- M. Lee Smith Publishers

<p class="byline"><span style=" font-family: Arial; font-size: x-small;">Excerpted from <a target="_blank" href="http://www.hrhero.com/caemp.shtml?HLw">California Employment Law Letter</a>, written by attorneys at the law firm <a target="_blank" href="http://www.employerscounsel.net/bios/caemp.shtml?HLw">Perkins Coie LLP</a></span></p>

<p class="text"><span style=" font-family: Arial; font-size: x-small;">Pension plans are typically a vested benefit, which can't be easily cut. On the other hand, medical plans are generally "welfare benefits," which can be removed at will. With health care costs rising faster than nearly any other business expense line item - up 59 percent between 2000 and 2004 - many employers are wielding the ax to health benefits.</span></p>

<p class="text"><span style=" font-family: Arial; font-size: x-small;">It isn't surprising that Wal-Mart is offering a form of health care lite to pare down health costs, which have risen 19 percent in the past year. Employees pay for one-third of their care through increased premiums and raised deductibles. Eligibility doesn't kick in for a year, and many expenses are uncovered. Finally, even that low-level benefit is beyond the economic reach of many Wal-Mart workers.</span></p>

<p class="text"><span style=" font-family: Arial; font-size: x-small;">Nor is it surprising that many small employers are cutting costs by eliminating employee medical coverage. With double-digit increases continuing to hit health care plans (whose cost is rising by five times the inflation rate), only 63 percent of small employers (those with three to 200 employees) provide medical coverage - down from 68 percent in 2001, according to the Henry J. Kaiser Family Foundation. The ranks of uncovered employees have grown by five million over the past five years.</span></p>

<p class="text"><span style=" font-family: Arial; font-size: x-small;">What is surprising is that General Motors (GM) has joined the trend, getting the United Auto Workers to agree to a massive benefit cut for its employees and retirees. Whatever was going wrong in Detroit, workers historically could still rely on the best benefits in business. No more.</span></p>

<p class="text"><span style=" font-family: Arial; font-size: x-small;">GM's benefit load sits at $5.6 billion per year - about $1,600 per car it sells. It pays more in benefits than it does for steel. Under its traditional Cadillac medical programs, employees had no out-of-pocket costs. Now, a $750 family deductible and prescription copays are being imposed.</span></p>

<p class="text"><span style=" font-family: Arial; font-size: x-small;">As a result, the auto giant expects to save $1 billion per year in recurring expenses while cutting $15 billion from its standing obligation to retirees. Sears, JC Penney, and SBC are among the other companies about to follow GM's lead in watering down their traditionally strong health benefit systems.</span></p>

<p class="text"><span style=" font-family: Arial; font-size: x-small;">Those cutbacks will have political implications. In 1993, Hillary Clinton's plan - requiring nearly all businesses to bear at least 80 percent of the medical expenses of their employees - couldn't gain traction. Today, the San Francisco Board of Supervisors is considering exactly that plan for those who do business in or with the city, giving each employee either 80 percent coverage of medical costs <i>or</i> a $345 monthly stipend.</span></p>

<p class="text"><span style=" font-family: Arial; font-size: x-small;">Last year in California, a proposal was put on the table that would have immediately demanded that same 80 percent coverage from all employers of 200 or more employees and phased in the requirement for employers of 50, and then 20, employees. That proposal lost by closer than a 51-49 margin. Today, many more employees and recent retirees would vote for it.</span></p>

<p class="text"><span style=" font-family: Arial; font-size: x-small;">How the law and government policy look at the issue has little to do with justice or fairness. Rather, it's a function of policy needs. Up until now, employers have had a fairly free hand in modifying or eliminating medical plans because flexibility was considered good for the vitality of the system. It protected plans from going bankrupt and guarded against potentially crippling contingent employer liability at the expense of some employees and retirees.</span></p>

<p class="text"><span style=" font-family: Arial; font-size: x-small;">But if the American workforce becomes widely uninsured, that creates a more immediate crisis for the body politic. Greater copays and higher deductibles appear to be the wave of the future. But if more radical changes threaten to become the norm - eliminating coverage or stripping away catastrophic health care - expect a popular legislative response restoring the benefit.</span></p>

<p class="text"><span style=" font-family: Arial; font-size: x-small;">It's ironic that a corollary to the huge advances in medical science - creating cures to the most intractable ills - is the growing unaffordability of medical insurance for the masses.</span></p>

<p class="text"><span style=" font-family: Arial; font-size: x-small;">A two-tier medical system is being created: luxury offices and private hospitals for the well-heeled and crowded general clinics for the rest. Indeed, many workers finally get much needed coverage only to learn that no doctor in their "approved group" is accepting new insurance patients.</span></p>

<p class="text"><span style=" font-family: Arial; font-size: x-small;">We'll know we're in trouble when our national response to this dilemma becomes "Take two aspirin, and call me in the morning."</span></p>

<p class="smallblack"><span style=" font-family: Arial; font-size: x-small;">Copyright 2006 M. Lee Smith Publishers LLC. This article is an excerpt from <b><a target="_blank" href="http://www.hrhero.com/caemp.shtml?HLh">CALIFORNIA EMPLOYMENT LAW LETTER</a></b>.</span> The contents of California Employment Law Letter are intended for general information and should not be construed as legal advice or opinion. Readers in need of legal advice should retain the services of competent counsel. The State Bar of California does not designate attorneys as board certified in labor law.</p>