Voluntary long-term care insurance: best practices for increasing employee participation

This is the second of two Issue Briefs (April and May 2000) on long-term care (LTC) insurance. The previous Issue Brief addressed the problem of increasing sponsorship, while this report addresses the issue of increasing employee participation. Participation rates in group LTC insurance plans tend to be low. A potential watershed event for the development of the employment-based group LTC market is the proposed LTC program for federal employees and retirees (a program that would have to be enacted by Congress). The perception of a successful offering to federal employees could provide an enormous boost to the group LTC insurance market. Employee communication and education are seen as critical to the success of LTC enrollments. The importance of support shown by an employer for a new LTC plan offering cannot be overstated. Unlike 401(k) plan participation trends, LTC participation rates are highest among large companies. Insurers tend to view the 40-60 age range as the primary target for group LTC insurance, and employee salary as the best predictor of LTC insurance enrollment. Higher educational levels also are associated with higher levels of LTC participation. Perceived need for LTC insurance is perhaps the biggest barrier to the purchase of LTC insurance by employees due to competing financial priorities and the fact that LTC issues are generally off the "radar screens" of younger employees. Plans with skilled nursing home and home care benefits experience higher participation rates than plans lacking these benefits. The availability of lower-cost and long duration benefit options can be an important factor in determining participation. Most sponsors have chosen to offer noncontributory (i.e., fully employee-paid) LTC plans. Employer reluctance to make contributions may be caused by HIPAA's prohibition on the inclusion of LTC insurance in cafeteria plans. One of the major advantages of group LTC plans is the availability of guaranteed issue (i.e., issuing coverage without requiring evidence of insurability) for employees, which is not available in the individual LTC market. It is easy for enrollment to be derailed by the presence of any of a number of harmful conditions, such as employer-sponsors who distance themselves from the offer, ineffective communications, or difficult enrollment processes. Achieving consistently strong levels of participation in LTC plans will require employer-sponsors and their insurance carriers to form strong partnerships, with worker participation as their primary stated goal.     

Small employers and health benefits: findings from the 2000 Small Employer Health Benefits Survey

Many small employers (between two and 50 workers) are making decisions about whether to offer health benefits to their workers without being fully aware of the tax advantages that can make this benefit more affordable. Fifty-seven percent of small employers did not know that they can deduct 100 percent of their health insurance premiums. Nearly one-half of small employers are not aware that workers who purchase health insurance on their own generally cannot deduct 100 percent of their health insurance premiums. Small employers are largely unaware of the laws that have been enacted by nearly all states and the federal government with the intent of making health insurance more accessible and more affordable for many small employers. More than 60 percent did not know that insurers may not deny health insurance coverage to small employers even when the health status of their workers is poor. Most employers offer sound business reasons for offering health benefits to workers. Many have found that it helps with employee recruitment and retention, increases productivity, and reduces absenteeism. Nearly 50 percent of the employers offering dependent (family) coverage report that the workers do not take coverage for their dependents because the dependents have coverage from somewhere else. Twenty-seven percent report their employees decline dependent coverage because they cannot afford the premiums. Many small employers that do not offer health benefits are potential purchasers. Twelve percent are either extremely or very likely to start offering health benefits in the next two years, and 17 percent are somewhat likely to start offering health benefits. A number of factors would increase the likelihood that a small business would seriously consider offering a health benefits plan. Two-thirds of small-business owners said they would seriously consider offering health benefits if the government provided assistance with premiums. Almost one-half would consider doing so if insurance costs fell 10 percent. In addition, one-half would be more likely to seriously consider offering a health benefits plan if employees demand it. Many small employers with health benefits have recently switched health plans, and 34 percent report that they did so within the past year. Affordability for the employer and the worker is clearly a critical factor affecting the likelihood of switching health plans. Nearly all employers who have switched health plans within the past five years cite cost as the main reason. One-third of companies offering health benefits think they will change coverage, and 5 percent think they would drop coverage if the cost of health insurance were to increase by 5 percent.     

