Health programs in collective bargaining

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OF THE

UNIVERSITY

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Health
Programs
In Collective
Bargaining

INSTITUTE OF LABOR AND
INDUSTRIAL RELATIONS

J4i

NIVERSITY OF

^T L I N O I ^

EDITORIAL NOTE

In accord with the purposes of the University as a State-supported
educational institution, the Institute of Labor and Industrial Relations
aims at general education as well as at the special training indicated in
its title. It seeks to serve all the people of the State by promoting gen-
eral understanding of our social and economic problems, as well as by
providing specific services to groups directly concerned with labor and
industrial relations.

This Bulletin series is designed to present periodically information
and ideas on topics of current interest in labor and industrial relations.
The presentation is non-technical and is designed for general, popular
use. No effort is made to treat the topics exhaustively.

Additional copies of this Bulletin are available. A charge of five
cents a copy will be made, except that the first 10 copies will be fur-
nished free of charge to individuals and groups in Illinois. Also
available are copies of these other Institute Bulletins.
Seniority and Job Security Collective Bargaining by Foremen

The Conciliation Process Municipal Mediation Plans

Assignment and Garnishment of Wages in Illinois
Federal Court Decisions on Labor, 1947-48
What Tests Can Do for Industry

Plant- Protection Employees Under Current Federal Labor Legislation
Agricultural Workers Under National Labor Relations Laws

Phillips Bradley Milton Derber

Director Coordinator of Research

Ralph Norton

Editor

I.L.I.R. PUBLICATIONS, SERIES A, VOL. 3, NO. 1

UNIVERSITY OF ILLINOIS BULLETIN

Volume 46; Number 46; February, 1949. Published seven times each month by the Univer-
sity of Illinois. Entered as second-class matter December 11, 1912, at the post office at
Urbana, Illinois, under the Act of August 24, 1912. Office of Publication, 358 Administration
Building, Urbana, Illinois.

V.3'

HEALTH PROGRAMS IN COLLECTIVE BARGAINING

By John Af. I^jIU'mm

AGREEMENTS BETWEEN UNIONS AND EMPLOYERS TO PROVIDE

"health benefits" for industrial workers are now a well-recognized
development in industrial relations in this country. !More than 3
million workers by the summer of 1948 were covered by "some
type of health, welfare and/or retirement benefit plan under col-
lective-bargaining agreements," according to estimates recently
announced by the Bureau of Labor Statistics of the U.S. Depart-
ment of Labor. ^ This was more than double the estimated number
of employees covered by such plans in early 1947. Decisions by the
National Labor Relations Board have indicated such benefits are
one of the legitimate objects of collective bargaining, under the
Labor Management Relations Act, 1947 (Taft-Hartley act).

This bulletin will describe the main features of current health
l^enefit plans and discuss some outstanding problems and issues.
The discussion is designed to give interested persons a general out-
line of the subject. For those especially concerned with the prac-
tical problems of developing a health program, the bulletin offers
aid and suggestions for obtaining necessary additional information
and guidance. It cannot be overemphasized that health plans raise
some very vital and highly complex problems for both unions and
employers. The specialized knowledge of several different profes-
sions is needed to solve these problems, depending on the type of
program desired and the stage of its development. Experts who
might be consulted, for example, are those in the fields of general
medical economics, public health, medicine, law, social welfare
administration, insurance, and industrial relations.

This discussion is devoted exclusively to "health benefit pro-
grams." This is only one aspect of the "health and welfare funds"
used by unions and management to establish some of these kinds of
benefits for industrial workers: life insurance, retirement pensions,
general health care. Each of these benefits presents a distinct set of
considerations and problems. Here we shall consider that part of a
"welfare fund" which is used to pay for benefits for workers and

^"Benefit Plans Under Collective Bargaining," E. K. i\o\ve uiid A. Weiss,
Monthly Labor Review, September 1948.

[ 3 ]

their dependents in connection with non-occiipational injury or
illness. The benefits may compensate for loss of wages when dis-
abled or help make available needed hospital and medical services.

