Playing `Pin The Insurance On The Other Guy'Aaron Bernstein
When General Electric Co. negotiated a new labor pact with its two largest unions on June 30, the most contentious issue was a demand that employees pay more for medical care. GE's proposal--which was accepted after heated debate--had an unusual twist. Starting next January, some 200,000 GE employees, union and nonunion alike, will pay up to $770 a year to cover working spouses who decline the health insurance offered by their own employers. Coverage for spouses who don't work, or can't get insurance elsewhere, will cost one-third as much--$250 a year.
GE's policy marks a new front in the battle over health insurance. The company claims it isn't trying to penalize working couples. Instead, it's reacting to other employers that "buy out" workers--pay them to drop their health coverage and hitchhike on their spouses' GE plan. "It's not necessarily the other employee who's freeloading" on GE, says Lawrence G. Cook, a health insurance specialist at GE. "It's the employer."
If more companies take this tack, warfare could break out among employers over who should pick up the health care tab for some 30 million two-earner families. And workers will no doubt get caught in the middle. "GE is at the far end of the spectrum at this stage," says Tom Beauregard, a health care consultant at Hewitt Associates. "But employers are increasingly trying to make sure that they don't pick up all their employees' dependents."
The immediate flashpoint is employers who deliberately try to foist their own workers and dependents onto someone else's insurance plan. Last year, the Albany City School District began offering a tempting buyout--$1,000 a year to employees who decline coverage, and $2,000 if the entire family drops out. The district saves big, since it now pays $5,800 a year to insure a family.
HOLDING THE BAG. This year, 115 of its 1,100 full-time employees took the cash. Some jumped to their spouses' plan. Others kept their insurance, but their spouses dropped off. Clara E. Backes, the district's director of food services, got $1,000 after her husband, Edward, left the plan and took coverage from his employer, New York State. "Is it fair to buy out workers?" asks Joan C. Gould, the personnel manager for the town of Trumbull, Conn., which offers buyouts of up to $750 a year to its 300 employees. "Other companies have the right to do it. And it saves us money."
The spread of flexible benefit plans is fueling the dependent-coverage issue.
Such plans let employees choose from a menu of benefits. Currently, 52% of large companies offer cash or other benefits to workers who decline health coverage, according to a recent Hewitt survey. The upshot: Employees often shun health plans at companies with flexible benefits. At Citicorp, which set up a flexible plan last year, more than 10% of 50,000 U. S. employees dropped the company's health insurance for coverage elsewhere.
Employers without flexible benefits, such as GE, say they wind up holding the bag. Since they can't directly influence the other companies' policies, they try to do it through their own employees. GE did soften its initial demand. Employees' spouses who earn less than $15,000 a year will pay nothing extra for GE health coverage, while those making $15,000 to $20,999 pay $5 more a week. Everyone above that will owe the full, $10 weekly surcharge. In some ways, that's a bargain. Procter & Gamble Co. charges $80 a month extra for spouses who decline coverage elsewhere. Employees say the company has been doing this for several years. But P&G won't discuss its plan.
J. C. Penney Co. took one of the earliest--and most controversial--steps in 1971. It stopped covering spouses if the Penney employee isn't the family's principal wage earner. Because 80% of its 196,000 workers are female, the company has faced several lawsuits, including a class action alleging sex discrimination. Penney has won every time.
As health care costs skyrocket, more companies are likely to do buyouts. "If you don't, you end up being the recipient of everybody's opt-outs," says Gary D. Matson, manager of U. S. employee benefits at H. J. Heinz Co., which has 30,000 U. S. employees. Someone, either employer or worker, will always have a momentary edge in this game. And if everybody begins to play, the hot potatoes could be flying for years.