Across America workers and their bosses are wrestling over the escalating cost of health benefits. Sometimes the workers are fighting the bosses. Sometimes they’re on the same tag team, facing the industry in the other corner.
It’s been a sweaty business, with no clear winners.

However, the national struggle offers lessons that could help Oregon school boards control health-benefits costs.

Lesson One: The health-costs debate can get ugly for management and workers.

In the past year, tens of thousands of grocery workers in California, the Midwest and South went on strike rather than pay more for their insurance. Machinists at Lockheed-Martin, a defense contractor, struck in opposition to higher deductible payments and prescription costs.

Workers at Powell’s Books in Portland went months without a contract rather than accept cuts in health benefits and a wage freeze. Electronics and electrical workers struck General Electric because they expected difficult negotiations over health benefits.

Labor strife can hammer an organization’s bottom line. In California, three supermarket chains faced losses exceeding $20 million per month in an almost five-month long workers’ strike – sparked by a disagreement over health benefits. However, with companies’ health insurance bills rising an unsustainable 14 percent a year, management decided to take a stand.

At the same time, unions worry that if they don’t fight back, they will lose hard-won benefits. For example, over the past three decades, employees have paid an ever decreasing share of total health costs, says Cynthia Chilton, a health and group benefits consultant in Portland for Mercer Human Resources Consulting. In 1970, workers contributed 35 percent of the cost of care; now it’s down to 15 percent.

Lesson Two: Labor-management smackdown doesn’t have to be the only approach.

Although unions are working hard to protect health benefits, some are choosing solutions that don’t involve going to the mat with management.

Ted Clark, a Chicago attorney who specializes in labor and employment law, reports that to keep health benefits intact, some unions will consider caps on wages or increases in the amount workers pay for their care and medicines. One approach that has passed union scrutiny is to charge workers different co-payments for different types of drugs – lower for generics and higher for name brands, for example.

Clark says unions have sued to force pharmacy benefits managers to lower drug costs, potentially benefiting employer- as well as union-sponsored health plans. Unions in some states are pushing legislatures to sponsor health insurance or prescription drug coverage. The goal is to reduce health costs by creating large groups that can bargain more effectively with providers.

But such activism can only go so far. California adopted a union-backed plan last fall to require many employers to either provide health insurance or pay into a state pool from which workers could buy coverage; however, business opponents have referred the issue to the November ballot. Besides voter anxiety, state-sponsored health plans for workers are likely to be limited by budget shortfalls that already are cutting into Medicaid benefits for the poor.

Lesson Three: Employers are making changes, but they are tentative and the savings are unclear

• Workers’ contributions to their insurance premiums are growing. A 2003 survey by the Kaiser Family Foundation and Health Research and Educational Trust found workers paying an average $508 per year for single coverage and $2,412 for a family plan.
• More workers pay more money for physician and prescription services. The Kaiser survey indicates that almost half of workers served by health maintenance organizations had to make co-payments for outpatient physician services, up from 37 percent in 2002. Co-payments for prescriptions reach as high as an average $29 for “non-preferred drugs,” brand name medications with generic substitutes.
• More workers pay for hospitalization. According to the Kaiser study, more employers are requiring workers to pay a deductible or other payment when they are admitted to a hospital. The average payment is $200 per admission, and more than 40 percent of covered workers now pay it.
• Fewer retirees are covered. Various reports indicate that the share of employers providing health benefits for retirees has fallen below 40 percent, from 66 percent in 1988 and 50 percent in 1993. The New York Times reports that many companies which have kept retiree coverage have sharply increased the retirees’ premiums.

Despite such changes, the Kaiser study reports that from spring 2002 to spring 2003, premiums for employers marked their third straight year of double-digit increase. In addition, few employers reported actually cutting benefits and few said they planned to take such a step in the coming year.

On balance, the Kaiser study says, employers have made “relatively few changes in their health benefit plans.” The study adds that employers appear reluctant to take away benefits that workers and their families rely on, and that companies “do not have a high level of confidence that current market strategies can reduce premium growth.”

Lesson Four: Labor and management have been through this before, and survived.

Every year from 1988 through 1992, employers’ health-insurance costs rose by more than 10 percent. Firms responded with sweeping changes, and they worked. In 1994, employer costs actually fell, and through 1996, they increased at less than the rate of inflation.

Ted Clark, a labor and employment attorney, says during that time, many employers were able to negotiate their firms away from traditional plans that paid full freight for every service. In their place came health maintenance organizations and other arrangements that controlled costs by controlling the amount or source of the service. Workers also began to share in the cost of their coverage.

Clark says that, like today, the late 80s and early 90s saw tough negotiations over health benefits. However, he says the earlier period could have been even more challenging.

“In some ways, negotiations were more difficult because employers for the first time were asking employees to agree to pick up part of the cost,” Clark says.

This time around, workers are much more savvy about health-care options and much more willing to exercise them (witness the growth in on-line shopping for medicines). Some employers are responding by coupling higher out-of-pocket costs for workers with plans that give them much more control over their own care. Cynthia Chilton, Mercer benefits consultant, calls this a consumer-driven approach, and a handful of local governments, plus the San Diego school board, have already adopted it.

So far, Chilton says, consumer-driven health plans remain “a work in progress.”

But in an economy powered by consumer choice, they just might catch on and bring benefits costs back in line again.