Too high a price?
Higher healthcare costs mean new bargaining strategies--
and renewed calls for reform

By Christina Bartolomeo

Some people talk about the coming healthcare crisis, but it's happening already. We're seeing a massive unraveling of our healthcare system in San Francisco," says Chris Hanzo, executive director of the San Francisco Community College District Federation of Teachers/ AFT Local 2121. Hanzo points to double-digit increases in members' premiums, a steep rise in patient co-pays and deductibles, and a virtually unworkable administrative bureaucracy. "And it's going to get worse," he predicts.

Local 2121 is one of the many AFT higher education unions struggling to protect the healthcare benefits and security of the people they represent. Since World War II, when unions traded wartime salary caps for employer-provided health insurance, American labor traditionally has secured excellent insurance coverage for its members. But now the nation's medical system is facing a Waterloo of mounting costs and dwindling benefits; union employees, like all U.S. workers, are feeling the harsh repercussions. And the signs in the wind support Hanzo's contention that the toughest battles are yet to come.

According to annual survey results released last September by the Kaiser Family Foundation, and the Health Research and Educational Trust, the total cost of health insurance premiums rose 12.7 percent in 2002, the highest increase since 1990. The cost was shifted disproportionately onto employees' backs. They saw a 27 percent rise in the average they paid for single coverage, and a 16 percent increase in the cost of family coverage. In-network deductibles for preferred provider option (PPO) plans rose a whopping 37 percent.

"One of the most alarming findings is the continued growth of underlying healthcare expenses, which indicates we can expect double-digit inflation for the foreseeable future," noted Jon R. Gabel, vice president for Health Systems Studies at the Health Research and Educational Trust, upon the report's release. Even more alarming: The survey found that in a stalled economy and competitive job market, employers are increasingly prone to pass along to their employees a portion of the coverage hikes. Seventy-eight percent of the large employers surveyed said they were very or somewhat likely to increase employee premiums in the coming year. (See "Passing the medical buck," page 14.)

The situation is prompting louder calls for systemic change, as the Catch-22 of cost versus access plays out. As Harvard professor and former New England Journal of Medicine editor-in-chief Marcia Angell wrote in an Oct. 13, 2002, New York Times opinion piece: "Presumably, as a nation we want to constrain the growth of health costs. But that's simply not what healthcare businesses do. Like all businesses, they want more, not fewer customers--but only if they can pay. All piecemeal attempts to improve the system...have run into the following dilemma: If access to services is expanded, costs rise; if costs are lowered, access is cut. That's the way it is. The only way to avoid this dilemma is to change the system entirely."

AFT leaders concur that something's got to give. "The cost of healthcare is eating up so many institutions and organizations," says Roy Vestrich, president of the Vermont State Colleges Faculty Federation and its state federation, the United Professions of Vermont.

Vestrich has seen firsthand how healthcare is consuming a bigger and bigger slice of the funding pie. Four years ago, the Faculty Federation negotiated a hard-won compensation package for faculty and supervisory employees with a formula that tied employees' aggregate salary and benefits to the national average for comparable institutions. "We thought it would be a groundbreaking contract," says Vestrich. "In theory, we'd never have to negotiate salaries again." But, because the cost of healthcare rose so dramatically, "we wound up with very small raises for most of our contract." In fact, in the fourth year of the contract, mushrooming healthcare bills brought raises down to less than 1 percent.

The United Professions nurses unit at Brattleboro Hospital is faring even more poorly, hit with a staggering 30 percent increase in employees' share of healthcare premiums. "We negotiated a phase-in with the hospital, but this shows that it's clearly a significant problem for every division that AFT unions represent," says Vestrich.
 

