VI. UNION AND MANAGEMENT COOPERATION AND APPROACHES TO MULTI-EMPLOYER PLANS

Health Care Cost and Quality: Prospects for Mutual Gains

STEPHEN R. SLEIGH
International Association of Machinists and Aerospace Workers

Abstract

      Health care costs represent the largest portion of nonwage labor costs in the United States. With health care costs once again surging to double-digit annual increases, the pressure on collective bargainers to address health care costs and quality also increase. In this paper, the approach of the International Association of Machinists is profiled with specific reference to the joint cost and quality approach adopted with the Boeing Company.

Introduction

      Health care costs represent the largest nonwage portion of total labor costs in the United States. In the 1980s and early 1990s, health care costs skyrocketed, increasing at an annual rate more than twice the amount of overall inflation. After 1992, with the threat of some version of national health care and the ascendancy of managed care, cost increases dramatically slowed but continued to increase faster than overall inflation. By the turn of the century, health care costs had increased to an average of 15 percent of total labor costs. The average cost to companies for each employee’s health care benefits rose to $4,920 in 2001, according to an annual survey conducted by Mercer.¹

      At the same time that costs began skyrocketing in the 1980s and early 1990s, a new focus on the quality of health care started to evolve. With the shift to managed care, away from fee-for-service, the ability to measure and quantify health plan quality began to take shape. By the dawn of this century managed care was in retreat as a favored form of health care delivery. Employers and unions were left with a health care system in need of critical care: expensive to the employer and unsure of the quality of care, both sides in the labor–management relationship have an interest in achieving better outcomes from the purchase of health care benefits.

      This short paper provides a case study in how one union, the International Association of Machinists and Aerospace Workers (IAM), is addressing the question of health care cost and quality and the prospects for mutual gains, particularly through multi-employer health care purchasing. The first section provides an overview of health care cost issues that have confronted labor and management. The second section looks at an emerging model for a multi-employer approach to addressing health care cost and quality. The concluding section assesses the opportunities for mutual gain when labor and management cooperate in purchasing the highest-quality health care at the most affordable cost. Much work remains on this topic--both programmatic between the parties and in terms of researching the outcomes of quality initiatives. As such, this paper probably will raise more questions than it will answer.

Health Care Benefits: The State of Play in the USA in the 21st Century

      Unions have played an important role in shaping health benefits for American workers for many years. Starting in the war years of the 1940s, health, and retirement, benefits took on added importance, partly as a response to the War Labor Board’s (WLB’s) strictures on wage increases. Health and retirement benefits also reflected organized labor’s growing use of the social unionism model as opposed to traditional craft unionism. While craft unions had sponsored various forms of mutual aid benefits, both the scale and scope of these approaches were narrow. During the war years, however, after the WLB determined that fringe benefits up to 5 percent of wages would not be inflationary, group health benefits soared from 7 million to 26 million subscribers (Starr 1987:311). As Paul Starr (1987) notes in his history of medicine in the United States, “Collective bargaining and Social Security were the two great institutional legacies of the New Deal in social policy” (311). With the failure to provide a universal health care solution similar to Social Security, workers sought and gained social protection against illness through collective bargaining. The patterns set in collective bargaining in the 1940s, while covering about one in three workers, spilled over across the rest of the economy. In general terms, throughout the period of the social compact between business and labor from the late 1940s through the 1970s, health care benefits settled into a familiar pattern of incremental improvements and expansion of benefit plans with minimal attention to the cost of the benefit. The skyrocketing health care inflation of the 1980s changed this picture dramatically at the same time that labor’s overall clout at the bargaining table declined along with its shrinking share of the workforce. What had evolved from the 1940s through the 1980s was a patchwork system of collectively bargained health benefits plans at large employers and parallel multi-employer plans of small and midsized companies that were governed by the provisions of the Taft-Hartley act. Currently, there are 386 joint labor–management welfare funds in the United States with nearly 6 million participants.² For employees fortunate to have a union contract, that tended to mean generous benefits at low out-of-pocket costs, with a doctor of one’s own choice. Overall, nearly two thirds of the under-65 population of the United States was covered by an employment-based health insurance plan in 1999 (Garner 2002:1).