TRENDS IN HEALTH PROGRAMS

This recent trend toward including" health plans for employees
in union-management agreements is usually considered by the
unions to be one phase of the general effort of organized labor to
cope with the common kinds of insecurity facing workers and their
families in an industrial society. The Social Security Act and state
workmen's compensation laws provide some degree of protection
against unemployment, death of a wage earner, dependent old age,
as well as against job loss, incapacitation or other results of work
injury. Only three states, however, (Rhode Island, California, New
Jersey) have set up systems granting limited benefits to workers
in connection with non-occupational illness or injury. Federal legis-
lation of this kind currently applies only to railroad workers, who
first began to receive benefits in July, 1947.

"Health insurance" or "health benefit programs," as these
terms will be used here, include disability insurance (commonly
called "sickness and accident") which is designed to protect indi-
vidual employees against the loss of wages due to disabling illness
or accident; and medical care insurance which is designed to pro-
tect employees against the costs of physician, hospital, medical, and
other related services in connection with illness or accident.

Workers are interested in these plans because they want pro-
tection against the burden of these unpredictable expenses and
losses of income. Most workers cannot provide in their budgets for
such costs, which cannot be predicted either as to amount or fre-
Cjuency of occurrence. Health insurance thus can relieve the indi-
vidual of financial worry in connection with illness and help provide
adequate care for illness.

Favorable attitudes of employers towards health insurance
for employees have been based on claims that such programs
are capable of: 1. reducing absenteeism, 2. decreasing the turn-
over rate, 3. protecting against physical deterioration of em-
ployees which would lower productivity, 4. protecting against

[ 4 ]

recurrent conditions which increase workers' susceptibility to
industrial accidents and diseases, 5. providing" insurance against
the high cost of replacement of skilled and experienced em-
ployees lost by early death or forced into retirement by poor
health, and 6. improving plant morale through employees' in-
creased sense of security.

Impact of World War II

Records indicate that the first collective bargaining agreement
to provide for non-occupational sickness and accident benefits was
negotiated as early as 1926, but the new trend did not emerge
clearly before World War II. During the war the wage stabiliza-
tion policies of the War Labor Board effectively restricted union
bargaining for simple across-the-board wage increases even when
employers were ready to grant them. Most health insurance plans
negotiated during the war were the result of efforts to discover
benefits in lieu of wages which the War Labor Board would ap-
prove and which would have an obvious value for workers in dol-
lars and cents and in improved morale. Paid vacations and paid
holidays were the most popular of these wage-substitute demands.
They were widely established by the end of the war in union-man-
agement contracts. Health insurance was never as common an item
in negotiations. The Board never seriously considered disapproving
these insurance arrangements, when agreed to by both parties, but
it did not order their inclusion in contracts in disputed cases.

Consequently, during the war the government made no official
determination of the status of health insurance among collective
bargaining demands. The c^uestion arose again under the Labor
Management Relations Act, 1947. In the early fall of 1948 a U.S.
Circuit Court of Appeals upheld a National Labor Relations Board
ruling requiring an employer to bargain on pension plans. The
court held that the terms "wages" and "other conditions of em-
ployment" as used in the collective bargaining provisions of the Act
clearly include pension and retirement funds. The NLRB, in an-
other case, ruled that group health insurance plans also fall within
the meaning of these terms. The issue has not yet been ruled upon
by the Supreme Court.

[ 5 ]

Plans Found in Many Industries

Health benefit plans of some sort are now found fairly fre-
quently in collective agreements in the following industries: coal
mining, men's and women's clothing, millinery, textile and hosiery,
local transportation, upholstering, furniture, machinery, rubber,
paper, fur and leather, retail and wholesale trade, cleaning and
dyeing, hotel and restaurant, telephone and telegraph, and some
sections of the building trades. There are probably few industries
in which they are not found at least occasionally.

The establishment of health benefit plans in collective agree-
ments is a recent development, but the concern of employers and
unions with problems affecting the health of workers is far
from new.

In the formative period of the American union movement the
constitutions of many unions provided for benefit payments to
members in certain emergencies, such as death or permanent dis-
ability. Such plans were financed entirely by union members,
through dues or special assessments. Only a few of them provided
benefits in the event of sickness. After World War I rising benefit
costs, financial instability due to depression, and other economic
causes led many unions to revise or terminate these self-financed
programs. In 1908, 18 national unions financed sickness and medi-
cal benefit programs from their ow^n funds. By 1935, this number
had dwindled to seven. Moreover, these benefits were frequently
regarded as a member-getting and member-holding device rather
than as a part of a planned health security program.

