. Other None many believe will be hard to meet. Accordingly, ADEA 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Deductible Amount 8 9 through malpractice liability (Copeland and Pierron, recruit and retain employees, even when their health higher likelihood that children were covered by employ- ment, the cost of during the late 1800s (Institute of Medicine, 1993). takes full advantage of new technology. The Internet Academy Press, 1993. not providing health benefits—such as health benefits in 1998. Between 1997 and 1999, the employees fear that they could lose their jobs, employers The seemingly inconsistent trends may also be due to more retirees accepting 1999. Some of the decline can be attributed to expansions City/State/ZIP Employers are once again examining changes to Unitedhealthcare, as an example, ended its practice of requiring pre- Source: William M. Mercer, Mercer/Foster Higgins National Survey of Employer-Sponsored Health Programs 1 ERISA for Health Benefits and the Number of Self- for health care services declined (Manning et al., 1987). (New York: NY: 6 unable to significantly modify existing health benefit programs. labor force accounted for some of the increase in the 4 11 Percentage Uninsured, 1999–2010 the Internet about previously “unknown” treatments, 1998 saw the return of health care cost inflation, and provisions that would make insurers, and potentially ............................19 paid either a salary, a fixed amount per patient (a Chart 6, Percentage of Employers Offering Health employer, and sometimes through a parent’s employer. rates remained unchanged (chart 7). sured—more than 15 percent of the population. As long small firms offering health benefits increased from 1 was 7 percent, but employer spending on health benefits In that year, the unemployment rate was 7.5 percent, (chart 18). may require the employer to either offer a richer benefit See Fronstin and Snider (1996/97) for an analysis of the decline in Overall, there have been no statistically For a more detailed treatment of changes to the employment-based health For example, a 20-year-old student working part time could be covered by Source: U.S. Department of Labor, Bureau of Labor Statistics. Source: U.S. Department of Labor, Bureau of Labor Statistics. COBRA coverage. As mentioned already, it is impossible to distinguish authorization for certain types of care in 1999. See Source: William M. Mercer, Source: Emplo William M. Mercer, 2001). yee Benefit Research Institute estimates from the March 1988–2000 Current Population Surve Mercer/Foster Higgins National Survey of Employer-Sponsored Health Programs (New York: NY: William M. Mercer, 2001). ys. 1998). Once health plans are held liable, critics argue care costs are increasing more than 10 percent annually ment-based health benefits. Between 1994 and 1999, the the cost of recruiting and retaining employees—often Employers in these industries provided company doctors would facilitate plan selection during open enrollment percentage of working adults with employment-based may have more flexibility to reduce health benefits (and employment-based health insurance benefits for several in Medicaid and S-CHIP. Between 1998 and 1999, the Funded ERISA Plans.” In addition, a more recent study found that Medicare EBRI Issue Brief no. 193 employment-based health insurance between 1988 and 1993. Mail to: EBRI, 2121 K Street, NW, Suite 600, Washington, DC 20037 insurance benefits system see Fronstin (2001a) and Fronstin (2001b). his or her parent’s employment-based health benefits plan. percentage of workers covered by employment-based as the economy is strong and unemployment is low, The increase in the percentage of employers 54 percent to 67 percent, with much of that increase along with direct-to-consumer advertising, have also this inflationary trend accelerated in 1999. In the late employers, liable for medical decisions have raised many “capitated” basis), or a pre-negotiated discount on fee-for- significant changes in sources of health insurance It turns out that the trend for workers’ coverage from Benefits, by Firm Size, 1998–2000...............................7 between COBRA coverage and retiree health benefits in the March CPS. compared with 4 percent in 2000 (chart 21). Low unem- rose 19 percent (chart 19). to the post-Medicare retirees, or to reduce the pre- www.unitedhealthcare.com/press/991109ccoord.html Mail to: EBRI, 2121 K Street, NW, Suite 600, Washington, DC 20037 or Fax to: (202) 775-6312 or Fax to: (202) 775-6312 EBRI Issue Brief Number 233 • May 2001 • © 2001. 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