      Then double-digit health care inflation arrived in the late 1980s. The onslaught of health care cost inflation was met with a variety of responses in the late 1980s and 1990s, including a focus on usage, reasonable reimbursement rates, cost sharing with employees, and various labor– management committees that looked at ways to deliver generous benefits at lower costs. These efforts were window dressing compared to the fundamental transformation that occurred in the late 1980s and early 1990s, with the widespread adoption of a “managed” system of health care. The promise was simple: since costs of the current fee-for-service system were out of control, impose a system of managing those costs while not sacrificing clinical care. In a very short time, managed care came to dominate the health care system in the United States, replacing indemnity, or fee-for-service plans, which declined from 52 percent to 8 percent of the insured market from 1992–2000.

      Just as quickly as managed care grew, it began to unravel under an onslaught of unfavorable press and media attention. Horror stories of denied care linked “managed care” in the public’s mind with second-rate health benefits. By 2001, a dramatic shift was under way as managed care, particularly the health maintenance organization, began to give way to new forms of health care delivery, particularly the preferred provider organization. Where does that leave labor and management in 2002 in regard to health benefits? As the patchwork system has evolved, labor and management have struggled to find new ways to provide comprehensive health care benefits at affordable costs. The surge in costs in the 1980s and early 1990s was brought under control in large part by the development of the managed care model and, no doubt, also by the threat of legislative action. The late 1990s provided a break in health care cost inflation, but the squeeze on bottom lines and the ascendancy of shareholder value as the only relevant measure of corporate performance continued to put pressure on labor and management to find better ways to contain health care costs. In the experience of the IAM, health care benefits, particularly the shifting of the costs of health care onto employees, is the single most cited issue in the cause of labor disputes. While costs are clearly a hot button issue for both employers and employees, health benefits critically depend on the quality of services provided. But what is health care quality? Can you measure it? Is it the same for everyone? The next section looks at those questions and an emerging approach that focuses on value, integrating health care costs and quality.

Health Care Quality: What Does Health Care Quality Have to Do With Union Negotiations?

      Traditionally, unions and employers have negotiated over the structure of health benefits and the cost sharing involved in paying for those benefits. The rapid rise of managed care was accompanied by an explosion of information obtained by managed care providers on the health and well being of plan participants, as well as detailed information on the cost of keeping and getting people healthy. Out of this explosion in health care data and the inherent tension that resides within managed care, particularly for-profit entities, to scrimp on costs to the detriment of participants health, grew a movement to hold health plans accountable for the quality of health care provided. In the traditional, fee-for-service model, quality was an issue that resided in discussions between patient and doctor. The patient asked for little more than to be treated with respect and relied on the professional judgment of the health care providers. The explosion of information on health plans changed all that. Despite this explosion in information, large gaps in the health care system exist. One expert on health care noted:

Given the importance of health care, it seems inconceivable that we do not have excellent ways of evaluating how well we are doing. Yet the fact is, we do not. Our attempts to systematically measure the quality of care are less than a decade old and still very much in their methodological adolescence. (Eddy 1998:8)

Some of the early attempts to measure quality were pioneered by the National Committee on Quality Assurance (NCQA). The NCQA created a health reporting system for managed care organizations called HEDIS, which provides the basis for objectively comparing managed care plans along a wide spectrum of both clinical measures (objective reference points) and patient satisfaction (subjective reference points). As Dr. David Eddy notes:

The design of a performance measure, and therefore how good it is, depends on several factors; the purpose of the measurement, the entity whose quality is being measured, the dimension of quality being measured, the type of measure, and who will use the measure. (Eddy 1998: 9)

      NCQA developed detailed measures throughout the 1990s with the active input of labor and employers, along with health policy experts and health care practitioners.