On the employer side, companies frequently have provided their
employees with medical service programs of varying degrees of
comprehensiveness or have sponsored commercial group insurance
plans. These plans have been both with and without employee
participation in the costs. Many of the medical-service type provide
a high quality of service and have been run successfully for many
years.

Character of New Programs

Current health benefit plans set up as a result of employer-union
negotiations differ in several respects from most of the earlier
plans sponsored solely by unions or by companies. First, since the

6 ]

plans are part of the contract, they affect all workers covered hy
the contract. Second, they are financed entirely, or in large ])art,
by the employer. Any funds involved are usually administered
jointly by the union and employer. In the third place, where a pre-
viously existing employer-sponsored plan has been incorporated
into the contract, benefits have usually been increased. Finally,
benefits are uniformly considered as the "right" of a covered em-
ployee as soon as his disability or medical expenditure has been
verified.

The occurrence and duration of individual illness is unpredict-
able. But it is cjuite possible to estimate and measure the incidence,
frecjuency, severity, and duration of illness and the resulting costs
of adequate medical care for large groups of people. Health in-
surance is built on this principle. The essentials of a health insurance
program include pooling the risks of illness of many people,
spreading the costs over the group, and prepaying costs regularly
and periodically, on the basis of the average-estimated-cost per
individual. Establishing an insurance plan, therefore, requires
enough people to join together to share the risks of future illness;
and sufficient funds paid into the plan at regular intervals to meet
all the costs which the plan is designed to cover.

Voluntary health or medical care insurance, as it is frequently
called, has been developing in this country over several decades.
The term "voluntary" commonly applies to those plans which
groups of people establish or which they join as members. On the
other hand are those health programs which apply more broadly,
such as public health programs and national health insurance
created through legislation. When a union and employer establish
a health benefit plan in their contract, they normally make a selec-
tion from among the different kinds of existing voluntary plans.
The}- may wish to purchase group health insurance policies from
plans available to groups of employees over a wide geographic area,
or they may wish to subscribe to services provided only to em-
ployees in a restricted locality. To understand the characteristics of
health plans in collective bargaining recjuires, therefore, an analysis
of the different voluntary plans. The basic character of a voluntary
plan is not affected by the fact that collective bargaining has
brought a certain group of workers under its protection.

[ 7 ]

UNDERSTANDING HEALTH PROGRAMS

There is no simple, single classification of health plans. The
most helpful way of understanding their many variations is to look
at each plan from five different points of view: 1. control, 2. type
of benefits, 3. eligibility for benefits, 4. scope or extent of benefits,
and 5. standards of medical services.

Control

With respect to control, health plans fall into two groups: those
developed by commercial insurance companies as business under-
takings, and those formed as non-profit organizations by groups of
physicians, groups of hospitals, groups of individuals who intend
to receive the medical care (such as those in a cooperative), fra-
ternal societies, joint union-employer funds, governmental agencies,
and others. Commercial company plans usually are designed to in-
sure against a limited number of health needs. Non-profit plans,
on the other hand, vary widely. Some cover only a few health needs,
while others attempt to meet a wide range of needs.

Type of Benefits

Employees covered by a plan may receive benefits in the form
of casJi ifideimiity (money) or services rendered, or a combination
of both. Commercial companies normally use the cash-indemnity
approach, while non-profit organizations may use either the indem-
nity or the service approach.

Under cash-indemnity plans the employee is reimbursed for
specific expenses and losses due to accident and illness, according to
a definite schedule of benefits spelled out in an insurance policy.
He may be compensated for part of the loss of wages during illness
by "disability benefits." He also may be reimbursed for his hospital
bills by "hospital-expense indemnity" and surgical bills by "surgi-
cal-expense indemnity." In any case, the patient must first pay out
of his own pocket his bills for doctors, hospitalization, surgery,
medicines, and other charges. Then when he has proved disability
and presents the paid bills, he receives cash payments in accordance
with a schedule wdiich sets up maximum benefits. Indemnity-type
payments may be provided under commercial or non-profit auspices.

