"Employers, Workers, and the Future of Employment-Based Health Benefits" 

EBRI Issue Brief, No. 339, February 2010

STEPHEN BLAKELY, Employee Benefit Research Institute (EBRI)
Email: BLAKELY@EBRI.ORG

This paper summarizes presentations at EBRI’s 65th biannual policy forum, held in Washington, DC, on Dec. 10, 2009, on the topic, “Employers, Workers, and the Future of Employment-Based Health Benefits.” The forum brought together a wide range of economic, benefits, management, and labor experts to share their expertise at a time when major health reform legislation was being debated in Congress. The focus: How might this affect the way that the vast majority of Americans currently get their health insurance coverage? Most people who have health insurance coverage in the United States get it through their job: In 2008, about 61 percent of the nonelderly population had employment-based health benefits, 19 percent were covered by public programs, 6 percent had individual coverage, and 17 percent were uninsured. One point of consensus among both labor and management representatives: Imposing a tax on health benefits is likely to cause major cuts in health benefits and might result in structural changes in the employment-based benefits system. A common disappointment voiced at the forum was that the initial effort to reform the delivery and cost of health care in America gradually became focused on just financing and coverage of health insurance. The ever-rising cost of health insurance affects different employers and workers in different ways--with small employers and low-wage workers being the most disadvantaged. Small employers, if they offer health benefits at all, pay proportionately more than large employers for the same health coverage. While large employers tend to express continued commitment to health benefits, small employers see themselves strongly disadvantaged by the current system. Consultants report many employers privately want to drop benefits to control costs, but realize there are risks to doing so and none wants to be first. Employers express strong interest in wellness and disease management programs as a way to control costs, even though some experts say there is no evidence these work. Consumer-driven health plans are expected to continue their slow rate of growth.

"Choice of Health Plan: Findings from the 2009 EBRI/MGA Consumer Engagement in Health Care Survey" 

EBRI Notes, Vol. 31, No. 2, February 2010

PAUL FRONSTIN, Employee Benefit Research Institute (EBRI)
Email: FRONSTIN@EBRI.ORG

This paper explores differences in choice of health plan using data from the 2009 EBRI/MGA Consumer Engagement in Health Care Survey. It examines the likelihood of having a choice of plan by various demographics and work-related variables. It also examines choice by health status and health behaviors. The relationship between satisfaction with health insurance and health care and health plan choice is then explored, as is the role of type of health plan. Most employers do not offer a choice of health plan. In 2009, 86 percent of employers offering health benefits offered only one health plan; 13 percent offered two choices; and 1 percent offered three or more choices. Large firms are more likely to offer health insurance and to offer a choice of health plan than small firms. Forty-five percent of large firms offered two or more choices, whereas 13 percent of small firms did so. As a result, about one-half of covered workers had a choice of health plan, and according to the 2009 EBRI/MGA Consumer Engagement in Health Care Survey, 59 percent of adults ages 21-64 with employment-based health coverage had a choice of health plan. While the percentage of individuals with traditional employment-based health benefits who have a choice of health plan was in large part unchanged since 2005 (ranging from 54 percent to 62 percent), the percentage of individuals with a consumer-driven health plan (CDHP) and a choice of health plan rose steadily between 2005 and 2009, increasing from 47 percent to 70 percent. Increasing choice of health plan is a key component of health reform advocates. The health insurance exchange is built on Alain Enthoven’s model of managed competition, which entails sponsors acting on behalf of groups of individuals to negotiate with insurers and offer participants a menu of choices among different plans. To obtain the benefits of competition requires that insurance policies be easily comparable to facilitate consumer choice, and quality measures be developed that consumers can use to make informed decisions.

The PDF for the above title, published in the February 2010 issue of EBRI Notes, also contains the fulltext of another February 2010 EBRI Notes article abstracted on SSRN: “Labor Force Participation Rates: The Population Age 55 and Older, 2008.”

"The Tax Exclusion for Employer-Sponsored Health Insurance" 

NBER Working Paper No. w15766

JONATHAN GRUBER, Massachusetts Institute of Technology (MIT) - Department of Economics, National Bureau of Economic Research (NBER)
Email: gruberj@mit.edu

This paper reviews the issues around and impacts of the tax exclusion for employer-sponsored insurance. After reviewing the arguments for and against this policy, I present micro-simulation evidence on the federal revenue, insurance coverage, and distributional impacts of various reforms to the exclusion.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

"The Influence of Retiree Health Benefits on Retirement Patterns" 

