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The Employer-Based Health Care System is in Crisis

For the first time in more than four decades, a majority of Americans working in the private sector no longer receive health care coverage from their employers.  And those that do receive coverage are being forced to pay for an increasing share of it out of their own pockets.  Moreover, as the gap between the coverage between union and non-union workers grows, the competitive advantage of the non-union sector is growing with it - giving non-union employers greater incentive to fight organizing drives.

Uncontrolled health care cost increases will continue to drag down wages, distort bargaining and leave more American uninsured in the second half of 2004 and in 2005.   The key elements of the employer-sponsored health benefits system crisis are as follows:

  • Employer-sponsored plans no longer provide coverage for a majority of U.S. workers. Only 45 percent of private sector employees participated in employer medical plans in 2003, down from 52 percent in 2000 and 66 percent in 1990, according to the latest data from the Bureau of Labor Statistics.
  • Even for full-time private sector workers, only 56 percent participated in employer-sponsored health plans in 2003, down from 61 percent in 2000 and 76 percent in 1990, according to the BLS.
  • Twenty-six percent of all uninsured Americans work at or have a family member employed by a large company, according to The Commonwealth Fund. 
  • The number of uninsured will reach 53.7 million in 2006 unless the government takes immediate action, according to the National Coalition on Health Care. 

Health insurance premiums for employer-sponsored plans will hit $12,485 for family coverage in 2005 and $14,545 in 2006, according to the National Health Care Coalition. HMO premiums will increase 13.7 percent in 2005, according to a new study from Hewitt Associates. Cost will rise 12 percent to 15 percent in 2004 and 2005 for most employer-sponsored plans. 

Uncontrolled health care costs have exacerbated the union/nonunion labor cost differential and fueled the employer antiunion drive. For the year ending March 2004, employers' labor costs for union workers rose 5.7 percent, well above the 3.6 percent increase for nonunion workers, according to the Bureau of Labor Statistics. The entire difference stems from higher benefit costs for union workers. 

Benefit costs rose 6.0 percent for nonunion workers and 11.2 percent for union workers for the year ending March 2004, largely because of the superior union health plans and lower co-payments unions have been able to maintain. Union wages rose 2.5 percent during the same 12-month period, slightly below the 2.6 percent increase for nonunion workers. 

Double-digit premium increases have fueled huge profits for insurance, health care and pharmaceutical companies in recent years. But the underlying rise in medical costs is 9 percent to 10 percent annually, so the anticipation of increased competition and lower profit-taking in the insurance and health care industries will only leave premiums at somewhat lower but still unaffordable levels. 

The U.S. stands alone in the world in its failure to control soaring health care costs and insure all of its citizens. The rest of the advanced world has moved to universal coverage funded through the general tax base. 

The U.S. is the only advanced nation that spends nearly 14 percent of GDP on health care and pays for most of it with private funds. No other advanced nation uses employer-provided insurance as the primarily vehicle for health care funding. 

Per capita health care spending is more than twice as high in the U.S. as in any other advanced nation, but the quality of care is lower by almost every measure, according to a massive new study from the Organization for Economic Cooperation and Development. 

Nonmedical costs, primarily administrative and billing costs, now consume at least 25 percent of all health care spending in the U.S., or $450 billion of the $1.8 trillion that will be spent on health care this year. Advanced countries with national health care systems typically spend less that 10 percent on administration.

This fact sheet is adapted from an original report by the Labor Research Association of the same title.