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

Health Care 24/1/24, 20:19

Human Resource Management

Building a Labor-Employer
Alliance to Reform U.S. Health
Care
by David Blumenthal, Lovisa Gustafsson, and Robert Galvin

January 24, 2024

jaouad.K/Getty Images

Summary. U.S. employers have struggled to curb soaring health care costs. But
there is an approach that could help them: involve workers in the design and
implementation of health care benefits. There is a model that proves this approach
can work: Taft-Hartley health... more

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Building a Labor-Employer Alliance to Reform U.S. Health Care 24/1/24, 20:19

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-

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Building a Labor-Employer Alliance to Reform U.S. Health Care 24/1/24, 20:19

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.

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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

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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

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Building a Labor-Employer Alliance to Reform U.S. Health Care 24/1/24, 20:19

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.

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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.

David Blumenthal, MD, is a professor of

practice of public health and health policy at
the Harvard T.H. Chan School of Public Health.
He is the former president of the
Commonwealth Fund and served as the
National Coordinator for Health IT in the
Obama Administration.

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Lovisa Gustafsson is a vice president at the

Commonwealth Fund. She previously
consulted for investor and industry clients on
health policy and strategy issues.

Robert Galvin, MD, is professor adjunct at the

Yale School of Medicine and is a member of the
National Academy of Medicine. He previously
served as the CEO of Equity Healthcare, a
health management company owned by the
Blackstone Group and as the chief medical
officer at General Electric.

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