separate estimates of Medicaid and S-CHIP from the CPS. Medicaid (and Medicare) estimates are under-reported in the CPS, coupled with the strong economy W but policymakers are considering legislation that would provide consumers with certain rights. These “rights” and keeps workers healthy fewer employers are offering retiree health benefits, the decline may be offset by the movement of workers from the various employee benefits that are offered (primarily retirement or health). The Federal Employees Health The Employee Retirement Income Security greatest” services, and information provided on the Internet about previously “unknown” treatments and direct-to- ith the enactment of Medicare in 1965, the employer , which ultimately reduces absenteeism and increases productivity (Fronstin and , resulted in fewer people on the welfare roles and more former welfare recipients Act of 1974 (ERISA) established the federal government as the pri- ’s cost obligation declined significantly, because employers employees even when their health care costs are increasing more than 10 percent annually (KFF/HRET Chairman Camden and members of the working group, I am pleased to appear before you today to discuss unin- Outlook , 2000). EBRI Chart 9 according to comparisons of these data with enrollment and participation data provided by the Health Care Financing Ch Ch art 15 art 21 Admin- 7 Ch Chart 19 art 12 Table 1 Helman, 2000). Clearly moving into private- and public-sector employment. were able to integrate their retiree health benefit programs with Medicare. In more recent years, however consumer advertising have also induced demand for health care services. mary regulator of private-sector employee benefit plans (Copeland and Pierron, 1998). The number of individuals small firms to large firms. Benefits Program (FEHBP) has operated as a DC-type health plan for years. would likely increase the cost of health benefits. , many employers realize there is real business value in providing health care coverage to Chart 7 , the sured This is further evidence that employers cannot simply cut back on their contributions to health benefits when Americans. My name is Paul Fronstin. I am a senior research associate and director of the Health Security ChCh art 3 art 5 Unemployment Ra Chart 1te, 1987–2000 Premium Increases by Firm Size, 1988–2000 istration (HCFA) (Bennefield, 1998). Provision of Retiree Health Benefits by Employers Nonelderly Americans with Selected Sources of Heal EMPLOYEE th Insurance Coverage, 1987–1999 Percentage of Full-Time Emplo Heal yees in Medium and Large Priv th Care Cost Inflation, 1987a–te Est 2000ablishments, Participating in As long as health benefit costs continue to increase, employers will seek ways to reduce these costs. However, as Employment-Based Health Insurance Benefits Sponsorship, Offer, Coverage, changing demographics of the work force, coupled with increasing life spans and rising health care costs, have left their workers. Overall, offer rates to employees increased between 1997 and 1999, although employee take-up under age 65 with health benefits subject to ERISA was approximately 128.2 million in 1999 (Copeland, 2001). health care expenditures are increasing, because any savings from reducing health benefit costs will likely be and Quality Research Program at the Employee Benefit Research Institute (EBRI), a private, nonprofit, nonparti- Percent Percent age of W age of W orkers, A orkers Emplo ges 18–yed in Large Firms, Self-Emplo 64, With Employment-Based Heal yed, th Percentage of American Children, A 8% ges 0-17, With Employment-Based With 500+ Employees, 1993–1999 Non-Heal 14% th Maintenance Organization Plans, by Coinsurance Rate, 1989–1997 BENEFIT and Take-Up Rates among Wage and Salary Workers, Ages 18–64, 1988–1999 long as unemployment remains low 20% , employers will likely be unable to significantly modify existing health benefit 3 7.5% Patient protection legislation, if passed, would significantly modify ERISA. Managed care plans have been criti- many employers with rising retiree-to-active-worker ratios, and have increased employers’ retirement liabilities. Fourth, health care providers and insurers have been consolidating. Health care providers are now in a better T Employers are once again examining changes to employment-based health insurance benefits to control future Ultimately rates remained unchanged (chart 7). Despite expansions in the State Children’ oday, most types of DC health plans currently being discussed could be provided within the current employment- , it may be a few more years before we truly understand how workers and retirees will be affected by Benefits, Medicaid, and W Part-T s Health Insurance Program (S-CHIP), public health insurance coverage ime or P ithout Heal art-Year, 1994 th Insur –ance, 1987 1999 –1999 offset by higher recruitment and retention costs. san, public policy research organization based in W Tricare (formerly known as CHAMPUS) is a program administered by the Department of Defense for military retirees as Health Benefits, Medicaid, and W ashington, DC. EBRI has been committed, since its founding in ithout Health Insurance, 1987–1999 19% 50% 12% 6.9% T-129 RESEARCH programs. With low unemployment, the cost of not providing health benefits, such as the cost of recruiting and 7% 80% well as families of active duty 80% 1987 , retired, and deceased service members. CHAMPV 17% 1988 1989 1990 1991 1992 1993 A, the Civilian Health and Medical Program 1994 1995 1996 1997 1998 1999 In December 1990, the Financial cized because of the way in which they are able to operate under ERISA. Under traditional fee-for did not increase overall between 1998 and 1999. The percentage of nonelderly health benefit cost increases, respond to employee demands for more choice and, in some cases distance them- based health insurance system, with or without the use of cafeteria plans. They could also allow employees to cutbacks in retiree health benefits. Many workers may never qualify for retiree health benefits because their position to negotiate fees with insurers and employers, and insurers are also in a better position to negotiate with 12% Accounting Standards Board (FASB) approved Financial Americans covered by Medicaid and Accounting Statement -service plans, 1978, to the accurate statistical analysis of economic security issues. Through our research we strive to contribute CPI MCPI Health Benefit Costs 90% 80% 79% 74% 17% 85% 46% 84% 89% 83% 71% 40% 83% 83% 83% 82% 6.8% INSTITUTE for the Department of Veterans Affairs, is a health care benefits program for disabled dependents of veterans and certain 6.2% 6.1% ® retaining employees, often outweighs the cost savings that can be attributed to cutting back on health benefits. 45% 10.3% other government-sponsored health insurance coverage did not change between 1998 and 1999—remaining at employers offer them only to workers hired before a specific date. The increase in the percentage of employers offering health benefits and the increase in the percentage of workers selves further from care decisions. This paper discusses recent trends in and the future of employment-based employers. No. 106 (F the most prevalent type of plan at the time ERISA was enacted, the denial of a claim is typically not as critical as purchase health insurance directly from insurers, or they could drive new technologies and new forms of risk AS 106), “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” F 1989 1991 1993 1995 AS 106 dramati- References to the formulation of effective and responsible health and retirement policies. Consistent with our mission, we do 1997 70% 76.1% 75.5% 15% 10% 6% 43% (millions) 36% 70% 76% survivors of veterans. 