They are designed to relieve the worker of part of his sickness
expense.

Service plans, on the other hand, are organized to furnish one
or more specific services necessary to restore or maintain health.
When in need, the subscribers may receive doctor's care, surgical
operations, hospitalization, and other services without paying for
them directly. Payments are made by the insurer, usually a non-
profit organization, to those who provide medical service. For ex-
ample, the Associated Hospital Service of New York, as an insurer,
pays charges incurred by its members directly to the hospitals par-
ticipating in the plan.

Many plans have both service and indemnity features, which
sometimes make them difficult to classify. A typical Blue Cross
plan, for example, may provide hospitalization in a semi-private
ward for 21 or 30 days per year. This is a service program. An
indemnity feature is added if the plan also provides for cash
reimbursement at a fixed daily rate when a private room is chosen.
Service plans do not pay disability benefits for the loss of wages.

Eligibility for Benefits

Eligibility to join health insurance plans is frequently restricted.
Individual enrollment may not be permitted. Groups, to be eligible,
may have to include more than a certain minimum number of
people. Certain restrictions based on age, occupation, income, or
physical condition may be imposed on individual members.

Plans established in union-employer contracts usually permit
few if any restrictions and tend to apply equally to all employees
within the bargaining unit of an employer or group of employers.
Weekly disability - indemnity benefits may vary according to the
employee's earnings, and quite frequently there is a requirement
that an employee be employed one month or more before being
included in the plan. In addition the trend appears to be to extend
coverage to dependents of employees for at least some of the
benefits.

Scope of Plan

The amount of cash benefits or medical services provided by a
plan determines to a large degree the effectiveness and the cost of

[ 9 ]

a plan. A plan may be limited to a single type of benefit for em-
ployees only, such as hospitalization on dental care. At the opposite
extreme a plan may be comprehensive, providing employees and
their families with almost all necessary medical services. These may
even include preventive medicine, thus making it possible for the
insured person to consult doctors for general health advice, for
periodic physical examinations, for diagnostic check-ups, and for
check-ups after an illness. Most plans, however, fall somewhere
between these two extremes. Some are limited to cash benefits or
specific services in connection with disabling illness. Other pro-
grams cover all "common" medical requirements of the worker and
his family.

The scope of a plan may be limited in many other ways. In-
demnity plans frequently set up a minimum waiting period of illness
— usually three to seven days — before eligibility for a given
benefit begins. Benefits may run for a definite period of time and
then stop altogether, or continue on a reduced basis. Benefits may
be payable only for specific kinds of illnesses — those requiring
surgery, for example. On the other hand, certain illnesses, such as
mental diseases, may be omitted from an otherwise comprehensive
coverage. In some plans, notably those provided by commercial
insurance, benefits are limited to disabling illnesses and accidents,
that is, illnesses and accidents which keep the employee from per-
forming his work. Most hospitalization plans which also provide
laboratory and other services usually restrict these extra services to
hospitalized cases only. Other kinds of restrictions on the scope of
benefits are imposed by other plans.

Standards of Medical Services

A highly important aspect of any serious effort to meet the
health needs of a group of employees is the quality of hospital and
medical care they can obtain. Indemnity plans do not attempt to
deal with this problem. Hence covered employees receive that
standard of hospital and medical care which is available to them
in the community in which they live, depending, of course, upon
their willingness and ability to make use of it. Service plans, on
the other hand, being directly responsible for medical service for
their members, frequently emphasize the quality of those services.
Standards of service may be set for participating hospital and physi-

[10 1

cians. New facilities, such as clinics, hospitals and laboratories,
may be directly organized by the plan. The services of participating
physicians sometimes are also organized in such a way that general
practitioners and specialists work together as a group, often under
one roof, thus combining their knowledge and skill and their tech-
nical personnel and medical equipment — a method known as
"group practice." Standards of health also are controlled by some
plans by providing for early diagnosis of conditions leading to
illness, for "preventive" medicine, and for the education of em-
ployees in good health practices.

NEGOTIATING HEALTH PROGRAMS

After employers and unions have agreed to some sort of a
health program, they face three distinct sets of problems: 1. what
kind of a program to select, 2. how to write the agreement into the
formal contract, and 3. how to handle the financing of the plan.