Questions and answers on health insurance benefit issues

This Issue Brief addresses eight topics in the areas of health insurance and health care costs. Using a question and answer format, the discussion draws largely on EBRI research and the EBRI Databook on Employee Benefits, third edition. In 1993, U.S. expenditures on health care were $884.2 billion, and they are projected to reach $2,173.7 billion by 2005, increasing at a projected average annual rate of 7.8 percent. Health care spending accounted for 13.9 percent of Gross Domestic Product (GDP) in 1993 and is projected to reach 17.9 percent of GDP by 2005. Among the factors contributing to the increase in health care costs are the growth in the number of individuals with traditional reimbursement health insurance coverage, the rapid expansion of technology and treatment options, and demographic factors such as the aging of the population. In 1993, employers, both public and private, spent $235.6 billion on group health insurance, accounting for 6.2 percent of total compensation. Group health insurance is the fastest growing component of total compensation, increasing at an average annual rate of 13.7 percent from 1960 to 1993. An increasing number of employees are required to make a cash contribution to their health insurance plan premium. In 1993, 61 percent of full-time employees in medium and large private establishments who participated in an employee only health insurance plan were required to make a contribution to the premium, up from 27 percent in 1979. In 1993, 185.3 million persons under age 65 had health insurance coverage, while 40.9 million people--or about 18.1 percent of the nonelderly population--received neither private health insurance nor publicly financed health coverage. Of those individuals who had health insurance coverage, 60.8 percent, or 137.4 million persons, received their health insurance through an employment-based plan. In 1993, 15.2 percent of the nonelderly population without health insurance coverage were noncitizens. In six states noncitizens represented a higher proportion of the total uninsured population than individuals in the nation as a whole. An increasing number of employers are self-funding their health insurance plans. In 1994, 74 percent of employers with 500 or more employees self-funded their health insurance plans, up from 63 percent in 1993. An estimated 22 million full-time employees in private industry and state and local governments participated in a self-funded employment-based health insurance plan.(ABSTRACT TRUNCATED AT 400 WORDS)     

Health insurance portability: COBRA expansions and job mobility

This Issue Brief discusses continuation-of-coverage mandates under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). It provides background information on health insurance portability and job mobility, data on the cost to employers of providing continuation of coverage to former employees, and a summary of empirical research on COBRA's effect on employee benefits and job mobility. COBRA coverage can be considered advantageous for most workers, as it allows continuation of the health insurance policy they had in place at work when they lose or leave a job. Although employees can be required to pay 102 percent of the premium for COBRA coverage, they can usually realize significant savings compared with the cost of purchasing the equivalent insurance policy in the private market. Many employers consider COBRA to be a costly mandate for three reasons. First, premiums collected from COBRA beneficiaries typically do not cover the costs of the health care services rendered. Second, COBRA imposes an additional administrative cost on employers. Third, many employers view the penalties for noncompliance as excessively large. According to a survey conducted by Charles D. Spencer & Associates, of the 10.2 percent of employees and dependents who were eligible for COBRA coverage in 1996, over 28 percent elected it. In addition, average employer claims costs for COBRA beneficiaries amounted to $5,591, compared with $3,332 for active employees in surveyed plans. According to Employee Benefit Research Institute estimates of the Survey of Income and Program Participation (SIPP), the COBRA population is much older than the general insured population. COBRA beneficiaries also have higher personal income than the general insured population, with this difference being almost entirely due to differences in retirement income. Any attempt to expand COBRA coverage, either through subsidies or by allowing workers to choose from plans with lower premiums, would likely result in increased employer health care costs. As a result, employers may consider various alternatives to reduce, shift, or eliminate the impact of this increased cost. One alternative would be to continue requiring active employees to share in the increased costs through higher employee contributions. A second alternative would be to reduce or eliminate health care benefits for active employees and/or future retirees and their families. A third alternative would be to reduce the size of the work force eligible for health insurance benefits. Finally, employers may pass additional costs on to workers or consumers.     