      Another health care quality tool under development is FACCT’s “Compare Your Care”. Strategies to involve patients and consumers more directly in the health care system is also called “consumer activation,” “consumer driven health care,” and “patient centered care.” FACCT, for example, is actively engaged in developing a web-based strategy for “consumer activation.” Already working closely with organized labor, it is establishing safety guidelines and an “Internet-based strategy to educate consumers about health care quality, increase their awareness of quality problems in their own care and across the system”. Using both Internet- and mail-based surveys, FACCT asked health consumers to review the quality of their health care. The survey practitioners were able to gauge how the public viewed their health care options and convert that information into quantitative data.

      A third quality initiative joined NCQA and FACCT in 1999 with the launching of the Leapfrog initiative. Building on the shocking research findings published by the Institute of Medicine in To Err is Human (Kohn 2000), a coalition within the Business Roundtable was formed to promote patient safety. The Leapfrog Group has identified three initial hospital safety measures that focus on health care provider performance comparisons and hospital recognition and reward. Based on independent scientific evidence, the initial set of safety measures includes: computer physician order entry, evidence-based hospital referral, and intensive care unit (ICU) staffing by physicians trained in critical care medicine.

• Computer Physician Order Entry (CPOE): With CPOE systems, physicians enter medication orders via computer linked to prescribing error prevention software. CPOE has been shown to reduce serious prescribing errors in hospitals by more than 50 percent.

• Evidence-Based Hospital Referral: By referring patients needing certain complex medical procedures to hospitals offering the best survival odds based on scientifically valid criteria--such as the number of times a hospital performs these procedures each year--research indicates that a patient’s risk of dying could be reduced by more than 30 percent.

• ICU Physician Staffing: Staffing ICUs with physicians who have credentials in critical care medicine has been shown to reduce the risk of patients dying in the ICU by more than 10 percent (Brickmeyer 2001).

      This initial list is based on four primary criteria: (1) There is overwhelming scientific evidence that these safety leaps will significantly reduce avoidable danger; (2) their implementation by the health industry is feasible in the near term; (3) consumers can readily appreciate their value; and (4) health plans, purchasers or consumers can easily ascertain their presence or absence in selecting among health care providers. These safety leaps are intended as a practical first step in using purchasing power to improve patient safety.³

      Taken together, health plan accreditation through NCQA, consumer information on practitioners through FACCT, and patient safety initiatives through Leapfrog, provide three avenues for pursuing improvements in the health care provided through collectively bargained benefits. The next section will detail how the IAM has sought to use these three approaches to improve health care for its members, and how a multi-employer strategy around health care quality could benefit both health care purchasers and those covered by health care plans.

Health Care Cost and Quality: The IAM Approach

      As part of the settlement to a 1995 work stoppage, the IAM and Boeing agreed to form a joint committee on health care cost and quality. As an incentive to work on controlling health care costs, the IAM agreed to peg future contributions to the cost of health care premiums for the traditional open choice plan to the difference between cost increases and medical inflation. In other words, if Boeing’s cost for health care increased faster than national trends, then IAM members would contribute up to a maximum amount. But if these joint efforts were successful, then no contributions would be required.

      An essential part of the Joint Committee’s work focused on health care quality. This focus was driven by two considerations: (1) high-quality health care leads to healthier workers, which in turn results in lower long-term costs and higher production; and (2) holding health care providers to a high standard of quality is a direct benefit to health care plan participants--whether in the traditional plan or managed care options. The IAM took the lead in pushing quality by facilitating meetings with the National Committee for Quality Assurance (NCQA), the Foundation for Accountability, and the Leapfrog Group.

      As a result, in each of the 4 years from 1998 to 2001, IAM member satisfaction with the traditional medical plan increased based on survey results conducted by the IAM’s Strategic Resources department while, at the same time, costs increased slower than national medical inflation.

      In 1999, the IAM and Boeing renewed and expanded their commitment to tackling health care cost and quality. Through these joint efforts, the IAM and Boeing became the first union and company team to sign on to the Leapfrog Initiative. That effort is already paying off with joint meetings that include IAM representatives and Boeing’s benefit team meeting with health care plans and health providers. The message has been loud and clear: the IAM and Boeing are committed to working towards high-quality care at an affordable price.