Broadly speaking, the parties to the agreement have the choice
of providing health benefits under a scheme developed by one of
the parties or by both parties working together, or through sub-
scribing to some existing plan which is available in the locality
where the employees work.

Specially Organized Plans

Plans organized by the parties themselves may provide cash
indemnity or service benefits. Cash indemnity benefits — disability,
hospitalization, surgical — are sometimes paid directly from a
union-employer-controlled fund like that provided in agreements
between the United Hatters, Cap and Millinery Workers (AFL)
and their employers in several cities. Another variation in this "self-
insurance" is seen in the men's clothing industry. A capital-stock
insurance company, chartered under the laws of New York State
and governed by a board of directors composed of union and
employer representatives, issues cash indemnity policies to eligible
members of the Amalgamated Clothing Workers of America
(CIO) who work for clothing manufacturers having collective-
bargaining agreements with the union.

Service programs organized specifically for a group of em-
ployees covered by management-union contracts can take several

forms. A "complete" program of this type would require :
1. contracting for the medical services of a panel of general
practitioners and specialists, for home, office, and hospital prac-
tice; 2. ownership of a hospital; 3. establishment of a clinic
with diagnostic and therapeutic facilities. In practice, however,
one of the above three elements in a "complete" program may be
combined with other arrangements. An example is the St. Louis
Labor Health Institute, supported by contributions provided for
in contracts between the United Distribution Workers (formerly
CIO, now independent) and St. Louis retailers and wholesalers.
This plan provides two of the three elements, but buys hospital-
ization for covered employees through the local Blue Cross plan.
In the women's garment industry in some cities the Union Health
Centers of the International Ladies' Garment Workers' Union
(AFL) provide many clinical services. Most of the other aspects
of these programs are handled on an indemnity basis.

Plans Already Available

Indemnity or service programs already are set up in many
communities and new groups of employees may be included in
them. These existing plans fall into five principal categories :
1. commercial insurance indemnity plans providing policies
fairly well standardized among companies, which may be pur-
chased separately or combined in "packages"; 2. Blue Cross or
similar hospitalization plans organized by hospital associations;
3. cash indemnity or service plans providing surgical benefits,
and sometimes including other (non-surgical) medical benefits,
which are sponsored on a non-profit basis by local or state
medical societies; 4. group-practice plans controlled by phy-
sicians, which frequently provide comprehensive services;
5. group-practice plans controlled by consumers (that is, by the
subscribers to the plan) or by other arrangements. Such plans
place dififerent degrees of administrative responsibility in the
hands of non-medical persons.

It is not the purpose of this bulletin to suggest the standards
by which a plan might be intelligently selected to fit particular
circumstances. Many experts, agencies, and organizations are
available for consultation on such questions. It is important to

[12

give careful consideration to all available alternatives and to
seek competent advice.

Group Needs and Services

Here is a check-list of the kinds of basic information which
unions and employers will find essential to collect as a pre-
liminary step in planning- any health program :

1. Size of the employee group to be covered and its normal
average earnings.

2. Composition of the group according to sex, age, and
marital status.

3. Special health needs of the group.

4. Geographical concentration of the group.

5. Hospital and medical facilities available in the com-
munity.

6. Costs prevailing in the community for hospital services,
common surgical operations, and physicians' home and ofHce
visits.

7. Number of physicians in the community and the possi-
bilities for group medical practice.

8. Premium costs and benefit provisions of standard com-
mercial group insurance policies available in the region.

9. The services provided and rates charged by all service
plans in the locality such as health cooperatives, hospital asso-
ciations, medical societies, and associated physicians.^

Union-management health plans have followed no definite pat-
tern. They combine different kinds of benefits in many ways. The
majority of these plans have in the past emphasized the cash in-
demnity approach, but the trend is toward increasing use of other
methods. As seen by the authors of a recent Bureau of Labor
Statistics study: "The present tendency is to increase the number

^ The following references will be useful in finding what plans are available
in a given area and the kinds of benefits offered:

Blue Cross Contract Guide, Hospital Plan Commission, 18 E. Division
Street, Chicago 10, 111.