Employment-based health benefits: analysis of the April 1993 Current Population Survey

The April 1993 CPS differs from the March 1993 CPS in a number of respects. The April 1993 CPS supplement surveys only workers, whereas the March CPS examines the noncash benefits received by all Americans. The April CPS asks workers about health coverage in the week in which the questions were fielded, whereas the March CPS asks about coverage in the preceding year. In April 1993, there were 112.5 million civilian American workers between the ages of 18 and 64 with jobs. Eighty-two million (73 percent) of them worked for an employer that sponsored a health insurance plan, and 65 million (58 percent of all workers) participated in their employer's health plan. About one-third of workers at firms with fewer than 10 employees had employers who offer health benefits; about one-quarter of all of the workers in these firms participated in their employer's plan. Conversely, 94 percent of workers at firms with more than 1,000 employees had an employer who sponsored health benefits, and over 77 percent of these workers participated in their employer's plan. There are 16.5 million American workers whose employers sponsored health benefits but who did not participate in these benefits. Over one-half of these workers (8.5 million) chose not to be covered. Another 36 percent of these workers (5.9 million) did not participate because they were ineligible or denied coverage. Over 66 percent of the ineligible workers did not participate because they were part-time, contract, or temporary workers. Another 26 percent had not yet completed a probationary period. Among the reasons that those who chose not to participate in their employer's coverage, the vast majority (75 percent) stated they were covered by another health care plan. Twenty-nine percent stated that they chose not to purchase coverage because it was too costly or that they did not need or want the coverage. In 1993, there were 16.7 million workers with no health insurance coverage. The vast majority of these workers (95 percent) were employed by private employers. Sixty-six percent of the workers with no health insurance coverage were self-employed or worked for firms with fewer than 100 employees.     

Questions and answers on employee benefit issues

This Issue Brief addresses 19 topics in the areas of pensions, health insurance, and other benefits. In addition to the topics listed below, the report includes data on the prevalence of benefits, tax incentives associated with benefits, lump-sum distributions, number of private pension plans, pension coverage rates, 401(k) plans, employer spending on group health insurance, self-insured health plans, employer initiatives to reduce health care costs, and employers' response to the retiree health benefits accounting rule, and flexible benefits plans. In 1992, U.S. employers (public and private) spent $629 billion for noncash benefits, representing nearly 18 percent of total compensation, excluding paid time off. In 1992, 71 percent of the 50.1 million individuals aged 55 and over received retirement benefits, including distributions from private and public pensions, annuities, individual retirement accounts, Keoghs, 401(k)s, and Social Security. Among the 76 percent of all private pension plan participants who participated in a single plan, 30 percent named a defined benefit plan as their pension plan type, 58 percent named a defined contribution plan as their pension plan type, and 12 percent did not know their plan type. Private and public pension funds held more than $4.6 trillion in assets at the end of 1993. The 1993 year-end assets are more than triple the asset level of 1983 (nominal terms). According to the Congressional Budget Office, U.S. expenditures on health care were expected to have reached $898 billion in 1993, up from $751.8 billion in 1991, an increase of 19.4 percent in nominal terms.     

Employment-based health benefits: who is offered coverage vs. who takes it

This Issue Brief provides data on employment-based health insurance, with a discussion of recent trends and how sponsorship rates, offer rates, coverage rates, and take-up rates vary for different workers. Other sections examine reasons why workers do not participate in employment-based health plans, alternative sources of health insurance, and uninsured workers. In 1997, 83 percent of the 108.1 million wage and salary workers in the United States were employed by a firm that sponsored a health plan. Of those workers, 75 percent were offered coverage, and 62 percent (or 67.5 million workers) were covered by that plan. Of those workers who worked for an employer that offered them a health plan, 83 percent participated in the plan. Sponsorship rates have barely changed in the last 11 years. In 1988, 83 percent of wage and salary workers reported that their employer sponsored a health plan. This declined slightly to 82 percent in 1993 but had increased to 83 percent by 1997. Offer rates significantly changed between 1988 and 1997. In 1988, 82 percent of workers reported that they were eligible for health insurance through their employer. By 1993, the percentage of eligible workers declined to 74 percent, and it has only slightly increased since then to 75 percent in 1997. In 1997, 40.6 million American workers did not have health insurance through their own job. Forty-five percent of the workers without coverage were employed at a firm where the employer did not provide health insurance to any workers. Thirty-three percent of the workers without coverage were offered coverage but declined it. Twenty-two percent of the workers without coverage were employed in a firm that offered health insurance to some of its workers, but certain workers were not eligible for the health plan. The 13.7 million workers who were offered coverage but declined it gave a number of reasons for doing so. In the majority of cases (61 percent), the worker was covered by another health plan. Of the remainder, 20 percent reported that health insurance was just too costly. Overall, 41 percent of the 40.6 million workers who were not participating in an employment-based health plan through their own employer had coverage through a spouse. However, 42 percent of the 40.6 million workers who declined their employers' health plan or who were not offered health insurance from their employer were uninsured.     

