AARON BERNSTEIN, Harvard Labor and Worklife Program
Email: abernstein@law.harvard.edu

The 2007 negotiations between the United Auto Workers (UAW) and Detroit automakers have focused national attention on a potentially innovative response to the long-term decline in retiree health insurance in the United States. The union agreed that an independent trust called a Voluntary Employees' Beneficiary Association (VEBA) will assume responsibility for UAW retiree medical care at the three automakers. Other unionized employers now are looking at these so-called defeasance VEBAs as a way to free themselves of burdensome health-care legacy costs. An analysis of the largest one, at GM, suggests that the concept is a second-best option for unions able to retain employer-paid retiree coverage. However, it may be a viable alternative for those unable to fend off unilateral elimination by an employer. Both private- and public-sector unions and employers can draw important lessons from the defeasance VEBA agreed to by the UAW and GM, which will deploy innovative tactics to distribute cost and risk amongst the company, workers, and retirees. More broadly, the new VEBAs illuminate a gaping hole in the federal tax code, which offers few incentives for employees to save for postemployment medical needs even as employers have shifted the responsibility on them to do so. A VEBA is a flexible vehicle that could provide the most tax-efficient savings method for workers whose employer doesn't offer retiree coverage. However, changes in federal law likely would be required for the concept to become widespread.

RICHARD W. JOHNSON, Urban Institute - Income and Benefits Policy Center, National Academy of Social Insurance (NASI)
Email: rjohnson@ui.urban.org
GORDON MERMIN, affiliation not provided to SSRN
Email: merming@gao.gov
DAN MURPHY, affiliation not provided to SSRN
Email: subscriptions@bostonstocks.net

Although health and employment shocks are fairly common at older ages and often derail retirement savings plans, Social Security's disability insurance, spouse and survivor benefits, and progressive benefit formula may provide important protections. By contrast, traditional employer-sponsored pension benefits may be especially vulnerable to health and employment shocks immediately before benefit take-up, because pension wealth generally grows rapidly near the end of the career and workers forfeit these increases if they separate early. This study examines the impact of disability onset and job layoffs on Social Security wealth, traditional employer-sponsored pension wealth, and other household wealth for a nationally representative sample of workers age 51 to 55 in 1992.

M. KATE BUNDORF, Stanford University - Department of Health Research And Policy, National Bureau of Economic Research (NBER)
Email: bundorf@stanford.edu
JONATHAN LEVIN, Stanford University - Department of Economics, National Bureau of Economic Research (NBER)
Email: jdlevin@stanford.edu
NEALE A. MAHONEY, affiliation not provided to SSRN

Prices in government and employer-sponsored health insurance markets only partially reflect insurers' expected costs of coverage for different enrollees. This can create inefficient distortions when consumers self-select into plans. We develop a simple model to study this problem and estimate it using new data on small employers. In the markets we observe, the welfare loss compared to the feasible efficient benchmark is around 2-11% of coverage costs. Three-quarters of this is due to restrictions on risk-rating employee contributions; the rest is due to inefficient contribution choices. Despite the inefficiency, we find substantial benefits from plan choice relative to single-insurer options.

DAVID P. BERNSTEIN, affiliation not provided to SSRN
Email: spstat@yahoo.com

In the United States, over 90% of working-age adults with insurance receive their health insurance through their employer. However, not all employers offer employer sponsored insurance (ESI). Whether or not a worker receives an ESI offer is shown to be primarily impacted by family income and the size of the worker's employer. Other variables like age, health status, attitudes towards insurance, education, and whether a spouse has an ESI offer are significant but far less important than family income. A married worker with a spouse that does not have an ESI offer is more likely to have an ESI offer than a married worker with a spouse with an ESI offer. This ability to coordinate employment opportunities is an economic advantage for two-earner couples.

NAN L. MAXWELL, affiliation not provided to SSRN

This study argues that a multidimensional health benefit offer (i.e., offers of medical, dental, sick leave, or vision benefits) and the hours or tenure restrictions placed on it are affected by the relative demand for workers in the local labor market. Using the Bay Area Longitudinal Surveys (BALS), a database of low-skilled jobs, we show that an excess labor demand for workers skills increases the firms offer of health benefits and reduces the restrictions on them, while an excess labor supply increases restrictions. These findings suggest that research assessing the correlation between wages, skills, and whether or not a firm offers health insurance might understate the plight of the low-skilled worker since health care access may also be restricted by a failure to receive an array of health benefits and by the restrictions placed on the offer. Furthermore, public policies might place the issues of uninsurance of low-wage workers within the context of a lack of marketable skills since low-skilled workers might be able to enhance their ability to secure jobs that offer an array of health benefits if they acquire skills in short supply in the local labor market.