Spiraling costs, declining quality

What unions are experiencing is a direct result of the nation's spiraling healthcare tab, in which prescription drugs and hospital stays remain the two most crucial factors. U.S. healthcare spending rose by a hefty 8 percent in 2001, according to a report by the Centers for Medicare and Medicaid published in the January-February 2003 issue of the journal Health Affairs. The study found that healthcare made up 14.1 percent of the nation's gross domestic product in 2001, up from 13.3 percent in 2000--the largest increase since 1991.

What quality of care are American patients and employers receiving for the money they pay...and pay...and pay? In a nutshell, recent research indicates, it's lousy.

In a 2001 nationwide survey by the Robert Wood Johnson Foundation, more than half of the physicians, nurses and hospital administrators polled agreed that healthcare in the United States is not very good, and as many as 95 percent of doctors reported witnessing a "serious" medical error. A March 2001 report by the Institute of Medicine called for "an immediate overhaul" of "a disjointed and inefficient system" with a lack of coordinated patient care services, a far-too-high rate of medical errors and a frustrating combination of duplicative services and gaps in necessary services to patients. As William C. Richardson, chair of the committee that wrote the report and president of the W.K. Kellogg Foundation puts it, "Americans should be able to count on receiving care that uses the best scientific knowledge to meet their needs, but there is strong evidence that this is frequently not the case.... For too many patients, the healthcare system is a maze, and many do not receive the services from which they would likely benefit."

That's the big picture: a policy war that continues to rage over the nation's $1.4 trillion-plus healthcare price tag and strategies for bringing it down. On the frontlines, where employees and employers grapple with the real-life implications of skyrocketing costs, the battle feels more immediate. Union leaders are trying desperately to protect the people they represent from outrageous prescription prices (see sidebar), drastic cuts in reimbursements for services, and higher and higher premiums, co-pays, and deductibles. All of which spell erosions in take-home pay and a feeling among union activists of going backwards in terms of the standard of living they can assure their members.

Local 2121 at the San Francisco Community Colleges is a textbook example. "We had a great system in San Francisco," Hanzo remembers. "The city set up a healthcare insurance system for all its active and retired employees. It was a great concept, but now it's utterly fallen apart." Among the first casualties was the city's fee-for-service plan, in which there is now no cap on patient co-pays, making the plan off-limits for most of the union's people. In the city's PPO system, there have been enormous increases in premiums, deductibles and patient liability. "A serious illness could ruin someone in that plan, and so there's been a mass exodus. People are forced into managed care. And in all our health plans, doctors are getting cut and there are constant changes in hospitals. People are always scrambling."

Despite union members' paying more, there has been a decline in administrative services for all plans, which are handled by one processing entity. "Cutbacks are so severe that you can't get hold of the administrative system, because it's only open two hours a day. It's bureaucracy that's impossible to penetrate," Hanzo says.

In Philadelphia, the 2,000 full-time and part-time faculty and classified staff represented by the Faculty Federation of the Community College of Philadelphia/Local 2026 have been feeling pressures similar in kind, if not yet in severity. Federation co-president Karen Schermerhorn recalls, "Through the '90s, we made a big point of retaining the Independence Blue Cross indemnity plan. But costs started going through the roof. I'd go to the doctor and pay my $75 and know that 80 percent of that would be covered by major medical. Then it started to be the doctor charging, say, $250 for the same services, and I'd submit it and they'd reimburse 80 percent of much less. Charges might have been lower in a smaller town, but we're in an urban area here."

Schermerhorn says that most employees voted with their feet to leave the classic indemnity plan for the PPO and HMO also offered under the contract. By 2003, about 75 percent of the full-time faculty had moved to the PPO. Seeing the handwriting on the wall, the federation gave up the indemnity plan altogether in favor of a new PPO that "kept us within the realm of reason" regarding employee costs, Schermerhorn says. The union also went to the wall to protect its 100 percent employer-paid premiums, winning its last contract only by threatening to strike over salary and benefits. "We set a strike deadline and got three contracts on that day," says Schermerhorn. "I know that if we were part of a larger employees group, we'd have more negotiating power [with health insurance providers], but we have fewer than a thousand full-time employees. Still, we wanted to get a good deal, and were willing to fight for it, especially on healthcare benefits."