Expanding health insurance for children: examining the alternatives

This Issue Brief examines the issue of uninsured children. The budget reconciliation legislation currently under congressional consideration earmarks $16 billion for new initiatives to provide health insurance coverage to approximately 5 million of the 10 million uninsured children during the next five years. Proposals to expand coverage among children include the use of tax credits, subsidies, vouchers, Medicaid program expansion, and expansion of state programs. However, these proposals do not address the decline in employment-based health insurance coverage--the underlying cause of the lack of coverage, to the extent that a cause can be identified. What is worse, some proposals to expand health insurance among children may discourage employers from offering coverage. Between 1987 and 1995, the percentage of children with employment-based health insurance declined from 66.7 percent to 58.6 percent. Despite this trend, the percentage of children without any form of health insurance coverage barely increased. In 1987, 13.1 percent were uninsured, compared with 13.8 percent in 1995. Medicaid program expansions helped to alleviate the effects of the decline in employment-based health insurance coverage among children and the potential increase in the number of uninsured children. Between 1987 and 1995, the percentage of children enrolled in the Medicaid program increased from 15.5 percent to 23.2 percent. Some questions to consider in assessing approaches to improving children's health insurance coverage include the following: If the government intervenes, should it do so through a compulsory mechanism or a voluntary system? Is the employment-based system "worth saving" for children? In other words, are the market interventions necessary to keep this system functioning for children too regulatory, too intrusive, and too cumbersome to be practical? In addition to reforming the employment-based system, what reforms are necessary in order to reach those families who have no coverage through the work place? Which approaches are both efficient and politically acceptable? Employment-based coverage of children will likely continue. The challenge for lawmakers is to find a way to cover more uninsured children without eroding employment-based coverage. Several current legislative proposals attempt to avoid this problem by excluding children who have access to employment-based coverage. Without such a requirement, the opportunity to purchase coverage at a discount would create incentives for some low-income employees to drop dependent/family coverage, which in turn could lead some employers to drop their health plans.     

Flexible benefits, choice, and work force diversity

This Issue Brief evaluates the prevalence of flexible benefits plans and their ability to achieve cost management goals and to meet the needs of diverse employee groups. In addition, it examines flexible benefits plans' current legislative and regulatory status and typical plan design features. Sec. 125 of the Internal Revenue Code allows employers to provide employees with a choice among benefits, including moving otherwise taxable cash compensation to the pre-tax purchase of benefits, without requiring them to include the value of the noncash benefits in their adjusted gross income unless they choose taxable options. Although the percentage of full-time employees in medium and large private establishments who are eligible for cafeteria plans has not increased appreciably, the percentage of employees eligible for freestanding flexible spending accounts (FSAs) nearly tripled between 1988 and 1991. Generally, the proportion of employers sponsoring cafeteria plans or FSAs increases with employer size. Recent surveys show that 27 percent of employers with 1,000 or more employees offered choice-making plans in 1991, 48 percent of firms offered health care FSAs, and 54 percent offered dependent care FSAs, either in conjunction with cafeteria plans or as a stand-alone option. Ten percent of full-time employees in private firms employing 100 or more workers were eligible to participate in cafeteria plans in 1991. Only 5 percent of full-time employees in state and local governments and 1 percent of similar employees in small private establishments were eligible for cafeteria plans in 1990. Recent Bureau of Labor Statistics' surveys show that, among full-time employees, 27 percent in private establishments with 100 or more employees, 28 percent in state and local governments, and 6 percent in small private establishments were eligible to participate in freestanding FSAs. In 1992, 21 percent of eligible employees contributed to a health care FSA, and only 3 percent of eligible employees contributed to a dependent care FSA. Contributions to health care FSAs averaged $651, and those to dependent care FSAs averaged $2,959. National health reform could have a significant impact on these plans if the tax treatment of health benefits is changed. Taxation of health benefits in excess of a standard benefits package would fundamentally reduce the ability to use FSAs.     

