Do VEBAs Signal Permanent Health Coverage Shift?

May 6, 2008 ( - The recent creation of high-profile benefit trusts for autoworker retirees and reports that other employers are considering similar moves may signal a fundamental change in the employer-provided health care system.

That was a key conclusion by the Washington, D.C.-based Alliance for Health Reform, in a report about trends in the employer-sponsored health coverage system. An Alliance summary referred to the voluntary employee beneficiary association (VEBA) set up to provide retiree health and benefits for General Motors, Ford, and Chrysler retirees in exchange for company contributions (See Big Three VEBA Board Chair Named as Trust is Implemented and Total Benefits: Viva VEBA ), and asserted that other large non-auto employers were thinking about going the same direction.

“Only time will tell whether this movement away from employer-sponsored coverage to new models of care will be unique to the auto workers, or is a sign that the nature of worker coverage is fundamentally changing,” the Alliance said in its research summary.

The group’s document also discussed a number of other recent trends in the employer-sponsored health benefit picture including:

  • The sharper decline in employer-sponsored coverage since 2000 has largely been driven by a decline in the number of small firms offering health insurance. Since 1999, approximately 99% of firms with 200 or more workers have offered health benefits to their employees. Among small firms with three to 199 workers, 68% offered coverage in 2000; but by 2007, only 59% of these firms offered coverage.
  • Health insurance premiums have been increasing significantly faster than overall inflation and workers’ earnings for nearly a decade. Between 1999 and 2007, the average monthly worker premium contribution for individual coverage rose 115%, from $27 to $58.
  • The proportion of workers actually enrolling in employer-sponsored insurance has fallen from 88% in 1988 to 83.5% in 2005. Still, of the 16% or so of workers who don’t take coverage from their employer when it’s offered, more than two-thirds get insurance from another source, usually a spouse’s job.

Some analysts believe that changes in the structure of employment arrangements are one factor behind declining employer-sponsored insurance rates, the Alliance said. In recent years the share of self-employed and contingent (or part-time) workers has risen.

Some argue that employer-sponsored insurance puts healthier workers at a disadvantage in that they pay more for their premiums, since they are in effect subsidizing the cost of insurance for high risk individuals.

The Alliance research summary is here . Additional resources are available here .