The Communications Workers of America (CWA)/International Brotherhood of Electrical Workers (IBEW) vs. Verizon labor dispute is heavily focused on healthcare costs. Verizon health insurance is very good coverage with minimal direct from the paycheck employee contributions. From Fierce Telecom:
Verizon said that the cost of medical coverage for an East employee and one or more family members currently averages nearly $20,000 a year. In one of the company’s East plans, the annual cost for this coverage is over $23,000 a year. The company said these costs are higher than the national average for family healthcare coverage of about $16,800.
Verizon is most likely trying to get under the Cadillac tax line as well as minimize their actual cash outflow. The unions like their benefits, but for most union members they are probably over-insured. Is there a path that makes significant welfare improvements for everyone?
What if there was an agreement zone where Verizon and all union members are either kept whole or made better off?
This would work by having Verizon maintain the current contribution to employee health care costs. This contribution would increase at some pre-defined rate that should be sufficient to pay for the current benefit package. Verizon gets some more predictability and probably lower net compensation costs after the mechanism that I describe goes into play.
What does the union get?
More choices. The base choice would be the same benefit package (platinum or better) with the same basic set of networks and no gatekeeper restrictions. The Verizon contribution is sufficient to cover this. However for most union members and their families, broad network PPOs with almost no cost sharing is too much coverage if there is a way for them to access the savings. There would be two (or more) other choices. The first other choice would be for a similar benefit package with a narrower network (it can still be a PPO, but more likely an EPO). I know most major insurers can slice and dice their network to give 80% of the providers at a 10% to 15% discount. The acturial value of the package would be the same, but there would be some limits on who the union members can see. The other package or sets of packages could be slightly higher cost sharing (Gold or Gold Plus (80% to 85% actuarial value) on either the broadest network or the slightly narrower networks.
The union benefit is cash. The union member would receive 70% of difference in cost between the cheaper plans and the baseline plan as a paycheck bump at the end of each month. 15% of the difference would go into a reserve fund for the entire bargaining unit for members who have catastrophic incidents, and 15% would go back to Verizon as a gain share. If the reserve fund is more than 20% of the difference accumulated over two or more years, all union members get a bonus check.
No one is worse off behind the veil of ignorance. Some people will be no worse off as they keep their current plan. Some people will be better off as their current choice of insurance is either too much insurance or nothing, now they can decrease the amount of insurance that they want and get cash instead, and Verizon’s health care costs would grow no faster than they otherwise would, all else being equal while having a high probability of being a bit lower than currently projected.
What are the flaws in this idea?
Defined benefits, defined contributions, overinsurance and Pareto improvementsPost + Comments (39)