The 1999 Small Employer Retirement Survey: building a better mousetrap is not enough

As of 1995, there were 5.3 million small-employer firms (100 or fewer employees) in the United States. These small firms employed 38.0 million individuals, representing 38 percent of all employment. Therefore, low retirement plan coverage among small employers directly affects a sizeable fraction of the national work force. There are a number of reasons why more small employers do not offer retirement plans. Cost and administration-related issues do matter, but for many small employers these take a back seat to other issues. For some, the main driver is the financial reality of running a small business: Their revenue is too uncertain to commit to a plan. For others, the most important reasons for not sponsoring a plan are employee-related, e.g., the workers do not consider retirement savings to be a priority, or the employer's work force has such high turnover that it does not make sense to sponsor a plan. Many nonsponsors are unfamiliar with the different retirement plan types available to them as potential plan sponsors, especially the options created specifically for small employers. For example, most nonsponsors said they have never heard of (36 percent) or are not too familiar with (20 percent) SIMPLE plans for small businesses. Fifteen percent of small employers report that they are very likely to start a plan in the next two years, while 24 percent say this is somewhat likely. Nonsponsors report that the two items most likely to lead to serious consideration of sponsoring a plan are an increase in profits (69 percent) and business tax credits for starting a retirement plan (67 percent). Major drivers of low retirement plan sponsorship among small employers are who they employ and the uncertainty of revenue flows. While issues of administrative cost and burden matter, they are only part of the puzzle. Therefore, the solution is not simply "build it and they will come," by creating simpler and simpler retirement plans geared to small businesses. Rather, it is build it and they will come once the business reaches a certain level of profitability and stability, and once retirement planning and saving are more of a priority for the small employer's workers.     

Long-term care and the private insurance market

Increased life expectancy and the aging of the baby boom generation will bring rapid growth in the number of people at risk of needing long-term care (LTC). This Issue Brief provides an overview of the current LTC financing and delivery system in the United States, focusing on private-sector initiatives to meet the United States' LTC needs. It discusses private-sector plan design--particularly employment-based plan design--providing an in-depth look at the dramatic changes taking place in the private-sector LTC market since its inception in the early and mid 1980s. Aside from informal care provided in the community, the current system of financing LTC depends largely on the Medicaid program and individual financing. Issues confronting this system include spiraling costs associated with LTC services that may threaten beneficiaries' access to care. Other issues include the potential depletion of personal assets and a bias toward institutionalization (which may not always provide the most cost-effective or desired type of care available). Many leaders regard private long-term care insurance (LTCI) as a way to increase access to financing and as a potential alternative to Medicaid and out-of-pocket financing. By the end of 1993, a total of 3.4 million private-sector LTCI policies had been sold, up from approximately 815,000 in 1987. While the majority of these plans were sold to individuals or through group associations, employment-based plans accounted for a significant proportion of this growth. Premiums for LTCI vary substantially based on age and plan design. Insurers generally attempt to set premiums such that they will remain level over the insured's lifetime. However, because little LTC claims insurance experience yet exists, the actuarial basis for developing premiums and statutory reserves is limited. Several bills over the last three Congresses have been introduced to address the issue of LTC. However, due to cost implications and lack of consensus regarding the optimum overall structure required to finance and deliver care, broad legislation to expand coverage--particularly public coverage--is not likely in the near term.     