73.9% 73.9%76% 5.6% 80% 1994 1995 1996 75%1997 1998 1999 70% 66.5% 65.8% 41% 73.3% 66.7% 74% 34% 34% 72.2% 72.2% 71.8% 72.4% 72.4% 72.3% 72.2% 40% 72.8% 10.4 percent in 1999. While the data used in this paper currently do not allow researchers to count the number of health insurance benefits. The next section presents recent trends in sources of health insurance, access to health and their dependents covered by employment-based health benefits between 1997 and 1999 are both not surpris- cally changed the way most private companies accounted for their retiree health benefits. It required companies to pooling through which health care services are provided and financed. it is in a managed care setting, because claims are generally paid or denied after the treatment has taken place. In 60% 8.3% not lobby or advocate specific policy solutions. 5.4% 35% 64.0% 33% 62.7% 8.5% 62.0% 40% 12% 61.5% 5.5% 5.6% 38% 60.2% 60% 59.6% 31% 68% 4.9% 31% Total Population The Economy Adams, 4 Alyce S., Stephen B. Soumerai, and Dennis Ross-Degnan. “Use of 8% 214.4 216.6 218.5 220.6 222.959.5%225.5 228.0 Antihypertension Drugs by Medicare 229.9 231.9 234.0 236.2 238.6 240.7 5% 58.9% children enrolled in S-CHIP Fifth, the managed care backlash may have resulted in health insurers relaxing restrictions on access to health ing and surprising. They are not surprising because the strong economy and low unemployment rates caused more record unfunded retiree health benefit liabilities on their financial statements in order to comply with generally benefits, changes to benefit packages, and retiree health benefits. The third section discusses the reasons underly- a managed care setting, the dominant form of health plan enrollment today 40% , it appears that some children benefited from expansions in government-funded 40% 58.1% 58.6% , most claims decisions are made T See Fronstin and Snider (1996/97) for an analysis of the decline in employment-based health insurance between 1988 and rend Drivers 70% 60% 54% 5.3% 36% 60% 29%63% 29% 29% 62% 63% 35% 6.9% Employment-Based Coverage 148.5 149.4 149.8 147.7 10% 147.7 145.9 144.9 146.3 147.9 149.8 151.7 154.8 158.4 8 1993. Enrollees: Does T 30% ype of Drug Coverage Matter?” Health Affairs. 28% Vol. 20, no.1 (January/February 2001): 276– 4.0% 35% care services. employers to provide health benefits in order to attract and retain workers, and also may have resulted in more ing the trends in employment-based health insurance benefits. The fourth section presents the outlook for employ- DC health plans have also been discussed in the context of e-commerce: The growth of the Internet can enable programs. Findings from the U.S. Census Bureau’ prospectively through the utilization review process. This leads many to believe that a denial of coverage by a plan accepted accounting standards, beginning with fiscal years after December 15, 1992. F 10% Furthermore, in 1998, growth in health HMOs ceased, and POS plans lost market share. It ap- s Current Population Survey (CPS) indicate that the percentage AS 106 also required Introduction 50% 27% 27% 4.5% 6% 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 8% Whether the slowing economy has an impact on employment-based health benefits depends on a number of 60% 4% 35% 50% 31% Two factors will likely play primary roles in driving the future of the employment-based health benefits system: 8% 4.2% 5.2% 286. 50% employers to move to a benefits structure that takes full advantage of new technology of children in families just above the poverty level without health insurance coverage declined dramatically is the denial of care. Courts appear to be making distinctions between benefit determinations and administration, employers to accrue and expense certain future claims’ payments as well as actual paid claims. The recognition of ment-based health insurance benefits, and includes a discussion of defined contribution health benefits. workers being able to afford health insurance. They are surprising because 1998 saw the return of health care cost pears that consumers and employers are voting with their feet. The combination of the managed care backlash . The Internet would facili- 4.8% , from Dependent coverage 7% 75.9 75.9 9% 75.8 74.7 33%74.6 74.3 69.9 71.1 72.1 7% 72.9 74.3 75.7 78.1 5 9% Employment-Based Coverage Medicaid Uninsured 1988 The change in the likelihood of being covered by retiree health benefits was not statistically significant; furthermore, the 30% 25% factors. Massive layoffs have yet to have a substantial impact on the unemployment rate. While the unemploy- 40% 4% Individuall health benefit costs and labor market conditions. y Purchased 14.3 8% 13.5 14.5 14.3 13.6 31% 14.6 16.6 16.4 16.0 6% 16.0 15.8 15.5 15.8 Bennefield, Robert L. “Health Insurance Coverage: 1997.” Health insurance provides Americans with financial security against losses that often accompany unexpected Current Population Reports. P60-202. Washington, DC: 7% which are pre-empted by ERISA, and medical decisions outside of benefit determinations, which have increasingly inflation, and this inflationary trend accelerated in 1999. In the late 1980s and early 1990s, the percentage of 27.2 percent uninsured in 1998 to 19.7 percent uninsured in 1999. Some of the decline can be attributed to expan- new liabilities and expenses was unappealing to many companies. tate plan selection during open enrollment season, and would also provide tools and resources that would enable and the return of health care cost inflation is in part to blame for the stagnation of HMOs and POS plans. 50% 5% 3% 30% 1993 40% survey does not allow researchers to distinguish between retiree health benefits and coverage under the Consolidated Omnibus 5% 7% 7% 2.1% 4% 40% Employment-Based Coverage Medicaid Uninsured Public ment rate jumped from a 30-year low of 3.9 percent in October 2000 to 4.2 percent in January 2001, it remained at 5% 28.5 28.8 28.7 31.9 34.4 36.0 38.1 38.928% 38.4 37.4 34.9 34.2 34.1 6% 4% serious illness or injury U.S. Department of Commerce, Economics and Statistics 25% . Employers offer health insurance as an employee benefit for a number of reasons. Besides 1987 1989 1991 1993 Administration, September 1998. 1995 1997 4% 1999 30% 1997 sions in Medicaid and S-CHIP not been pre-empted, although the courts have not settled the issue. In fact, the Supreme Court is currently employees to make informed decisions about health plans and health care providers. These new technologies may Americans covered by an employment-based health plan declined in large part because of health care cost infla- Budget Reconciliation Finally, the strong economy likely had an impact on enrollment and health care spending, resulting in more Act of 1985 (COBRA) coverage. . Between 1998 and 1999, the percentage of near 5% -poor children covered by these 3% Recent T 20%rends 2% All Firms Small Firms (3–199 Workers) 3% 5% Medicare 3.1 Early Retirees 3.2 3.2 Medicare-Eligible Retirees 3.4 3.5 3.9 3.7 3.7 4.1 4.6 4.7 4.8 4.8 3% 40% 4.2 percent in February—still a very low level of unemployment. In contrast, the combination of a slowing 4% 4% 3% 30% 4% 20% 24% Copeland, Craig. “ERISA and Self-Insured Employment-Based Health Benefits.” Unpublished manuscript. Health Benefit Costs providing financial security to workers and their families, employees are offered health benefits to promote health 1999 19% programs increased from 39.3 percent to 40.5 percent. However seeking advice from the solicitor general on whether state laws requiring an independent review of medical tion. In the late 1980s, health care costs increased at an average rate of between 15 percent and 20 percent also give rise to new types of products and may enable employers to assume new roles more in line with emerging As a result of F employees enrolled in less-restrictive PPOs as they enjoy rising real income and become able to pay for better Medicaid AS 106, many employers began a major overhaul of their retiree health benefits program. Some 30% 18.4 18.9 19.2 22.4 24.8 26.5 , it appears that expansions in employment-based 29.0 28.7 29.0 28.2 26.0 24.9 25.0 Source: Bureau of Labor Statistics. 