Having Employees Share Health Costs Is Wave of Future

Expect howls of pain as more U.S. workers are required to pay for health insurance, but that’s the trend--just as it was in the supposedly good old days of the 1950s.

General Motors said last week that it will require non-union employees and retirees to pay a share of health insurance premiums. Next year the company will ask the same cost sharing of its unionized employees and retirees, in what promises to be a thorny issue in contract negotiations.

The motor giant’s actions--directly affecting 1.8 million people--will set an example for the auto industry and for unionized companies in general. But otherwise GM is only following a trend. Roughly half of all employees covered by corporate health plans now pay part of the cost of coverage.

And they will be asked to pay more, or be taxed on what they don’t pay. President Bush earlier this year toyed with the idea of taxing employer-provided health insurance benefits--and mentioned the idea again at this month’s Republican convention.

Democratic candidate Bill Clinton hasn’t said how he’ll finance his proposal to expand medical insurance coverage. But, count on it, employees will do the paying one way or another.

Insurance is not chicken feed. In companies where costs are shared, employees pay on average $35 a month for individual coverage and $101 a month for families, according to A. Foster Higgins & Co., a benefits consulting firm.

So the trend to make employees share burdens has major implications for the economy, promising to cut consumers’ disposable income and perhaps boost corporate profits.

But capping the corporate health insurance bill is not the main reason for putting the touch on employees.

The ultimate intent is somehow to lasso the $800-billion elephant that medical cost in the United States has become. The United States spends 14% of its gross national product on health care, yet Germany and the Netherlands get just as good medicine while spending 9% of their GNP.

“More important than cutting costs is directing incentives,” says economist Alain Enthoven of Stanford University, who urges corporations to choose low-cost but adequate hospitals and medical providers and pay for that level of care. If employees want anything different or special, they should pay for it themselves, says Enthoven, as one pays extra for a private room.

Enthoven recommends that corporations purchase health care in groups, as self-employed individuals now try to do. Like many others, he sees the solution in managed care arrangements such as health maintenance and preferred provider organizations.

However, savings to date from HMOs and PPOs have not been dramatic. Costs of such plans are rising more than 13% a year, right along with traditional choose-any-doctor, fee-for-service insurance plans, according to the Employee Benefits Research Institute. All cost more than $3,000 per year, per employee.

Part of the reason is chronic diseases. As good medical care extends American lives, more fall prey to illnesses such as cancer, heart trouble, Alzheimer’s, for which treatment is long and expensive.

Part of the reason is cost shifting. As government engages in phony accounting by stipulating low payments for Medicare, hospitals charge privately insured patients more to cover Medicare losses.

Now, just as government has passed the buck to private insurers, corporations want to pass it to individuals.

Thinking in the business world is that individuals might bring pressure on medical costs if they have to pay more of them directly and encounter sticker shock as they do with cars and houses.

Thinking in the White House is that medical insurance has become a middle-class subsidy. Premiums of $3,000 a year are paid without the employee being hit for $500 to $1,000 in taxes, as he or she would be on wages.

So there is a push for change.

And there will be an outcry. Owen Bieber, president of the United Auto Workers, said last week: “We have no intention of going backward on health care benefits at General Motors.”

GM is in a bind. The big difference in its costs per vehicle compared to the U.S. plants of Honda, Toyota and Nissan lies in health benefits. The new Japanese plants have lower health costs thanks to a younger work force and virtually no retirees, as yet.

Back in Japan, the auto makers and other companies provide medical facilities and doctors, but choices of physician and treatment are unheard-of luxuries. When employees retire, at 55, government takes over responsibility for health care.

So GM, and undoubtedly Ford and Chrysler, will be trying to get employees to share costs. In fact, they will be turning back the clock to the early days of health insurance in the 1940s and ‘50s, when employees helped pay for insurance and care.

As recently as 1960, individuals paid 69% of medical costs, and company insurance plans paid 31%--but now companies pay 61% and individuals 39%.

Good times and carelessness caused the shift. In the 1960s, companies and unions regarded health benefits as inexpensive bargaining chips--cheaper than wage hikes, but impressive for union families.

In time the health insurance system turned out to be no bargain. So we’re searching for a better way. And as with so many other problems from previous decades, the solutions of the ‘90s will touch each of us in the pocketbook.