Defined contribution health benefits

This Issue Brief discusses the emerging issue of "defined contribution" (DC) health benefits. The term "defined contribution" is used to describe a wide variety of approaches to the provision of health benefits, all of which have in common a shift in the responsibility for payment and selection of health care services from employers to employees. DC health benefits often are mentioned in the context of enabling employers to control their outlay for health benefits by avoiding increases in health care costs. DC health benefits may also shift responsibility for choosing a health plan and the associated risks of choosing a plan from employers to employees. There are three primary reasons why some employers currently are considering some sort of DC approach. First, they are once again looking for ways to keep their health care cost increases in line with overall inflation. Second, some employers are concerned that the public "backlash" against managed care will result in new legislation, regulations, and litigation that will further increase their health care costs if they do not distance themselves from health care decisions. Third, employers have modified not only most employee benefit plans, but labor market practices in general, by giving workers more choice, control, and flexibility. DC-type health benefits have existed as cafeteria plans since the 1980s. A cafeteria plan gives each employee the opportunity to determine the allocation of his or her total compensation (within employer-defined limits) among various employee benefits (primarily retirement or health). Most types of DC health benefits currently being discussed could be provided within the existing employment-based health insurance system, with or without the use of cafeteria plans. They could also allow employees to purchase health insurance directly from insurers, or they could drive new technologies and new forms of risk pooling through which health care services are provided and financed. DC health benefits differ from DC retirement plans. Under a DC health plan, employees may face different premiums based on their personal health risk and perhaps other factors such as age and geographic location. Their ability to afford health insurance may depend on how premiums are regulated by the state and how much money their employer provides. In contrast, under a DC retirement plan, employers' contributions are based on the same percentage of income for all employees, but employees are not subject to paying different prices for the same investment.     

Retirement Confidence Survey 2000 including results from the RCS Minority Survey and the Small Employer Retirement Survey

The year 2000 represents the 10th anniversary of the Retirement Confidence Survey (RCS), and the third year for the Minority RCS and Small Employer Retirement Survey (SERS). Key RCS findings over the past 10 years include: The fraction of workers saving for retirement has trended upward, and today 80 percent of households report that they have begun to save. The fraction of workers who have attempted to calculate how much they need to save for retirement has risen noticeably over the past several years. Today, 56 percent of households report that they have attempted the calculation. One-half of workers who have attempted such a calculation report that it has changed their behavior, such as saving more and/or changing where they invest their retirement savings. Workers who have done the calculation appear to be in better shape regarding their retirement finances. Worker confidence in the ability of Social Security to maintain benefit levels bottomed out in 1994 and 1995. Workers today are just as confident as they were in 1992, although the majority remain not confident in Social Security. Regarding overall retirement confidence, Hispanic-Americans tend to be the least confident among the surveyed minority groups that they will have enough money to live comfortably throughout their retirement years. Key SERS findings include: While cost and administrative issues do matter to small employers, they are not the primary reasons for low plan sponsorship rates. Employee-related reasons are most often cited as the most important factor for not offering a retirement plan. Business-related reasons, such as profitability, are also a main decision-driver. It is important to note what small employers without plans do not know about plan sponsorship. Small employers that do sponsor a retirement plan report that offering a plan has a positive impact on both their ability to attract and retain quality employees and the attitude and performance of their employees. The survey results indicate that many small company nonsponsors may not be aware of such potential business benefits from plan sponsorship. In addition, many nonsponsors are unaware of the plan options available to them, in particular the ones created specifically for small employers, such as SIMPLE and SEP retirement plans. Therefore, some small employers may be making a premature decision not to sponsor a plan based on incomplete information.     