3% 23.9% .08% 3% 3% 6 20% 3% 2% 20% 16% 16% 22.9% 23.2% 2% economy Some persons in the CPS report their main activity as “Ill or Disabled” when they may in fact be retired. Similar to the , rising health care costs, and worker uncertainty about the future may make it easier for employers to a 0% 3% 22.0 15% 21.8% The percentage of Tricare/CHAMPVA Americans under age 65 covered by employment-based health benefits has been increasing since 8.5 8.2 7.9 7.9 7.9 7.5 2% 7.4 8.7 7.4 2% 6.8 6.6 6.8 6.5 and to increase worker productivity Washington, DC: Employee Benefit Research Institute, 2001. . Health benefits are also a form of compensation used to recruit and retain 17.8% 20.8% 17.8% 17.8% 17.6% 18.2% 20.5% 30% 17.3% 17.5% 18.1% 17.5% health insurance and individually purchased coverage had an even larger effect than expansion of S-CHIP annually health consumerism. New technology may also enable new types of health plans to emerge, much as the Internet dropped the benefits completely necessity decisions made by a health plan conflict with ERISA. benefits and additional health care services. Employers offer health benefits as a form of compensation in order to . However, between 1994 and 1997, these costs barely changed. In 1998, they started to increase again, . An annual survey of employers with 500 or more workers shows that the percent- 16.8% 18.9% 16.8% 11% 12% 20.0% . 1993 1994 1995 1996 1997 1998 1999 19.8% 2000 0% 10% 1988 15.6% 1989 1990 1991 Statement for the 1992 1993 1994 1995 1996 1997 1998 1999 2000 20% findings for retirees, there was no significant change in insurance coverage for the ill and disabled between 1994 and 1999. 14.6% No Health Insurance 31.8 33.6 34.3 35.6 36.3 38.3 39.3 39.4 40.3 41.4 43.1 43.9 42.1 During the late 1980s and early 1990s, health care costs increased faster than the overall consumer price index modify health benefit programs. Even with low unemployment, if employees fear that they could lose their jobs, 20% 15.5% 8% 7% 15.9% 16.0% 10% 10% 10% 1994 (table 1). Overall, the increase in coverage was due in large part to a higher likelihood that children were 10% 0% Copeland, Craig, and W workers. illiam Pierron. “Implications of ERISA for Health Benefits and the Number of Self-Funded 9% Specifically age offering health benefits to early retirees declined from 46 percent in 1993 to 35 percent 1999 (chart 15). In but the increase does not appear to have affected the percentage of already is giving individuals information about various health care services that they are using to challenge recruit and retain qualified employees and as a way to improve employee productivity , the percentage of near-poor children covered by an employment-based health insurance plan in- 9% –1% Americans with employment-based health . Locking employees into a 5% 9% 4% 4% 4% 3% 3% 3% 4% 3% 3% 3% 10% 20% Source: William M. Mercer. employers may have more flexibility to reduce health benefits (and other components of total compensation) in (CPI) and faster than the medical portion of the consumer price index (MCPI). In some years, these costs increased 7 covered by an employment-based health plan. Between 1994 and 1999, the percentage of children covered by an The seemingly inconsistent trends may also be due to more retirees accepting COBRA ERISA Plans.” 10% EBRI Issue Brief no. 193 (Employee Benefit Research Institute, January 1998). coverage. As mentioned already, it is Source: Gabel et al. 2000. creased from 30.5 percent to 34.5 percent between 1998 and 1999, while the percentage of near addition, a survey of employers with (mostly) 1,000 or more workers shows that the percentage offering health Critics of ERISA believe that denial of coverage is equivalent to the denial of care, and that administrators of benefits. More research needs to be conducted in this area to understand the trade-offs employers face between medical and benefit decisions made by health care providers and health plans. plan that limits choice and perhaps reduces their satisfaction may be less costly (percentage) , but it may not be cost-effective in -poor children 4.0% 4.0% 4.2% 0% 10% 3.4% 3.7% 3.2% 3.4% 3.2% 3.6% 3.5% 3.5% 2.4% 2.4% 13.3% 13.6% 13.1% 13.2% ERISA 12.9% Advisory 12.7% 13.7% 14.2% Council14.8% 14.9% 15.4% nearly 20 percent for some employers, cost increases that many private employers simply did not want to pay order to reduce costs in a slowing economy. 13.8% 13.9% impossible to distinguish between COBRA coverage and retiree health benefits in the March CPS. employment-based health plan increased from 58.1 percent to 61.5 percent (chart 1). For adults, it rose from 66.1 –5% Fox, Daniel M. “Managed Care: The Third Reorganization of Health Care.” Health insurance is the benefit most valued by workers and their families. Sixty-five percent of workers respond- 10% None 80% 85% Journal of the American Geriatric 90% Other 5% benefits to early retirees declined from 88 percent in 1991 to 76 percent in 1998 (chart 16). The rate at which rising health benefit costs and the other costs of operating a business. health plans make medical decisions and thus should be held responsible for those decisions through malpractice covered by individually purchased plans increased from 7.8 percent to 10.3 percent. terms of an employer’s recruitment, retention, and lost productivity costs. Chart 22 0% Total Population 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% (Fox, 1998). For example, in 1988 overall inflation according to the CPI was 4 percent, the MCPI was 7 percent, Working Group on Challenges to the Employment-Based Health Care System 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 0% percent to 67.6 percent, with the increase mainly occurring between 1997 and 1999 (chart 2). ing to a recent survey rated health insurance as the most important employee benefit (Salisbury and Ostuw Society. Vol. 46, no. 3 (March 1998): 314–317. , 8 Source: Bureau of Labor Statistics.Percentage of Small Employers Reporting Health Benefits liability (Copeland and Pierron, 1998). Once health plans are held liable, critics argue that the quality of care retiree health benefits are offered is higher in chart 16 than in chart 15 because larger firms are more likely to Health care costs could either decline or increase in a DC health care environment. For instance, some employees Emplo Unitedhealthcare, as an example, ended its practice of requiring pre-authorization for certain types of care in 1999. See yment-Based Coverage 198769.21988 69.0 1989 1990 68.6 1991 67.0 199266.3 1993 64.7 1994 1995 63.5 1996 63.6 1997 63.8 1998 64.0 1999 64.2 64.9 65.8 0% but employer spending on health benefits rose 19 percent (chart 19). The release of the March 2001 CPS in Fall 2001 may add to the confusion over the impact of rising health benefits 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Ch 1998 art 17 1999 0% Chart 16 Positive Impact on Various Aspects of their Business Fronstin, Paul. “Employment-Based Health Insurance For Children: Why Did Coverage Increase In the Mid- 2000). Own name 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 provided will improve. Sponsors of health plans counter that when a health plan makes a benefit determination, it may choose less extensive benefits than those currently provided by their employer offer retiree health benefits. In fact, the “drop” rate is lower among employers with 1,000 or more employees than www Rising health benefit costs will impact the percentage of workers (and dependents) with health benefits in two .unitedhealthcare.com/press/991 Source: Economic Report of the President (2001) and Sponsorship Rate 109ccoord.html Offer Rate William M. Mercer (2001). Coverage Rate Take-Up . If health insurance currently Rate The Uninsured Benefits Package Self-Employed 1,000 or More Emplo Chart 10 yees Part Time or Part Year Source: Employee Benefit Research Institute estimates from the March 1988-2000 Current Population Surve Percentage of Large Emplo y. yers Requiring Provision of Retiree Health Benefits costs on employment-based health benefits. When these findings are