Upjohn Institute Working Paper 10-163

JAMES MARTON, Georgia State University, Andrew Young School, Department of Economics
Email: marton@gsu.edu
STEPHEN WOODBURY, Michigan State University, W.E. Upjohn Institute for Employment Researach
Email: WOODBUR2@PILOT.MSU.EDU

We estimate the effect of employer offers of retiree health benefits (RHBs) on the timing of retirement using a sample of Health and Retirement Study (HRS) men observed over a period of up to 12 years. We hypothesize that the effect of RHBs differs for workers of different ages — a hypothesis we can test now that the main HRS cohort has aged sufficiently. We apply three wellknown panel data estimators and find that, for men in their 50s, RHBs have little or no effect on retirement decisions; however, a substantial effect emerges for men in their early 60s. We use simulations to illustrate how RHBs alter retirement patterns.

This paper is substantially revised from “Retiree Health Benefits and the Decision to Retire,” W.J. Usery Workplace Research Group Paper Series 2009-5-1 and W. E. Upjohn Institute Staff Working Paper 09-149, March 2009.

"What Drives Health Care Spending? Can we Know Whether Population Aging is a 'Red Herring'?" 

HENRY J. AARON, Brookings Institution - Economic Studies Program
Email: as.joseph@uva.nl

Several empirical studies have presented evidence that per-person health care spending does not rise with calendar age but with proximity to death. Hence, it is alleged that increases in longevity will not, by themselves, boost health care spending. Unfortunately, available data provide no basis for assuming that the curve relating average health care spending to age will, or will not, flatten with increases in longevity. For this reason, budget projections based on the assumption that increases in longevity will not boost health care spending may understate projected growth of health care spending.

"The Implications of Declining Retiree Health Insurance" 

COURTNEY S. MONK, University of Oxford
Email: courtney.monk@economics.ox.ac.uk
ALICIA H. MUNNELL, Boston College - Center for Retirement Research
Email: MUNNELL@BC.EDU

A large number of retirees have employer-sponsored retiree health insurance (RHI). While RHI is a common source of supplemental coverage for Medicare beneficiaries, it is also the only affordable source of health insurance for many retirees under age 65 who have no access to Medicare. However, employers are scaling back their RHI benefits in response to rising health costs and changes in accounting rules, by either eliminating benefits which shifts costs to retirees, or tightening vesting requirements. Using data from the Health and Retirement Study, this paper examines the potential consequences of eliminating RHI for both pre-Medicare and Medicare-eligible retirees. For younger retirees the likely primary response is to work longer, and we find that number of workers age 55 to 64 would increase by 7 percent, as some of those who have their access to RHI eliminated would work rather than retire. Of those who still choose to retire, most lack any employer-sponsored health insurance option and would need to find an alternative source of coverage or go uninsured. For Medicare beneficiaries over 65, we estimate that about three quarters would replace RHI with another form of supplemental coverage. This shift would slightly reduce total spending and utilization for individuals who choose basic Medicare or a Medicare HMO as opposed to a Medigap plan, but health outcomes would probably be unaffected no matter which supplemental option is chosen. In short, a full elimination of RHI would primarily impact early retirees who must face the cost of much more expensive insurance or of financing illness without insurance. Policymakers may want to consider encouraging insurers to step in to provide more affordable plans for these early pre-Medicare retirees.

"Do Health Problems Reduce Consumption at Older Ages?" 

BARBARA A. BUTRICA, The Urban Institute
Email: bbutrica@ui.urban.org
W. RICHARD JOHNSON, affiliation not provided to SSRN
Email: wrjohnson@cablelynx.com
GORDON MERMIN, affiliation not provided to SSRN
Email: merming@gao.gov

High out-of-pocket health care costs may have serious repercussions for older people and their families. If their incomes are not sufficient to cover these expenses, older adults with health problems may have to deplete their savings, turn to family and friends for financial help, or forego necessary care. Or they may be forced to reduce their consumption of other goods and services to pay their medical bills. This paper uses data from the Health and Retirement Study (HRS) and the related Consumption and Activities Mail Survey (CAMS) to examine the impact of health problems at older ages on out-of-pocket health care spending and other types of expenditures. The analysis estimates fixed effects models of total out-of-pocket health care spending, out-of-pocket health care spending exclusive of premiums, total spending on all items except health care, and total spending on all items except health care and housing. The models are estimated separately for households ages 65 and older and those ages 51 to 64.

The results show that medical conditions increase health spending, particularly for households ages 51 to 64, but that health conditions do not generally reduce non-health spending. Medical conditions do, however, reduce non-health spending for low-income households ages 51 to 64, suggesting that holes in the health safety net before the Medicare eligibility age force some low-income people to lower their living standards to cover medical expenses.