Issues in mental health care benefits: the costs of mental health parity

This Issue Brief discusses issues in mental health care benefits. It describes the current state of employment-based mental health benefits and discusses studies and issues regarding full mental health parity. It also includes an analysis of the effect of full mental parity on the uninsured population and the effects of the limited mental health parity provision contained in the VA-HUD appropriations bill. The final section discusses the implications of mental health parity for health plans and health insurers. When employers began to provide health insurance benefits to their employees and their families, they extended coverage to include mental health benefits under the same terms as other health care services. Many employers continued to add mental health benefits through the 1970s and early 1980s until cost pressures required employers to re-examine all health care benefits that were offered. They quickly found that, while only a small proportion of the beneficiaries used mental health care services, the costs associated with this care were very high. As a result, employers placed limits on mental health benefits in an attempt to make the insurance risk more manageable. The general strategies employers have used to manage their health care costs are cost sharing, utilization review, managed care, and the packaging of provider services. Employers' cost management strategies may be restricted, however. Five states have mental health parity laws, but three of the states--Rhode Island, Maine, and New Hampshire--apply these laws only to the seriously mentally ill. In addition, 31 states mandate that mental health benefits be provided. However, state mandates apply only to insured plans, not to self-insured employer plans, which are exempt from state regulation of health plans under the Employee Retirement Income Security Act of 1974 (ERISA). A number of recent studies have examined the effect of mental health parity on health insurance premiums in a "typical" preferred provider organization and on the uninsured. In general, the studies concluded that mental health parity could increase health insurance premiums, decrease health insurance coverage for non-mental health related illnesses, and increase the number of uninsured individuals. All studies of mental health parity, and mandated benefits in general, assume that there is a strong likelihood that increased health benefit costs would be passed along to workers in the form of higher cost sharing for health insurance, lower wage growth, or lower growth in other employee benefits.     

The ongoing growth of defined contribution and individual account plans: issues and implications

This Issue Brief discusses the implications of the growth of defined contribution (DC) retirement plans and individual account plans and the subsequent impact on employers, employees, and retirement planning. It also presents a look at data regarding contributions to retirement plans, employer trends regarding retirement plans, and the potential impact of changes to the federal Social Security retirement system. The findings and data in this article are drawn from material presented at a policy forum sponsored by the Employee Benefit Research Institute Education and Research Fund (EBRI-ERF) Dec. 7, 2001, in Washington, DC. Today, prospective retirees need to be able to generate about 75 percent of their current income to maintain their standard of living in retirement, up from 63 percent of their income in 1997, according to the Replacement Ratio Study, by Aon Corporation and Georgia State University. However, the most recent data show a decline in the percentage of income that average employees are saving. While it is too early to quantify, it does not appear that the retirement provisions in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) are strongly influencing the movement to DC plans. However, employers appear very interested in the provisions of the new law with regard to both defined benefit (DB) retirement plans and DC plans. The number of large employers offering DB plans continues to decline, from 85 percent in 1990 to 73 percent in 2000, according to the Hewitt study. Although employers may have little influence over some factors that affect participation rates in voluntary retirement plans, they have various options to increase participation rates, such as "matching" employee contributions, offering loan features, and providing education to employees about the plans.     

Demographic and employment shifts: implications for benefits and economic security

This Issue Brief examines factors affecting the population's age distribution and composition, such as mortality rates, fertility rates, and immigration. In addition, it examines factors affecting labor force composition, such as immigration, increased labor force participation of women, and retirement trends, and discusses the potential impact of these changes on publicly financed programs: Medicare, Medicaid, Social Security, and federal employee retirement systems. The discussion also highlights the implications of these population and labor force changes on employers, employees, and retirees. The elderly population--now 31.8 million, representing 12.6 percent of the population--is projected to experience tremendous growth between 2010 and 2030, when the baby boom generation reaches age 65, rising from 39.7 million, or 13.3 percent of the population, to 69.8 million, or 20.2 percent of the population. Growth in the elderly population has implications for retirement and health care systems. Population projections suggest that the traditionally pyramid-shaped work force, with a proportionately greater number of younger workers than older workers, will be replaced with a more even age distribution. Consequently, significant and continued modifications to benefit packages, such as changes in compensation structures in which earnings automatically rise with age, are likely to occur. Women's labor force participation began to accelerate in the mid-1950s, rising 75 percent among women aged 25-44 in 1991, although there is some indication that this growth may be flattening. With women comprising a greater part of the labor force, employers will be encouraged to develop and implement programs to better accommodate their needs. Increased life expectancy, a decreased percentage of entry level workers, changes in Social Security's normal retirement age from 65 to 67, and employer plans to raise the normal age of retirement or provide incentives to delay retirement, could raise the average age of retirement. However, other factors, such as poor health, other sources of retirement income, and individual preferences for retirement, could still dominate the retirement decision. The combination of increased average life expectancy guaranteeing more years of retirement to finance and rising dependency ratios increases the future cost of Social Security financing. Medicare financing is also an important policy issue because the program is projected to experience financial difficulties in the short term, resulting from explosive health care costs. In addition, Medicaid expenditures are consuming increasing amount of shrinking state budget resources--a large portion of which is used to finance nursing home care for a growing elderly population.     