released, the data for 2000 are expected to Dependent coverage 35.4 35.0 34.7 33.8 33.5 32.9 30.7 30.9 31.1 31.2 31.5 31.7 32.4 The likelihood of a child being covered by employment-based health insurance benefits increased for a number of 1990s?” Health Affairs. Vol. 18, no. 5 (September/October 1999). Source: Employee Benefit Research Institute estimates from the March 1988-2000 Current Population Surve 78% y. acts to induce demand for health care services, utilization of services could decline. Employees may choose health is interpreting a contract between the health plan and the plan sponsor on what benefits are covered under that among the sample with 500 or more employees. ways. It is likely that small employers that cannot afford health benefits will simply drop them. In contrast, large Percentage of Premium Paid by Workers for Health Benefits, 1988–2000 76% Source: Employee Benefit Research Institute estimates from the May 1988, April 1993, F 75% ebruary 1997 and February 1999 Current Population Survey. Retiree to Pay Full Cost of Retiree Health 9 by Employers With 1,000+ Emplo 80% yees, Individually Purchased 6.7 6.3 6.6 6.5 6.1 6.5 7.3 7.1 6.9 6.8 6.7 6.5 6.6 Health care costs increased for a number of reasons. Under the traditional fee-for show that the number of uninsured Defined contribution health benefits have also been referred to as “defined care,” “consumer driven,” and “consumer Americans continued to decline. The drop may even be larger than the -service system, health care -centric.” Chart 13 In 1999, for the first time since at least 1987, the percentage of It is notable that the decline in the uninsured occurred at a time when health insurance costs were going up. reasons (Fronstin, 1999b). The percentage of children with a working parent increased, the percentage of children Americans with health insurance increased: ________. “Sources of Health Insurance Coverage and Characteristics of the Uninsured: It was during W Source: Emplo orld W yee Benefit Research Institute estimates from the March 1995 ar II that many employers began to offer health benefits, and subsequently the number of –2000 Current Population Survey. Analysis of the March plans that forgo preventive and routine health care in order to save money contract. The health plan is not preventing that participant from receiving care or telling the participant not to get employers will probably not drop health benefits, but they will respond in other ways. They may increase the 67% . However, it should be noted that 1991, 1996, and 1998 Benefits, 1997– 1999 Public 13.3 13.3 13.2 14.5 15.5 16.0 16.7 16.9 16.6 16.0 14.8 14.3 14.2 70% 40% 1.7 million decline experienced between 1998 and 1999. providers had no financial incentive to provide health care services in the most efficient setting. Furthermore, Percentage of Full-Time Employees in Medium and Large Priv As mentioned above, between 1998 and 2000, the percent- ate Establishments, Participating 10 82.5 percent of in families with incomes below the poverty level decreased, and more children had a working parent employed in a Health insurance cost inflation has been increasing since 1998. Americans under age 65 were covered by some form of health insurance, up from 81.6 percent in According to data from a recent study (Gabel et al., persons with employment-based health insurance started to increase. Because the National W Medicare 2000 Current Population Survey 1.4 1.5 .” EBRI Issue Brief 1.5 1.6 no. 228 1.6 1.7 1.6 1.6 1.8 2.0 ar Labor Board 2.0 2.0 2.0 preventive and routine health care services sometimes detect conditions and diseases at early stages, when both The data presented in charts 15 and 16 actually overstate the extent to which employers are dropping retiree the care but simply stating whether the contract covers the benefit. Therefore, malpractice law would usually not employee share of the premium, or they may reduce the benefits package. This likely will result in fewer workers For a more detailed treatment of changes to the employment-based health insurance benefits system see Fronstin (2001a) 58% 90% 50% in Non-Health Maintenance Organiza 1988 1993 1996 1998 tion Pl 1999 ans, 2000by Deductible Amount, 1989–1997 88% 60% technological innovation, improved treatments, consumer activism, quality shortfalls, administrative inefficien- age of firms with 3–199 employees that offered health benefits increased (Gabel et al., 2000). In addition, S-CHIP Medicaid 8.6 8.7 8.8 10.2 11.1 11.8 12.7 12.5 12.5 12.1 11.0 10.4 10.4 42% large firm. The increase in employment-based coverage among children can in part be attributed to a combination 2000), health insurance costs increased 8.3 percent for all firms between spring 1999 and spring 2000, and they 1998 (calculated from table 1). As a result, 198.6 million Americans under age 65 had health insurance coverage in froze wages, employers sought ways to get around the wage controls in order to attract scarce workers. In 1943, and Fronstin (2001b). (Employee Benefit Research Institute, December 2000). 32% 32% 32% health benefits. When broad cross sections of employers are studied over time, it appears that employers are apply the treatments and costs are less intense. If conditions and diseases are first being treated at later stages, the cost taking health benefits that are offered to them. . 40% by 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 85% will continue to expand health insurance coverage. This combination of more employers adding health benefits cies, and an aging population all contributed to rising costs. While the growth rate in employer spending on health 70% 50% 36% 29% 1999, while 42.1 million were uninsured. The percentage of of welfare reform and the strong economy increased 10.3 percent for smaller firms (with 3–199 workers) (chart 9). When health care costs increase, the , both of which resulted in fewer adult women on welfare and more adult Americans under age 65 without health insurance 40% the National W ________. “Defined Contribution Health Benefits.” ar Labor Board ruled that employer contributions to insurance did not count as wages. Health EBRI Issue Brief no. 231 (Employee Benefit Research Institute, 35% of providing health care may actually be higher in the long run. Furthermore, if it is less costly to treat a disease dropping retiree health benefits. However, new large employers most likely never offered retiree health benefits in 28% NoHealthInsurance 14.8 15.5 15.7 16.1 16.3 17.0 17.3 17.1 17.4 17.7 18.3 18.4 17.5 30% Paul Fronstin, Ph.D. 31% 27% 1989 1991 1993 1995 1997 and more children covered by S-CHIP will result in continued expansion of health insurance coverage. This benefits declined after 1988, it continued to outpace the CPI and the MCPI, and remained above 10 percent. As a 40% 79% percentage of women working. coverage declined from 18.4 percent in 1998 to 17.5 percent in 1999 (table 1 or chart 8). Not only is this the first Americans covered by an employment-based health insurance plan is expected to decline, with insurance benefits were an attractive means to recruit and retain workers. Unions supported the provisions of March 2001a). 