Benefits September 19, 2007

GM Attempts Reduction of Pension, Health Care in Union Contract

September 19, 2007 (PLANSPONSOR.com) - General Motors Corp. would give new union members 401(k)-style retirement plans instead of traditional pensions under a proposed United Auto Workers (UAW) contract, according to people familiar with the negotiations.
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According to a Bloomberg report, the U.S. automaker wants to scale back three landmark gains by the UAW in the past half-century: a fixed pension, company-paid health care, and an annual cost of living raise. GM also proposed freezing cost-of- living raises to help pay for a union-run fund that would take responsibility for retiree health care, said the sources, who asked not to be identified because they are not authorized to speak publicly, Bloomberg reported.

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The fund would relieve GM of $50 billion in future union health costs. New UAW hires would also receive a set amount of cash for medical care each year after they retire, under the proposal.

Other proposals include a cap on out-of-pocket health-care costs for retirees and active workers and lump-sum bonuses if the union accepts a wage freeze, the sources said, according to the news report.

The sources familiar with the 401(k) proposal did not provide figures on potential costs savings since no agreements were final. In the traditional fixed-income pension, union workers are guaranteed a set yearly payout – $36,000 for current GM retirees.

In 2006, GM Chairman and Chief Executive Officer Rick Wagoner announced the company would freeze its defined benefit program for salaried employees and move workers to a defined contribution or a cash balance arrangement. The automaker also capped its contributions to salaried retiree health-care at the level of its 2006 expenditures (See GM DB to DC Pension Move among Belt-Tightening Steps ).

Benefits September 18, 2007

Employers Critical to Success of U.S. Health Care System

September 18, 2007 (PLANSPONSOR.com) - In a new Issue Brief by the Commonwealth Fund, study authors highlight the importance of the employer's role in the U.S. health care system and urge employers to take part in policy change.
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The paper points out employer-based coverage forms the backbone of the U.S. system of health insurance. More than 160 million people, over 60% of the under-65 population, have health coverage through their own firm or another employer and nearly all companies with 200 or more workers provide coverage to their employees.

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In addition, employer contributions to health insurance coverage comprise a substantial share of the overall financing of the U.S. health system. Employer contributions account for 84% of the full premium for single policies and 72% of the full premium for family policies.

The authors list the advantages of employer-based health coverage:

  • Employer coverage forms natural risk pools: people enroll in coverage when they take a job rather than when they are sick, reducing the potential for adverse selection – one of the key drawbacks of the individual market.
  • In the absence of individual underwriting and other activities designed to protect against health risks, premiums in the employer group market are far more in line with actual medical expenditures than are those in the individual market. The administrative costs of individual market coverage consume from 25% to 40% of each premium dollar, compared with 10% for group coverage.
  • The lack of underwriting in the employer group market also ensures that workers are not excluded from coverage on the basis of age or health status.

The paper cited studies that show the value placed on health benefits by employees exceeds the actual costs of those benefits. In the EBRI 2006 Health Confidence Survey, employees who were enrolled in employer-sponsored insurance were asked whether they would prefer to continue receiving health benefits through their job or to receive an increase in taxable income equal to the average premium instead. Three-quarters reported that they preferred to continue receiving employer-sponsored health insurance.

Those that said they would rather have employer health benefits were asked what dollar increase in taxable income would be required for them to be willing to give up those benefits. One quarter said that they would need $10,000 to $14,999; 22% said they would need more than $15,000; and 13% said no increase in taxable income would be large enough to make them willing to give up their health benefits.

The authors noted however, that weaknesses, derived primarily from the system’s voluntary nature and the substantial per-worker costs incurred by small employers, are the primary reasons for the growing number of uninsured Americans. In addition, the weaknesses incur a cost to employers who cover other employers’ workers. Fifty-three percent of workers who are offered coverage through an employer but decline to take it up have coverage through another employer, while 28% are uninsured, the paper said. Thirty-one percent of workers who are not offered coverage through their job gain coverage through another employer, and 45% are uninsured.

The paper noted that proposals to expand coverage and improve quality and efficiency of the U.S. health care system build on the employer-based system but offer new, affordable group options designed to fill the gaps. "Given the importance of employers in participating in and contributing to the current system, it is critical that they be part of new policies to expand and improve coverage, as well as improve the overall performance of the health system," the paper said.

Surveys also show that the public does not believe employers are solely responsible for coverage. The Commonwealth Fund's 2005 survey asked respondents who they thought should pay for health insurance for all Americans: mostly individuals, mostly government, or mostly employers, or shared among all three. More than six of 10 respondents (61%) said costs should be shared.

"Indeed, without a shared financial responsibility and commitment across stakeholders, it will be difficult for the United States to achieve universal coverage," the authors concluded.

The Issue Brief is here .

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