Also weathering the chill of the current healthcare climate are faculty represented by the San Mateo Community College Federation of Teachers/Local 1493. "In California, state and local governments are caught between major revenue shortfalls and escalating healthcare costs for their employees, and we're seeing public and private employers trying to shift the cost increase onto employees and retirees," says Dan Kaplan, the federation's executive secretary and a longtime healthcare reform activist. "The union fought to raise the district's contribution to our benefits, and we were able to make a small amount of progress, but not nearly enough to bridge the gap."

Sometimes threats to healthcare benefits at the bargaining table can only be resolved on the picket line. That was the case in a recent and successful strike at Harper College in Palatine, Ill., where faculty are represented by the Harper College Faculty Senate, an affiliate of the Cook County College Teachers Union (see News & Trends, December 2002-January 2003 AFT On Campus). Initially, the college offered generous-sounding raises--then proposed that the faculty pay a far-too-hefty proportion of a 41 percent increase in premiums. The 11-day walkout ended with the union winning a contract with raises of 5 percent a year--and a 20 percent cap on the portion of premium increases that employees would have to pay.

"The bargaining strategy at Harper College was that we had the goal of keeping caps in place," says Norman Swenson, CCCTU president and an AFT vice president. "For the Cook County College Teachers Union as a whole, the important piece is to cap our employees' costs." Swenson feels that members understand how important it is to preserve these stop-loss guarantees, even if it means a strike. He points out that not one of the 206 faculty at Harper crossed the picket line.

As concerned as Swenson is about attempted inroads on healthcare benefits at the bargaining table, he's equally worried about a recent national development that could result in employers slashing benefits altogether. By March 2003, the General Accounting Standards Board (GASB) is slated to issue a proposed rule that would require employers to treat retirees' healthcare benefits as a liability, for accounting purposes, rather than carrying the benefits' cost on their books as a current expense, which is the current practice. The complicated rule would in essence force employers to attempt to estimate healthcare benefit costs through the course of a retiree's expected life span, then factor a yearly fraction of those costs as a liability for each covered employee.

"It's a rule that expects employers to be fortune tellers," says John Abraham, deputy director of the AFT research department. "The effect, in terms of how these new liabilities could harm an institution's stated financial position, could be that most public employers would drop retiree healthcare benefits in future." The GASB will issue a draft of the proposed rule with a one-year comment period, and the AFT legislative department is pressing hard for a more reasonable accounting method. "There will be terrific pressure by the colleges to dump the retirees," says Swenson. "A lot of colleges will say they can no longer accrue that liability because it will ruin their bond rating. This will be a huge issue in negotiations."
 

Stemming the tide

As higher education unions grapple with the problems of protecting employee benefits, the solutions they turn to run the gamut from trade-offs at the bargaining table to state legislative action to wide-reaching reforms of the system at the national level.

For Karen Schermerhorn's local at the Community College of Philadelphia, the answer, so far, has lain in bargaining strategy. Winning contract language retaining 100 percent employer-paid premiums was a huge victory for the federation, one that lessened the pain of giving up the indemnity plan. "We began to see we'd be wise to give up the indemnity while we could still get something for it at the table," Schermerhorn says. And the local exacted stiff trade-offs, including mental healthcare language that will allow employees to continue using their current mental healthcare providers even if those providers are not in the new PPO network. "We negotiated that people would get $80 back for a $100 visit to a mental health provider," says Schermerhorn. "Our members were very happy with that."

The federation, in addition, hasn't hesitated to bring in the services of an expert, turning to Reed Joiner of Buck Consultants to help the local make sense of insurers' proposed coverage terms. The local's leadership spotted Joiner at an AFT-sponsored healthcare bargaining conference in 1990, and have been calling on him when needed ever since.

