Business, Heal Thyself

Like it or not, just about every U.S. company is in the health-care business, one way or another. Employer-sponsored health plans are a treasured benefit for American workers and, for their bosses, a valuable tool for luring the best people. But double-digit growth in health-care costs, coupled with an uncertain economic future, has pushed many businesses to look for new ways to cut their health-care costs.

Strategies vary, but the result is to shift more of the direct costs to employees. This year 9% of large employers, including Ford and Sears, announced that they would scale back health benefits for retired workers. Many employees already pay more for family coverage; one small technology firm recently offered a cash bonus to employees for switching to their spouse's plan. Xerox once tried adjusting its health-care allowance so single workers would get more and those with families a bit less. "After three years, we killed it," says Helen Darling, a former benefits manager for Xerox and now president of the Washington Business Group on Health. "All the people who were in the family category screamed miserably: 'I wouldn't have had all these children if I knew you were going to cut our family allowance!'"

Health-care premiums have risen 12.7% between spring 2001 and spring 2002, far outstripping inflation and wage growth, and things aren't getting any easier. According to a recent survey by the Kaiser Family Foundation, 78% of companies with 200 or more workers plan to increase the amount paid directly by their employees for health care. And the U.S. Census Bureau reported last week that the number of Americans without health insurance rose sharply last year.

TIME invited a panel of five experts to help make sense of the impact of rising health-care costs on business. Joining Darling were Drew Altman, president and ceo of the Kaiser Family Foundation; Uwe Reinhardt, a health-care economist at Princeton University; Gail Shearer, director of health-policy analysis for Consumers Union; and Gail Wilensky, an economist and senior fellow at Project HOPE, an international health foundation.

TIME: Health-care costs are of concern right now because of the state of the economy. But if the economy improves, will that change anything?

ALTMAN: The economy will not change the trajectory of health-care costs. Those are going up.

WILENSKY: When the economy is sluggish, it gets your attention. But if the economy were to rebound and be robust, you'd see more tolerance on the employer side and on the employee side for some additional increase in health-care costs.

REINHARDT: Cost containment in the employment system works only in recession. In a tight labor market, the quality of the health-insurance package is your come-on in the market, and that means no holds barred, no cost containment. We are facing a 20-year tight labor market in America. You may have spurts of recession, but we will have a booming labor market again, and this problem won't be solved.

SHEARER: We're really worried that as the recession goes on, more people are going to be uninsured and underinsured.

TIME: So what will employers do in the near term?

DARLING: As far as employers are concerned, we see no end in sight. In the prior five years, employers' share of health-care costs have been rising compared with consumers'. Employers will be increasing not only cost sharing in the premium paid each month but in every possible way, with either a co-payment or co-insurance.

ALTMAN: Every rock we looked under, we found problems for employers; more than 70% of them plan to ask their employees to pick up a greater share of the tab next year.

SHEARER: Yes, employers are paying the bills for health insurance, but about 90% of those costs are passed on to employees in the form of lower wages. We're concerned that employers are shifting those very obvious identifiable costs to their employees, but at the same time they're also shifting more of the direct premium costs to employees.

WILENSKY: This is the first time we've heard non-economists agree to the concept that in fact employees are really paying for employer-sponsored insurance.

TIME: Do you think the cuts in retiree health benefits are a recession measure?

DARLING: No, they're permanent. Basically, we have a group of people you can think of it as World War II veterans who are marching through retirement with these extraordinary benefits.

REINHARDT: I think the danger for those already in retirement or close to it is that employers will find legal ways to whittle away benefits if it's absolutely necessary. I think it's a sleeper issue: more of the share of the health-care costs of the elderly will have to be borne by them or by Medicare, because employers have the legal means to pull out.

DARLING: Anybody under, I would say, around 40 in this country, except for public employees, will not have retirement medical coverage, period. Zero.