Building a Labor-Employer Alliance to Reform U.S. Health Care

Labor is on the march. Strikes by auto workers, Hollywood writers and actors, and even health care employees have won substantial gains at the bargaining table. Amazon and Starbucks have been playing whack-a-mole with local attempts to unionize at distribution centers and java outlets around the country. Even some physician groups are organizing. Many see this as a long overdue assertion of the rights of working Americans, whose compensation has failed for decades to keep pace with management’s or with inflation. From the special perspective of U.S. health care, however, labor’s new empowerment will have an unanticipated consequence: It may make it harder for employers to experiment with promising cost-reducing health experiments that are unfamiliar to employees and therefore arouse their suspicions, especially those that require changes in workers’ choices of health care services. Moving forward with such efforts, therefore, will require convincing employees that reforms in their health care will have direct rewards for them and won’t just pad companies’ bottom lines. One way to persuade them: involve them directly and authoritatively in the design and management of their health benefits. There is one promising model: Taft-Hartley health plans, which arise out of collective bargaining, have succeeded in engaging employees and delivering efficient care. Why Health Care Costs Have Continued to Soar Employers currently cover more than half of all insured Americans through the tax-subsidized health benefits they offer their employees. This makes the purchasers of employer-sponsored insurance the single largest stakeholder in the health care system, with enough collective market power (in theory) to dramatically reshape the health care delivery system. Employers, however, have been unable or unwilling to exert that potential muscle in the health care marketplace. As a result, their premiums have skyrocketed, increasing 7% in 2023. And the quality of the insurance they offer employees has steadily deteriorated in the face of rising costs. In 2023, nearly two-thirds of workers faced deductibles of more than $1,000, and nearly one-third of deductibles are more than $2,000, making health care too expensive for many to afford. Several problems contribute to employers’ failure to tame their own costs or affect the larger health care system. Even the biggest companies lack sufficient numbers of employees in any particular market to force local doctors, hospitals, and other providers to cut prices or change how they deliver services. Health care is complicated, and employers often lack the sophistication to understand how to buy health care more effectively. But another important reason is that serious efforts to reform the health care delivery system often require users of the services — in this case, employees — to change how they get their health care, and this can create confusion and discontent among workers. Even in times when jobs are scarce and workers less powerful, this is a problem for employers who want a contented, stable workforce. In times of workforce empowerment, such as the current period, workforce discontent can be an even more serious deterrent to employer innovation in purchasing health care. The central challenge with most approaches to controlling costs — other than just passing them on to employees through higher premiums, deductibles, and cost-sharing — is that they limit workers’ choice of providers in one way or another. A typical strategy is to direct employees away from the most expensive providers in local markets and toward more affordable clinicians and facilities. But many workers have established relationships with these high-cost providers and are reluctant to switch to others. And high-cost providers sometimes include brand-name organizations in local markets, such as teaching hospitals and cancer centers. Another approach is to use doctors and hospitals that are willing to share the financial risk for the cost of care that they provide. In these arrangements, clinicians are more likely to look critically at the value of the care they recommend for their patients. This changes the traditional dynamic of fee-for-service health care in which economic incentives always favor doing more for patients, sometimes to the point of diminishing or negative clinical returns. Since not all providers are willing or able to participate in risk-sharing contracts, workers may again face limits on their choices of doctors and hospitals. To get past employee resistance, some employers have used financial incentives to encourage employees to accept limits on where they can get their care. Employees who want more freedom of choice pay higher premiums, deductibles, and copays. This approach, however, has not succeeded in containing the steadily increasing costs of employer-sponsored insurance. One reason may be that over time, employees with health problems sort into the high-cost plans. The most expensive employees, therefore, continue to get their care in the traditional fee-for-service system and to use costly local providers. It is far from certain that private actors can make a dent in the huge problems of cost and quality that plague U.S. health care. For one thing, consolidation among doctors and hospitals in local markets has made it even more difficult for employer-sponsored plans to negotiate better prices and find providers willing to participate in risk-sharing arrangements. And lack of local market power will remain a problem for reform-minded purchasers, unless they can band together with other employers to form purchasing groups. A Proven Remedy If they are to succeed in curbing costs, employers will have to overcome prevailing distrust between management and labor which fears that savings from any health reforms will drop to the companies’ bottom line or end up in executive bonuses rather than in workers’ pockets. Employers will have to be transparent and specific in demonstrating how changes in coverage will affect premiums, deductibles, and copays. Workers will need much more meaningful participation in the development and management of their health care benefits than they have today. The example of Taft-Hartley plans shows that, as difficult as these changes in worker-management relations may be, they are not impossible. These plans accomplish joint control of health benefits through several mechanisms. First, their boards are composed equally of representatives from management and labor. Second, total funding for the plans is collectively bargained. And third, boards choose the plans’ CEOs, which means they must be acceptable to both parties. These mechanisms create the basis for workers’ trust in the management of their health benefits. As a result, several Taft Hartley plans have successfully engaged employees in addressing cost increases, including getting employees to willingly agree to change providers and participate in other cost-savings programs: Unite Here, which represents workers in the hotel, food service, and casino gaming industries, has established its own medical clinics in several locations, where members can receive broad primary care services at no cost. 32BJ SEIU, the largest property services union in the United States, established a centers of excellence program for bariatric and joint replacement services in which care is free if members go to the designated centers but for which there is zero coverage if they choose other hospitals. In New York City, an extensive cost and quality analysis showed that New York Presbyterian cost 25% more than other local hospitals for these very expensive procedures. Despite its exceptionally strong brand, New York Presbyterian was excluded from the network, and 32BJ promised its members that it would use the cost savings to cover other costs the patient might accrue and provided workers with the largest annual raise in recent history. What is compelling about the Taft-Hartley approach is that restrictions that would otherwise be highly unpopular are accepted as tough choices that people need to make. There is a level of trust generated through the agency of having peers run the program; employees feel like they are in the struggle together. In an era of workforce empowerment, the alternative to a collaborative worker-management model of employer-sponsored insurance is continued unrestrained growth in the cost of care to the point where neither workers nor employers can afford meaningful insurance. That would result in greater government involvement in health care markets. This could take the form of direct price controls on health care services, especially in very consolidated markets. Or it could result in much larger enrollment in Affordable Care Act marketplaces as employers abandon provision of health insurance altogether. The viability of the unique American reliance employer-sponsored insurance may now depend as never before on the ability of employers and employees to collaborate in reforming the American health care system.

Building a Labor-Employer Alliance to Reform U.S. Health Care

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