      Starting in the spring of 2001, IAM and Boeing began meeting with hospital administrators and health plan executives about implementing the three Leapfrog initiatives. The power of these meetings resides in the fact that the union and company are jointly presenting their concerns about the quality of healthcare to the providers who service the Boeing community. Given the market clout that Boeing has in the Puget Sound of Washington and in the greater Wichita, Kansas, area, the hospitals and health plans paid close attention. In late 2001, the health care quality initiative was expanded to include three other major aerospace employers in the Wichita area represented by the IAM. Together with Boeing, Raytheon, Bombardier’s Learjet Division, and Textron’s Cessna Division, provide employment to nearly 75,000 in Wichita, including 25,000 IAM-represented employees, and an estimated 200,000 covered lives. Through the work of the IAM, these employers are starting to work together in the Wichita Aerospace Health Care Alliance.

      The WAHCA has set the following goals:

1. Address the quality of health care in the Wichita metropolitan area through purchasing initiatives consistent with best practices throughout the United States. Specifically, the Alliance will pursue improvements in medical safety by encouraging health care providers to adopt computer physician order entry systems in hospitals, evidence-based referral to hospitals, and ICU physician staffing. These initiatives parallel the national effort underway under the banner of the Leapfrog Group.

2. Address the cost of health care in the Wichita metropolitan area through value purchasing initiatives that target best-practice medical providers. Through the joint efforts of the aerospace companies, the IAM and other interested parties, our goal is to keep health care cost increases below that of national trends.

3. Provide more information to employees and their families on health care costs and quality through the use of consumer satisfaction surveys, distribution of managed care accreditation status, and other means.

      The goals of the Alliance are clear and broadly conceived. Where one company may gain competitive advantage over another in product design, marketing, or adopting high-performance work practices, the Alliance seeks to use its purchasing power to produce a mutual gain for all of the companies and all of the employees working for those companies. In general, the health care community, be it health plans, hospitals, or health care professionals, has been receptive to the message about improving health care quality. Perhaps it is not surprising that an industry like aerospace, where quality production is so critical, or that a union like the IAM with its highly skilled membership, would take the lead in creating value in this manner. More surprising to some is that it has taken so long for employers and unions to demand higher quality from the money spent on health care.

Conclusion

      Joint union–employer efforts to improve health care quality may prove a very effective tool for multi-employer situations. The current restructuring of health care, with the move away from actively managed care towards a more flexible, consumer driven provider network with discounts, provides a real opportunity for organized labor and represented companies to work together in delivering higher-quality health care at affordable costs. Indeed, the power of a multi-employer and multiunion approach on health care cost and quality resides in the mutual gains from improving health care quality, which in turn has a positive effect on productivity while simultaneously reducing costs. The barriers to cooperation include most significantly the relative newness of the idea. Is health care quality in fact measurable? Do employees care about health care quality? Do employees trust the information they are currently getting on health care choices? What is the business case for quality? Is there really a productivity payoff and lower long-term health care costs? What is the payoff for health care providers who adopt the patient safety standards promoted by the Leapfrog initiative?

      These and other questions need fuller explaining before a true national effort is joined. The union and multi-employer approach discussed in this brief paper highlights the reason such an approach is needed and one possible way to attack the issue of health care cost and quality. This is the beginning, not the end, of this story.

Endnotes

1. Reported in Wall Street Journal, Dec. 10, 2001, online edition.

2. Information from Nelson’s Investment Management Network website at <www.nelnt.com>.

3. Leapfrog Group information packet.

References

Brickmeyer, John D. 2001. Leapfrog Patient Safety Standards. Washington, D.C.: Leapfrog Group.

Eddy, David M. 1998. “Performance Measurement: Problems and Solutions.” Health Affairs, Vol. 17, no. 4 (July/August), p. 8.

Garner, John C. 2002. Health Insurance Answer Book. New York: Panel Publishers, p.1–1.

Kohn, Linda et al. 2000. To Err Is Human. Washington, DC: National Academy of Sciences.

Starr, Paul. 1987. The Social Transformation of Medicine. Basic Books: New York, p. 311.