"Reed can see where insurance company costs are being padded, where there's overcharging in a plan. The college also uses him now. When you want to find out what the insurers are really saying, you need an insider, someone who understands the jargon," Schermerhorn says.

If all the bargaining expertise a local can muster can't beat back threats to healthcare benefits, there remains labor's time-honored weapon: the strike. The most recent national example is General Electric, where employees walked off their jobs to protest a rise in employee healthcare contributions; AFT members have shown no less spirit in defending their benefits when pressed. In Michigan, members of the Graduate Employees Organization staged a one-day walkout over benefits in order to win their last contract, and they are gearing up to do so if necessary over far-reaching employer-imposed changes in their prescription drug plan (see sidebar opposite). At Harper College, employees stood united even after the college cancelled employee health insurance on the first day of the strike. Swenson considers strikes a key weapon in labor's arsenal. "If you don't have the right to strike, you're in trouble," he says. "Then it goes to arbitration, and arbitrators look for the middle ground. They'll look and see what other colleges are paying. That's what happens in a majority of states without the right to strike."
 

Looking for a legislative solution

In the case of Harper College, the administration could clearly ante up for healthcare; it was running a $90 million building construction campaign at the time. But what about situations when healthcare cost squeezes are coming close to taxing employers' capabilities to the limit? More and more, while still seeking solutions at the bargaining table, higher education unions are turning their attention to the need for broader change.

In California, where budget crunches exist across the spectrum of public institutions, Hanzo is starting to find local-level attempts to control coverage costs to be a bust. The local (along with AFT's

K-12 union in the city, the United Educators of San Francisco) looked at setting up its own self-insured plan, and also priced other insurers, but with the way the numbers played out, says Hanzo, "there really was no viable alternative. No health provider is immune to rising costs. We've negotiated the employer picking up some of the costs, but...in our case, the employer is at the mercy of these people [health insurance companies] the same way we are. Where is the employer going to get the money? It's breaking school districts in California, and how can they provide a salary increase if they have to bear a 15 to 20 percent hike?"

He concludes, "The nature of the healthcare system itself must be reformed. There has to be a political solution."

San Mateo's Dan Kaplan agrees. He and Hanzo are hoping to rally their constituencies in support of single-payer legislation about to be introduced in the California Legislature. The legislation would create universal healthcare through a publicly financed administrative entity--in other words, the state itself would be the "insurance agent" for all California residents. The bill, sponsored by state Sen. Sheila Kuehl (D-Santa Monica) and supported strongly by the California Federation of Teachers, would ensure choice of doctors and other providers, and feature prescription drug coverage, long-term care, and mental healthcare. Kuehl points out that centralizing administration under such a single-payer plan would save at least $4 billion in the redundant administrative costs endemic to the current system of assorted private insurers, with further savings coming from bulk purchasing of prescription drugs and medical equipment, global healthcare budgets and coordination of capital expenditures.

Kaplan observes that a 1994 referendum on the single-payer approach, Proposition 186, garnered 40 percent of the vote "even though the healthcare industry spent millions to defeat it. I think, if we mobilize our membership, if we really gave it a good shot, we could win single payer." Kaplan's and Hanzo's locals are also co-sponsoring a resolution to be brought before the CFT convention this spring, calling for the state federation to work to get universal healthcare legislation on a statewide ballot in 2004 should the Kuehl bill fail in the Legislature.

"We're pushing this as an urgent issue," Hanzo says. "In union contracts, people have enjoyed good private insurance, but that's changing. An alternative to the current system is more interesting to [union members] now than it used to be."

Before the 2002 mid-term elections, Vestrich had high hopes for state-level change in Vermont. "Prior to the election, the state was trying to do something about prescription drugs, to do a state-level buying plan because we're so close to Canada. Now our new Republican governor has made it pretty clear that his idea of solving the problem is to attempt to bring more insurance providers in." But Vermont, with its small population and the challenges of rural healthcare provision, has already seen all but two insurance providers leave the state. "In Vermont, a large number of people are extremely supportive of single payer, although people with indemnity plans worry about possible erosion of choice and benefits. [But] a vast majority of our members think something radical needs to be done and would support large-scale reforms. They're looking for a state or federal solution," Vestrich says.

