Health Care Is Making Labor Sick


Is the U.S. system of employer-based health care starting to buckle under the return of double-digit medical inflation? That's the fear of labor, women's group, and civil-rights leaders, who have been speaking out in support of 85,000 striking grocery workers, mostly in Southern California.

The supermarket walkout, one of more than 90 labor disputes that have focused on health care this year, highlights just how much trouble many companies face trying to maintain health insurance for their employees. With cost hikes lifting family coverage to an average of more than $9,000 a year, a growing number of employers are doing away with health coverage for some workers. Others are making workers shoulder more of the burden of rising costs, raising the risk that many employees, especially low-wage ones, could get priced out of the market for health insurance.

Union leaders and their allies fear that if the supermarket industry prevails, others may be emboldened to follow suit. "If they succeed, the two-thirds of us who get our coverage from employers will be next," warned National Organization for Women President Kim Gandy at a press conference called by the AFL-CIO to show support for the strikers. Certainly, the supermarket chains are taking an aggressive new posture, which goes beyond the kind of cost-shifting to employees that caused flare-ups last spring at General Electric (GE) and elsewhere.

NEWBIES, BEWARE. On Oct. 11, members of the United Food & Commercial Workers (UFCW) walked off the job at Vons Cos., a unit of Safeway (SWY). Albertson's (ABS) and Kroger's Ralphs (KR) stores quickly formed a united front by locking out their own workers. The companies joined forces out of a determination to rein in runaway health costs. They also point to mounting competition from nonunion Wal-Mart (WMT), whose bare-bones health plan covers less than half its workforce. The two sides in the grocery dispute finally began talking with the aid of a federal mediator on Nov. 10.

Right now, workers at all three grocery companies are covered by a single joint program that requires the employers to maintain a certain level of health benefits, even if medical costs soar. But the supermarket industry wants to convert this plan into a fixed-contribution system, which functions more like a 401(k). That would mean the burden of future runaway costs wouldn't be split by employers and workers. Instead, employees would be forced to cope, either by accepting reduced health benefits or paying higher premiums. "They propose to shift massive costs to current workers until the existing health-care plan collapses," charges UFCW President Doug Dority.

The stores have even more aggressive plans for new hires, who wouldn't be covered by the current program at all. Instead, they would go into a category in which employees may have to pay as much as 75% of the cost of health care -- something most probably couldn't afford on an average supermarket worker's salary, which the UFCW pegs at about $20,000 a year. Says Safeway spokesman Brian Dowling: "There has got to be a way to contain costs over the lifetime of this contract without directly impacting our current workforce."

"CONTINUED DECLINE." Looking at the big picture, union leaders worry about the national impact of such a proposal, especially given the recent sharp falloff in employer-based health coverage. The share of workers getting insurance from an employer dropped to slightly over 72% last year, from nearly 75% in 2000, according to an analysis of Census Bureau data by the Employee Benefit Research Institute, a nonprofit group in Washington, D.C. "You can expect a continued decline in coverage -- at least as long as employers think it won't harm recruitment and retention," says EBRI health-care expert Paul Fronstin.

In the long term, the biggest threat to the employer-based system may come from companies that hoist the burden of future cost hikes onto employees. Even during the boom years, a small but growing number of businesses designed plans that function much like the one the supermarkets want. These plans also involve fixed payments from employers, leaving workers to pick up any cost hikes. Either way, given the soaring tab for medical services, the current system is buckling under the strain. By Aaron Bernstein in Washington and Ronald Grover in Los Angeles


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