The Crisis in Retiree Health Benefits

Over 7 million retirees currently are covered by employer-sponsored health benefits plans in which the employer contributes all or a portion of the premium cost. Almost one-third of these retirees are under age 65 and therefore lack Medicare coverage. The annual cost to employers for this coverage is now $9 billion and is expected to be $22 billion in 20 years. However, inflation in health care costs, recent court decisions, the aging of America, and a major proposed accounting rule change by the Financial Accounting Standards Board have combined to produce a "crisis in retiree health benefits" in the business sector. As a result, employers are rapidly redesigning retiree benefit plans to shift future health care cost increases to their retirees. Until now, the aging network has been largely oblivious to this transformation in financing. Yet, this "crisis" begs for public/private sector dialogue and partnership, and the White House Conference on Aging could be a major forum for this dialogue.     

Long-Term Care Policy: Singapore’s Experience

Singapore, like many developed countries, is facing the challenge of a rapidly aging population and the increasing need to provide long-term care (LTC) services for elderly in the community. The Singapore government’s philosophy on care for the elderly is that the family should be the first line of support, and it has relied on voluntary welfare organizations (VWOs) or charities for the bulk of LTC service provision. For LTC financing, it has emphasized the principles of co-payment and targeting of state support to the low-income population through means-tested government subsidies. It has also instituted ElderShield, a national severe disability insurance scheme. This paper discusses some of the challenges facing LTC policy in Singapore, particularly the presence of perverse financial incentives for hospitalization, the pitfalls of over-reliance on VWOs, and the challenges facing informal family caregivers. It discusses the role of private LTC insurance in LTC financing, bearing in mind demand- and supply-side failures that have plagued the private LTC insurance market. It suggests the need for more standardized needs assessment and portable LTC benefits, with reference to the Japanese Long-Term Care Insurance program, and also discusses the need to provide more support to informal family caregivers.     

Small employers and health benefits: findings from the 2002 small employer health benefits survey

Overall, 19 percent of small employers offering health benefits made changes to their health plan between 2001 and 2002. Sixty-five percent increased deductibles and co-pays; 35 percent switched insurers; 30 percent increased the employee share of the premium; and 29 percent cut back on the scope of benefits. Twenty-six percent increased the scope of benefits offered. Nearly one-quarter of small employers offering health benefits think their firm would change coverage and 3 percent think it would drop coverage if the cost were to increase an additional 5 percent. Most small employers offer sound business reasons for offering health benefits to workers. Many report that it helps with employee recruitment and retention, and increases productivity. More than three-quarters report that offering health benefits is "the right thing to do." Most small employers that do offer health benefits report that it has a positive impact on various aspects of the business, such as recruitment, retention, employee attitude and performance, employee health status, and the overall success of the business. Most small employers that do not offer health benefits tend to think that not offering them has no negative impact on the above aspects of their business or the overall success of the business. However, those not offering benefits are more likely than those offering them to report that most of their employees are high-turnover and stay on the job only a few months. Small employers that offer health benefits tend to be distinctly different from those not offering them. Worker income in firms not offering health benefits tends to be considerably lower than in firms that do offer them. Employers not offering health benefits are more likely than those offering them to have a smaller proportion of full-time employees, and employers that do not offer health benefits have a larger proportion of females, workers under age 30, and minority employees. Of small employers that offer dependent coverage, more than 40 percent report that workers do not take coverage for their dependents because the dependents have coverage from somewhere else, but 35 percent report that employees decline dependent coverage because they cannot afford the premiums. Many small employers that do not offer health benefits are potential purchasers. Eleven percent are either extremely or very likely to start offering health benefits in the next two years, and 22 percent are somewhat likely to start offering health benefits.