80% 60% in its early stage, there is an opportunity cost of late detection in the form of resources being devoted to health the first place. Thus, the cross sections that include these new employers are not examining employer behavior Recent evidence, discussed above and presented in chart 6, shows that the percentage of small employers (with 27% Defined Contribution Health Benefits 54% 53% 53% 53% Senior Research Associate and 30% 49% 80% Source: Emplo decline in the uninsured and rise in employment-based health insurance benefits may be confusing because the result, employers looked for alternatives to fee-for yee Benefit Research Institute Analysis of the March 1988-2000 Current Population Surve -service health benefits. Managed care (which by then had y. 30% significant decline in the percentage of uninsured employers shifting the cost of coverage onto workers or even dropping coverage completely Americans since at least 1987, but it is also the first time that . But as discussed above, employment-based health insurance benefits, and workers’ health benefits were not subject to income tax (or ________. “The History of Employment-Based Health Insurance: The Role of Managed Care.” Benefits Quarterly over time as much as they are providing snapshots of the availability of retiree health benefits. care that could be more productive elsewhere. fewer than 200 employees) offering health benefits has been increasing. While the percentage of large employers 21% 20% Note: Details may not add to totals because individuals may receive coverage from more th 75% 50% an one source. Director, Health Security and Quality Research Program 19% data are often misinterpreted as representing the current time period rather than the period nearly two years existed for decades, although mostly in the W 76%est and Pacific Northwest) promised to control costs through im- more workers and their dependents were covered by employment-based health insurance coverage in 1999 than in Defined contribution (DC) health benefits are emerging as an alternative to the current employment-based health the number of uninsured Between 1994 and 1997, the percentage of working adults with employment-based health insurance coverage held Americans has declined. 20% a Social Security payroll taxes), as were cash wages. (forthcoming 2001b). 20% 20% offering health benefits has remained essentially unchanged, that is because nearly all large employers already TRICARE (formally known as CHAMPUS) is a program administered by the Department of Defense for military retirees as well as families of active duty, retired, and deceased 16% Chart 2 prior to its release. proved coordination and efficiency by reducing the inappropriate or unnecessary use of health care services, 9,10 Chart 6 70% 40% 35% Chart 8 service members. C benefits system. 1998. In fact, employers have not been shifting the cost onto workers. steady at roughly 72.3 percent (chart 3). During this period, health care cost inflation was essentially nonexistent. HAMPVA, the Civilian Health and Medical Program f DC health benefits often are mentioned in the context of enabling employers to control their or the Dep14% artment of Veterans' Affairs, is a healthcare bene An annual survey by W fits program f illiam M. Mercer or disabled dependents of ________. “The Erosion of Retiree Health Benefits and Retirement Behavior: Implications for the Disability 10% Chart 4 An analysis of a constant sample of employers (Hewitt, 1999) shows that there has been a decline in the availabil- On the other hand, some employees might choose more extensive benefits and ultimately pay more for health offer health benefits. In addition, the percentage of the premium that workers have been asked to pay has declined 71% Percentage of American Adults, Ages 18–64, With Employment-Based Percentage of Employers Offering Health Benefits, by Firm Size, 10% Percentage of Nonelderly Americans without Health Insurance, 1987–1999 veterans and certain suriv reviewing proposed health care services before they were provided, increasing access to preventive care, and ors of veterans. Percent11% age of Workers Ages 18–64 With Employment-Based Health 28% 28% outlay for health benefits by avoiding increases in health care costs. DC health benefits are also often mentioned W The main reason for the decline in the number of uninsured indicates that the worker share of the premium has been unchanged since 1993 (table 2). In contrast, an annual orking adults finally experienced an increase in the likelihood of having employment-based health benefits in Americans appears to be the strong economy and low Historians often suggest that the tax-preferred status of employment-based health insurance benefits led to the Insurance Program.” Social Security Bulletin 0% . (forthcoming 2001c). insurance. If health insurance currently acts to induce demand for health care services, utilization of services ity of retiree health benefits, but it was not as large as that portrayed in chart 16. The important point is that or remained constant (chart 10 and table 2), while the benefits package has been improving (charts 11–14). Other 65% 30% Health Benefits, Medicaid, and Without Health Insurance, 1987-1999 67% 1998–2000 23% Insurance Benefits, by Source of Coverage, 1994–1999 maintaining and improving the quality of care. 10% 22% The Uninsured Recruitment Retention Employee Health of Absenteeism Employee Benefit Research Institute in the context of giving individuals more control of their health care dollar and the design of their benefits. These survey by the Kaiser Family Foundation and the Health Research and Educational T unemployment. More workers and their dependents are being covered by employment-based health insurance 1998. Between 1997 and 1999, the percentage of working adults with employment-based health insurance in- 20% rust (Gabel et al., 2000) Fronstin, Paul, and Ruth Helman. “Small Employers and Health Benefits: Findings from the 2000 Small Em- rise in its prevalence. However, employer interest in the workers’ health actually started long before the tax although employers are not necessarily dropping retiree health benefits, fewer workers will have them available could increase. This concept is known as moral hazard—meaning individuals demand a greater quantity of health recent evidence, also discussed above and presented in charts 9 and 19, shows that the cost of providing health 0% 17% 18.4% Attitude and Employees 18.3% 60% 20% 80% Chart 20 60% Earl 100% y Retirees 99% Medicare-Eligible Retirees benefits have also been discussed in terms of e-commerce: The growth of the Internet can enable employers to creased from 72.2 percent to 73.3 percent, despite the apparent return of health care cost inflation in 1998 and because of a strong economy found a slight reduction between 1996 and 2000 in the percentage of the premium workers were required to pay . Between 1998 and 1999, the overall percentage of 13% 17.7% Americans under age 65 covered by 99% 17.5% treatment of health benefits became an incentive. Early examples of employment-based health programs include ployer Health Benefits Survey.” EBRI Issue Brief 2121 K Street NW no. 226 (Employee Benefit Research Institute, October 2000). , Suite 600 17.4% 12% 17.3% 17.1% when they retire because the work force appears to be moving away from firms that offer benefits to firms that do care services when health insurance pays for at least part of the cost of receiving care. Findings from the RAND benefits to employees has been increasing. Economists, and others, assume that when the price of a product Performance 18% 17.0% 1991 1996 1998 1998 1999 2000 Health Care Spending, by Age and Gender, 1996 It is also worth noting that while the uninsured declined between 1998 and 1999, more than 42 million 100% 70.3% 70.0% 9% Americans 69.8% Managed care, it seems, was able to reduce the rate at which health care costs were increasing. 16.3% According to chart 68.3% 67.8% 67.6% 16.1% move to a benefits structure that takes full advantage of new technology (chart 10). While the two studies report different findings, both support the observation that employers have not employment-based health insurance increased from 64.9 percent to 65.8 percent, continuing a longer 1999. 