Skyrocketing health care costs impact bargaining

By DON McINTOSH, Staff Reporter

U.S. health care costs have been rising dramatically for well over a decade, but in the last year they've skyrocketed, and dealing with the increases has become the number one source of conflict in union contract negotiations. From spring 2000 to spring 2001, monthly premiums for employer-sponsored health insurance rose 11 percent, more than triple the rate of inflation, according to a survey published last month by the Kaiser Family Foundation and the Health Research and Educational Trust. The increase is the largest since 1992.

The prior year, health care costs increased an average of 8.3 percent, but employers, facing a tight labor market, were more willing to absorb increases. Now, with the economy worsening, employer demands that workers pay a greater share of health care costs have become the norm, like at the City of Portland, where 1,800 workers are gearing up for a strike Oct. 22 over that issue.

"Every union is facing this,"said Oregon AFL-CIO President Tim Nesbitt. "It's been the toughest nut to crack at the bargaining table for some time."

Health care has undergone significant change in the last decade, with preferred provider organizations (PPOs) eclipsing health maintenance organizations (HMOs), and traditional "indemnity"insurance coverage driven to near-extinction. Cost increases slowed in the mid '90s when many employers enjoyed one-time savings from dumping traditional insurance policies for less costly managed care plans. Many managed care companies were also holding down costs in an effort to win market share. Now, managed care companies are raising prices again, and even self-insured employers, like most states and large cities, are being hit with increased costs for health care. A major culprit is prescription drugs - the segment of health care costs that's going up the fastest. In the last year, drug costs rose 15.5 percent on average.

Costs are rising for a number of reasons: New drugs are increasingly used in place of surgery; usage is increasing because the population is aging; and advertising and marketing to consumers and providers have caused increased use of and preference for the most expensive new "brand-name"drugs.

Drug prices have soared since the Food and Drug Administration relaxed its marketing rules in 1997, allowing "direct-to-consumer"advertising by pharmaceutical companies. In September 2000, the National Institute for Health Care Management reported that the 25 drugs with the largest advertising budgets accounted for more than 40 percent of the increase in retail pharmaceutical spending the previous year. And of the $75.3 billion in annual revenues the top five pharmaceutical companies reported last year, 27 percent was spent on advertising and marketing, 16 percent was taken as profit, and just 12 percent was spent on research on development. These factors, though, don't explain why medicines are so much more expensive in the United States than in other countries. "Why are the same drugs cheaper in Canada and Mexico?"Nesbitt wants to know.

Eight of the 10 best-selling drugs in the United States cost twice what they do in Canada.

It's true that U.S. patent law grants pharmaceutical companies a 12-year monopoly on new drugs they develop - longer than any other industrialized country. Still, why, Nesbitt asked, are prices so variable - at the same pharmacy - depending on who is paying: Medicare, HMOs, or uninsured individuals?

The crisis in health care costs is ripe for reform, Nesbitt said. The United States pays more for health care than any other nation, but was ranked 37th overall in a recent World Health Organization report on health systems.

There is no comprehensive reform of America's health care system on the horizon, however. Unions have advocated a "single-payer"solution for some time, but have been blocked in Congress by an army of insurance and pharmaceutical lobbyists. Delegates to the September Oregon AFL-CIO convention passed a resolution reaffirming support for a national health care program, and calling on the national AFL-CIO to increase political efforts to bring that about.

"We need a single-payer system,"said Jim McEchron, business manager for Laborers Local 483, which represents many workers at the city of Portland. "This is what every other advanced industrial nation has done."

McEchron said the subject of health care came up at the last international convention of the Laborers. "The representatives from our Canadian locals were mystified by the whole thing. They don't bargain health and welfare benefits with the employer because they have a national health care system."

McEchron, on the other hand, has to bargain to make sure his members have adequate health benefits. And he has to fight to keep health care cost increases from displacing wage increases and other gains.

"Most employees ultimately pay most of the cost of health insurance premiums initially paid by their employer in the form of lower wages,"said Ginny Cady, a Washington, D.C. - based labor economist who works for the American Federation of State, County and Municipal Employees.

Yvonne Martinez, spokesperson for the seven-union District Council of Trade Unions bargaining team, said the City of Portland is also using the fact of spiraling health care costs to extort concessions from the unions on non-economic items like seniority, contracting out, and the length of the work day. City workers aren't allowed to strike over those issues, but are allowed to strike over wages and health care. Their dissatisfaction with the city's latest health care proposal was the biggest factor in a recent three-to-one vote to strike. The city's existing self-insured health plan offers free routine physical exams, pays 90 percent for most medical expenses, and requires no deductible for individuals. Now the city wants to impose a $250 annual deductible for individuals and to pay just 80 percent for most procedures (after deductible) and 90 percent for wellness exams.

The only long-term fix for the health care issue is national, McEchron insists. "With the aging of the baby boom population, the pressures are going only to get more intense."

In the meantime, he and other local union leaders have to fight for health care - contract by contract.

October 5, 2001 issue

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