He is optimistic that, as healthcare costs continue to rise, labor and management will find a common interest in fighting for political action on the issue. "We need to bring management in with us on this," he says. "When the presidents of IBM and Ford start going to the pols at the state and national level, something will be fixed. Labor will find an ally on the corporate and administrative side to solve this issue. People will get fed up. Look at what happened at G.E."

Vestrich suggests that if a state or national plan with basic guaranteed levels of coverage were to become a reality, unions could negotiate supplemental plans, using newly freed-up bargaining dollars to provide their members with the most comprehensive coverage possible. "I know that's the way I'd go, as a negotiator."

On the national level, the AFT has been a leader in supporting reforms that would provide universal health coverage to all Americans, and in working within broad coalitions that aim to reduce waste and improve quality of care within the existing system. One such coalition is the Leapfrog Group, formed in 1998. Leapfrog is made up of 60 large U.S. companies, including General Electric, General Motors, and Verizon, as well as labor participants including the AFT, the NEA and the International Association of Machinists.

The group is dedicated to encouraging "leaps" in innovation and quality in the American healthcare system, and has been endorsed and funded by the Business Roundtable. The group's primary goal is to develop a common set of healthcare purchasing principles that would be voluntarily subscribed to by large buyers of healthcare such as corporations and public agencies. Among the principles would be rewarding providers and healthcare facilities for high rates of successful patient-care outcomes, empowering patients through providing comparative data on healthcare providers, and working to reduce medical errors and eliminate administrative waste. Such a voluntary purchasing "guild" could, in time, exert considerable economic pressure on health insurers, facilities and providers.
 

Overhauling the system

In a system in which researchers estimate that 30 cents of each dollar is spent on administrative costs, medical inefficiencies, errors, cost duplication, marketing and insurer profits, no small improvement could be effected by targeting waste and creating incentives for efficient, effective patient care. But in the end, an overhaul may be needed--and the political moment may be at hand for major reforms. State-level single-payer legislation made it onto the ballot in Oregon last November, although it was defeated, and it's expected to be on the ballot in Washington state this month. Democratic presidential hopeful Howard Dean, former governor of Vermont, is making healthcare a centerpiece of his campaign. And, in an effort to extend coverage to America's 47 million uninsured, many of whom are the working poor, Sen. Edward Kennedy (D.-Mass.) recently announced plans to sponsor national legislation requiring all but the very smallest American businesses to pay 75 percent of employee healthcare premiums.

Many reformers insist that a national healthcare system is the only real answer. "In many ways," writes Angell, "[a national single-payer system] would be tantamount to extending Medicare to the entire population." She argues that, "Medicare is, after all, a government-financed single-payer system...it's by far the most efficient part of our healthcare system, with overhead costs of less than 3 percent.... A single-payer system is not socialized medicine. Although a new national program--like Medicare--would be publicly financed, the doctors and hospitals would not work for the government, but remain private. Some fear onerous government regulations...but surely nothing could be more onerous for patients and providers than the multiple, intrusive regulations imposed on them by the private insurance industry today."

Abraham, a veteran of the healthcare policy wars, believes that "eventually, we have to think in terms of some kind of national health plan. It's got to be a plan that guarantees citizens the same kinds of benefits they have now, and one that promotes quality and continued research and innovation--a plan that, most of all, can never be taken away."

"Never taken away"--what a promise! Heavenly sounding to the ears of higher education union leaders who, in the meantime, will continue the intense, ongoing fight to preserve decent healthcare coverage for their members in a system stretched to the breaking point. "It's been tough," admits Schermerhorn. "We're hanging on by our fingernails."