6% 15.7% . -term trend Fronstin, Paul, and Sarah C. Snider the mining, lumbering, and railroad industries during the late 1800s (Institute of Medicine, 1993). Employers in 10% . “An Examination of the Decline in Employment-Based Health Insurance 5% 66.9% 4% Source: Fronstin and Helman (2000). Washington, DC 20037 66.1% 66.1% 66.3% 66.2% Health Insurance Experiment indicate that as coinsurance rates increased, utilization and expenditures for health not. increases, consumers will demand less of that product. If this is true, then why would more small employers offer 70% 65.9% 15.5% 65.3% 3% Early Retirees Medicare-Eligible Retirees continue to be uninsured. Even if the number drops again later this year 16% 0% 55.3%2% 55.3% , when the 2000 data are released, it is 55.5% 1997 55.6% 1998 1999 55.2% 55.0% 14.8% 0% 19, employer costs for health benefits barely changed between 1994 and 1997. One major factor that led to the $4,000 that started between 1993 and 1994 (table 1). started to shift recent cost increases onto workers by decreasing the employer share of the premium. 50% $3,695 these industries provided company doctors funded by deductions from workers’ wages. Employers had a practical Between 1988 and 1993.” Inquiry (Winter 1996/97): 317–325. care services declined (Manning et al., 1987). In addition, a more recent study found that Medicare beneficiaries health benefits and make the benefits package richer at a time when the cost of providing those benefits was Employee Only Coverage Voice: 202/775-6300 Family Coverage 0% 80% likely that 40 million Americans will still be uninsured—more than 15 percent of the population. As long as the $3,396 reduction in health benefit cost increases was migration to lower-cost managed care plans. Managed care plans 14% 60% Men Source: McArdle et al., 1999. Women 67% Employers already are considering using a DC approach to health benefits in response to rising health care costs. An examination of total employment-based insurance benefits among workers can mask important differences in $3,500 Under $100 $100–$149 $150 or Higher None interest in providing health services to injured or ill workers, who often worked in remote geographic regions. Gabel, Jon et al. “Job-Based Health Insurance In 2000: Premiums Rise Sharply While Coverage Grows.” Source: William M. Mercer. Health Most employers continuing to offer retiree health benefits have made changes in the benefit package. The most will forgo medically necessary drugs when out-of-pocket costs for those drugs increase (Adams et al., 2001). increasing? The answer is that the relationship between the provision of health benefits to employees and the cost Fax: 202/775-6312 Source: Gabel et al. 2000. economy is strong and unemployment is low, employment-based health insurance coverage will expand and the 60% 60% also altered the incentive structure from a fee-for-service or cost-plus reimbursement scheme to a payment scheme Furthermore, consideration of a DC approach may accelerate if Congress were to pass patient protection legisla- trends for the sources of that coverage. W The strong economy and low unemployment have had an affect not only on the likelihood that an employer offers While the majority of Americans under age 65 with health insurance in 1999 received coverage through an em- orkers can be covered by employment-based insurance benefits through Early employment-based programs occasionally covered general medical care for workers, their families, and the Affairs. Vol. 19, no. 3 (September/October 2000): 144–151. 40% 55% 12% Source: Bureau of Labor Statistics. $3,000 54% Table 2 Employers might benefit from DC health plans if they use them to cap their cost. If the cost of health insurance common change is in cost-sharing provisions, with employers asking retirees to pick up a greater share of the cost of providing those benefits is not simple. It is complicated by other factors, such as labor market conditions. 60% 50% Internet: http://www.ebri.org uninsured population will gradually decline. However, even if the United States experiences five more years of 49% $2,461 in which health care providers were paid either a salary, a fixed amount per patient (a “capitated” basis), or a pre- 1 tion. These plans essentially would change employer thinking from trying to manage the range of covered health ployment-based health plan, 34.1 million health benefits and the percentage of the premium that workers pay but also on certain aspects of the benefits their own employer, through a spouse’ Average Percent s employer age of Medical Pl Americans received health insurance from public programs, and an , and sometimes through a parent’ an Premium Paid by Emplo s employer yee . It turns out that community as well. Institute of Medicine. Employment and Health Benefits: A Own Employer Coverage Connection at Risk Employer Coverage from F. W amily Member ashington, DC: National Academy increases faster than real wages, or faster than employer contributions, employers might save money in the long of coverage. In 1999, 42 percent of employers with 500 or more workers offering retiree health benefits required $2,500 10% $2,221 declines in the uninsured similar to the decline that occurred between 1998 and 1999, 34 million Americans would negotiated discount on fee-for in Firms of 500 or More Emplo -service charges. In return, health care providers were guaranteed high volume Employment-Based Coverage yees, Medicaid by Plan Type, 1993–2000 Uninsured care services and utilization through the way benefits are designed to setting limits on employer contributions, additional 15.8 million purchased it directly from an insurer package. the trend for workers’ coverage from various sources of employment-based health benefits follows the trend for According to data from the Bureau of Labor Statistics, employers and insurers have been raising lifetime 40% Chart 23 . Twenty-five million Americans participated in the Press, 1993. $1,906 30% run but the increased use of DC health plans might also result in care being deferred, lost productivity and retirees to pay 100 percent of the premium for coverage, up from 31 percent of employers in 1997 (chart 17). 40% Chart 11 Labor Market Conditions $2,000 still be uninsured in 2005 (chart 23). In contrast, if the economy continues to weaken and health benefit costs $1,645 8% because they would be providing health care services to a large group of subscribers. 2 Number of Uninsured Americans, Ages 0–64, Various Assump Also, health providers tions 3 Chart 18 and, in some cases, requiring employees to design their own benefit plans. Thus, DC health benefits could be an benefit limits. The percentage of workers with a lifetime limit under $1 million has declined, while the percentage Medicaid program, total employment-based health benefits. The percentage of workers receiving health benefits from their own and 6.5 million received their health insurance through the Tricare and CHAMPVA pro- W Manning, W orld W Percent ar II, though, did accelerate the growth in employment-based health insurance benefits. By the end of the illard G., Joseph P age of Full-Time Emplo . Newhouse, Naihua Duan, Emmet B. Keeler yees in Medium and Large Private Est , Arleen Leibowitz, and Susan Marquis. ablishments, Participating in Chart 14 While there is no doubt that fewer employers offer retiree health benefits today and that the percentage of those economic output, and higher costs in the long run. 1993 1994 1995 1996 1997 1998 1999 2000 continue to increase, the uninsured population is likely to start to increase again. Even those who keep their jobs 30% $1,500 About Percentage Uninsured, 1999–2010 Percentage of Retirees Ages 55–64 With Retiree Heath Benefits, Public Coverage, or Uninsured, accepted more ”risk” because they had to compete with an oversupply of both physicians and hospital beds. $1,188 17.7% $1,145 Non-Health Maintenance Organization Plans, by Lifetime Maximum Limit Amount, 1989–1997 effective way of controlling health care costs for an employer with a lifetime limit either at $1 million or above $1 million has increased (chart 1 employer (own name coverage) increased from 55 percent in 1997 to 55.5 percent in 1998 (chart 4). Similarly The unemployment rate has been declining since 1992. In that year grams and other government programs designed to provide coverage for retired military members and their 6% Average Annual Deductibles, 17.2% by Pl . an T , the unemployment rate was 7.5 percent, ype, 1996 17.3% –2000 1). Furthermore, the percentage , the war “Health Insurance and the Demand for Medical Care: Evidence from a Random Experiment.” , health insurance coverage had tripled (W 20% 17.1% eir et al., 1988). However 17.1% 17.2% , it was not until 1954 that the Internal American Eco- 20% offering coverage continues to decline, it is not clear that fewer retirees are covered by health insurance. According 1994 –1999 19.7% 19.7% would be affected, as small employers are likely to drop health benefits and large employers are likely to shift the 19.0% 18.9% 19.1% 18.9% 18.8% 18.5% $746 Managed care plans also shifted some types of care from costly inpatient settings to less costly outpatient settings. $1,000 $754 70 17.4% 17.8% 16.6% of workers with no lifetime limit also has increased. Employers and insurers also have been increasing their share percentage of workers receiving health benefits from a family member compared with 4 percent in 2000 (chart 21). Low unemployment drives more employers to offer health benefits families. Indemnity 16.4% ’s employer (dependent coverage) increased Revenue Code made it clear that employer spending on employee health benefits was not counted as employee nomic Review. V 20% ol. 77, no. 3 (June 1987): 251–277. 15.6% to data from the Current Population Survey (CPS), the percentage of early retirees covered by retiree health 60% $700 4% Conclusion cost of coverage onto workers, resulting in fewer workers accepting coverage. If the uninsured rate returns to its 38% 39% 66 63 Employee-only coverage 24% 20% 23% 24% 24% 22% 24% 23% Currently, health benefit costs are once again rising faster than the CPI and MCPI, and many employers are 38% 40% $500 DC health benefits are also often mentioned as a means of giving individuals more control of their health care of coinsurance and lowering deductibles. The percentage of workers in non-health maintenance organization from 17.3 percent in 1998 to 17.7 percent in 1999. Overall, the likelihood of a worker having coverage from his or and to improve the benefits package they offer 37% 0% 36% 61 , t in order to attract employees. 10 April 2001 5 As mentioned in the introduction, income. Murphy, Kevin M., and Robert T $600 opel. “Medical Research: What’ 36% s It Worth?” Milken Institute Review (First Quarter $605 benefits may have increased slightly between 1994 and 1999 (chart 18). 10% 7.8% 7.9% 7.8% Overall, there have been no statistically 7.8% 7.3% 6.9% Family coverage 6.4% 33 7.0% 25 33 32 32 29 6.4% 6.2% 35 30 1999 level of 17.5 percent of the nonelderly population, 45 million 2% Americans would be uninsured in 2005. In 1996 1999 2000 5.7% 5.7% 10% 3–9 Workers 3–199 Workers 200+ Workers reluctant to absorb the cost increases. Health benefit costs are increasing nearly 10 percent annually (chart 19), 5.6% $600 1994 1989 1995 1991 1993 1995 1997 dollar and the design of their benefits. (HMO) plans with 80 percent coinsurance has declined while the percentage with 90 percent coinsurance or no The provision of health care services may have advantages that go beyond simply improving health. Research has her own employer increased only 1 percent between 1994 and 1999 because of an initial drop in coverage between health benefits were first offered to employees as a means of recruitment and retention during the labor market Prior to 1999, the uninsured population grew for a number of reasons. For instance, between 1987 and 1993, this $–60 As a result, under this type of plan, individuals (and providers) should have 59 1996 1997 1998 1999 2000): 23–30. $545 17.5% 50% Health Maintenance Organization significant changes in sources of health insurance coverage for early retirees since 1994. In addition, the likelihood 35% 47% 46% contrast, if the downturn in the economy is severe and uninsured individuals represent 25 percent of the popula- Ages 18–24 Ages 25–34 Ages 35–44 Ages 45–54 Ages 55–64 and are expected to continue increasing at this rate (if not more) in the future. There are several reasons why 53 4 0% Source: Gabel et al., 2000. Employee-only coverage 23 22 22 22 23 15% 23 22 22 more control over medical necessity decisions. While there are several types of DC arrangements, the most impor shown that advances in medical technology that have improved life expectancy have had a significant positive coinsurance has increased (chart 12). Similarly 1994 and 1997. The likelihood that a worker had dependent coverage increased 4 percent between 1994 and 1999. shortage of W increase can be attributed to the erosion of employment-based orld War II. Health benefits can be thought of as just one form of total compensation. When employ- 43% , the percentage of workers in non-HMO plans with no deductible health benefits. 6 While public programs covered an - T Salisbury Dallas L., and Pamela Ostuw oday, employment-based health insurance benefits are the most common source of health insurance in the United . “Value of Benefits Constant in a Changing Job Environment: Findings of their being uninsured remains statistically unchanged since 1994. 0% 0% 41% $500 tion under age 65, 63 million 1987 1988 1989 40% Americans would be uninsured. 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 30% Family coverage 33 29 35 33 34 36 34 33 these costs will continue to increase: 48 25% tant difference among them is whether the employer or employee controls how contributions are used to pay for impact on the economy has increased (chart 13). More recent data than that provided in charts 1 It is likely that the changing composition of the labor force accounted for some of the increase in the percentage of ers are competing for employees, total compensation is bid up. increasing percentage of . Murphy and T 1987 Americans prior to 1993, the growth in these programs was not enough to offset the 19941988 19891995 opel (2000) found that improvements in life expectancy due to technological 1990 1991 1996 1992 1993 1997 1994 As a result, health benefits, a major part of total 1995 1 1996 1998 through 13 show that the trend toward 1997 1998 1999 1999 States. Nearly 160 million 40%from the 1999 ACA/EBRI V 50 Americans under age 65, representing about two-thirds of the population, are covered alue of Benefits Survey.” EBRI Notes, no. 6 (Employee Benefit Research Institute, Source: EBRI estimates from the 1996 Medical Expenditure Panel Survey. 25% 24% Preferred provider organization 45 Gradual Decline 23% Source: Employee Benefit Research Institute estimates from the March 1988 23% – 23% 2000 Current Population Survey. 23% $400 46 $367 health care services. One option would have employers provide employees with a defined amount of money lowering deductibles has continued through 2000, except for point of service (POS) and preferred provider organi- innovations in medical care added $2.4 trillion per year (in 1992 dollars) to national wealth between 1970 and workers covered by employment-based health insurance benefits. For example, between 1997 and 1999, the compensation, are changed to attract and retain workers. T erosion in employment-based health insurance, so more individuals were uninsured. In contrast, between 1993 25% oday, many small employers understand the value of $361 , which by the employment-based health insurance system (Fronstin, 2000). June 2000): 5–6. 42 An additional 11 million individuals ages 65 $359 Employee-only coverage 2443 20 25 24 23 24 24 23 The apparent inconsistency between fewer employers offering retiree health benefits and workers not necessarily in Coverage Source: Emplo Source: Emplo yee Benefit Research Institute estimates from the March 1995-2000 Current Population Surve yee Benefit Research Institute estimates from the March 1988–2000 Current Population Surve y.y. 30% Public Policy $324 29% First, the U.S. population is aging. While this does not have a major impact on health benefit costs on a year 28% $313 $315 -to- Family coverage 31 28 41 36 36 38 36 36 41 the employee would then use to purchase benefits from a range of plans chosen by the employer 1990. There could be a cost to society in the form of forgone economic output if mortality is higher because fewer zation (PPO) out-of-network deductibles (chart 14). percentage of workers who were self-employed declined, the percentage of workers employed at firms with 1,000 or offering health benefits. and 1998, the portion of 30% Americans covered by employment-based health insurance increased, but the percentage A recent study found that roughly three-quarters of small employers offering health 38 Constant Increase . Under another and older have employment-based health insurance coverage, mostly as supplements to Medicare benefits. Weir, M., A. Orloff, and T. Skopol (eds.). The Politics of Social Policy in the United States. Princeton, NJ: Princeton 27% losing retiree health benefits can be explained, in part, by recent changes in the labor force. Contrary to popular 40 20% $267 18% 39 17% $300 17% 17% Point-of-Service in Coverage 24% 16% 16% year basis, it will affect spending over time because health care use increases with age (chart 20). 23% $245 $239 option, an employer would create an account and the employee would buy services with funds from the account. Americans receive quality health care services. more employees increased, and the percentage of workers employed on a part-time or part-year basis decreased benefits reported that these benefits had a positive impact on recruitment, retention, employee attitude, and of those without health insurance coverage also continued to grow. During this period, the decline in public A Because of double-digit health benefit cost increases during the late 1980s and early 1990s, employment-based University Press, 1988. 21% belief, the percentage of workers employed by large firms has not been declining. In fact, it may be rising. Accord- The rising cost of health benefits may not be the only factor resulting in the future erosion in employment-based 20% Employee-only coverage 37 19 20 20 22 22 24 22 22 $190 15% $181 $187 20% person could supplement the employer (chart 5). performance (chart 22). sources of health insurance would mostly explain the increase in the uninsured population. ’s contribution with his or her own funds and, depending on the type of Retiree Health Benefits health benefit plans began to move workers into managed care arrangements. Between 1992 and 1999, the $200 Family coverage 16% 35 29 32 34 31 33 33 32 34 ing to the data in chart 5, the percentage of workers employed by firms with 1,000 or more workers increased from health insurance benefits. Public policy can play a strong role as well. For the past few years, Congress has been 30 Second, new technology, including pharmaceuticals and imaging, will continue to be developed. New technology for 28 The views expressed in this statement are solely those of the author and should not be attributed to the plan, purchase a richer benefit plan or more services. The degree to which employers can shift the cost of coverage onto employees will vary with the strength of the percentage of workers enrolled in traditional indemnity plans declined substantially. 10% 11% 11% 27 percent in 1994 to 29 percent in 1999. It is true that small employers are creating jobs and that large employers debating proposed legislation known as the “Patient Bill of Rights.” Employers and insurers generally agree that 9% $79 8% $71 $100 the delivery of medical services either replaces existing technology Retiree health benefits were originally offered in the late 1940s and the 1950s, when business was booming and 10% , which was usually less expensive, or brings $41 Source: William M. Mercer. Endnotes Employee Benefit Research Institute, or the EBRI Education and Research Fund, its officers, trustees, economy and the labor market. Because health benefits are a form of total compensation, employers will not be Despite rising health insurance costs, employers increasingly have been offering health benefits to workers— Between 1998 and 1999, the percentage of For example, the percentage of nonelderly Americans covered by T Americans with employment-based health insurance benefits increased, 6% ricare or CHAMPVA declined from 3.8 percent 5% have downsized, but when small employers create jobs they often become large employers and thus are able to add most of the proposed provisions would not have a significant impact on benefit costs; however 4% , provisions that 3% 20 5% something new to the medical field that did not exist in the past, thereby adding costs which also did not exist. there were very few retirees in relation to the number of active workers. The benefits emerged as part of collective 2% 2% sponsors, or other staff, or to the EBRI-ERF Consumer Health Education Council. The Employee Benefit DC-type health plans have existed as cafeteria plans since the 1980s. able to cut benefits, thereby cutting total compensation, when unemployment levels are low because of the tight labor market. Between 1998 and 2000, the percentage of small firms offering health benefits and the benefits package improved, despite the fact that the cost of providing those benefits was rising. It is likely to 2.9 percent between 1994 and 1998, and continued down to 2.7 percent in 1999, in large part due to downsizing A cafeteria plan gives each employee the 1% . Today, unemployment While the movement to managed care brought about declines in the rate of health benefit cost inflation, at least 0 1 employee benefits to their compensation packages. On the other hand, when large firms downsize, they often 1999 2000 2005 2010 would make insurers, and potentially employers, liable for medical decisions have raised many questions about A 20-year-old student working part-time could be covered by their parent’s employment-based health benefits plan. 0% bargaining agreements, and employers were willing to provide them because the cost was such a small proportion Third, demand for services continues to increase. Consumers and providers tend to demand the “latest and Research Institute is a nonprofit, nonpartisan, public policy research organization which does not lobby or Fee-for-Service, Fee-for-Service, Preferred Preferred Point-of-Service, Point-of-Service, opportunity to determine the allocation of his or her total compensation (within employer rates are running just over 4 percent, and more small employers are adding health benefits to recruit and retain increased from 54 percent to 67 percent, with much of that increase occurring among the smallest of the small that low unemployment rates had a stronger impact on employer behavior toward health benefits than the cost of in the military 0% . Similarly, between 1993 and 1998, the percentage of nonelderly Americans covered by Medicaid -defined limits) among temporarily, this movement has not occurred without controversy. Not only are health benefit costs rising again, remain large firms, and former employees from these firms often take jobs with other large employers. So while how this increased liability and the possibility of resolving many medical decisions and benefit issues in state or Under $1 Million $1 Million Over $1 Million Other None Source: EBRI. Single Family Provider Provider In-Plan Out-Plan Retiree Health Public Uninsured of total compensation. take positions on legislative proposals. firms (chart 6). Most small employers report that offering health benefits helps with recruitment and retention 2 The estimate for Medicaid likely also includes children enrolled in the S-CHIP program. It is currently impossible to obtain providing these benefits. (the federal-state insurance program for the poor) declined from 12.7 percent to 10.4 percent as welfare reform, Organization, Organization, federal courts will impact health benefit costs. Source: Bureau of Labor Statistics. In-Plan Out-Plan Source: EBRI estimates from the March Current Population Survey, 1995–2000. Source: Gabel et al. 2000. 22 1 12 14 15 16 13 17 21 11 10 3 5 7 9 2 8 4 6 18 19 20