Prepayment Medical Care Organizations, Bureau Memorandum No. 55,
Bureau of Research and Statistics, Social Security Board, Washington, D.C.

Voluntary Prepayment Medical Care Plans, American Medical Association,
535 North Dearborn Street, Chicago 10, 111.

[13]

of different benefits provided, as well as to liberalize existing bene-
fits. Medical services, particularly of a preventive nature, . . .
are currently receiving special attention."^

From the point of view of the union, which today normally
initiates the insurance proposal, these plans are negotiated in
several ways with employers, with associations of employers, on
an industry-wide basis, regional basis, or local basis. Some national
and international unions sponsor a uniform plan which they at-
tempt to have written into all the local union contracts. Other na-
tional unions give information and assistance to their local and
regional bodies in bargaining on this issue. Some unions have
created specialized "social security" or "welfare" departments,
staffed by technical experts, to assist in developing health and other
types of welfare programs.

Issues In Bargaining

Both employers and unions are more inclined now that earlier
to consider the selection, operation, , and improvement of a health
program as primarily technical problems which can be dealt with
effectively only in the light of the best information available. Hence,
the question may be raised: Where do the collective bargaining
aspects of health programs end? Where do the "technical" prob-
lems begin? The experience of the parties in industrial relations
will probably suggest answers.

In the negotiations, the main issues may be the amount of
employer contribution to the program and the participation of
employees in the costs. Occasionally the plan itself may be chosen
during negotiations and a decision reached to write it into the
contract. This is particularly common when a commercial insurance
plan is chosen and the employer agrees to buy directly from an
insurance company policies with specified benefits. In some con-
tracts clauses go into considerable detail. In others, the parties
limit themselves to a few general clauses. This approach is said to
permit a desirable flexibility in setting up the plan best suited to
the conditions and in meeting future problems. Where detailed
provisions are thought desirable, as in the case of setting up a trust
fund, the necessary documents can be drawn up as a supplementary

^ Benefit Plans Under Collective Bargaining, previously cited.

[14]

agreement after the basic contract has been signed. A special man-
agement-union committee also can be created with powers 1. to
investigate available health programs, 2. to recommend a plan, 3. to
work out the details of the plan selected, and 4. to suggest later
modifications of the plan, within the limits of the basic contract.

Writing the Contract Terms

The principal items usually included in the basic contract are a
statement of the decision to set up a plan and certain arrangements
in connection with its financing and administration. Clauses deal-
ing with financing and administration usually state the basis on
which contributions to the program are to be computed, and the
organization or fund to which payments are to be made.

Some union-management bargaining committees, because of
particular circumstances, have also found it worth while to write
other provisions covering such points as:

1. Conditions governing the coverage of present and future
employees and coverage of employees transferring from one em-
ployer to another.

2. A board of trustees or other body to handle a health fund,
with a statement defining the duties of this body and safeguarding
the fund against possible diversion to other than employee welfare
purposes.

3. Method of collecting and compiling statistics of the health
plan in operation, which can be used to guide future decisions.

4. Procedures to settle any disputes arising between the par-
ties and to handle complaints of employees about operation of the
health program.

5. Procedures for easy adjustments of the plan to possible
future legislation in the health field.

Financing the Program

The method of financing health plans takes several forms. The
employer may handle the entire cost through contributions to a
special fund or by outright purchase of policies. The union may
contribute to the cost, or a percentage of the cost may be met by the
employees through regular wage deductions. The present trend

15

among plans created under collective bargaining, according to the
B.L.S. study referred to earlier, is "toward complete financing of
the plan by the employer, or toward lowering the employee's share
in a contributory plan."

Several dififerent bases for determining employer contributions
are used: per capita, percentage of payroll, percentage of sales
revenue, lump sum, "tax" or "royalty" on production. The nature
of the industry and anticipated economic conditions are undoubtedly
considered by unions and managements before deciding upon the
method of financing. A seasonal industry, for example, will have
different problems from one with regular employment and a low
rate of turnover. There is, of course, no customarily established
amount for an employer contribution. This question is obviously
determined by many factors in the total collective bargaining rela-
tionship, as well as by the comprehensiveness of the health program
which the parties want. At present, employer contributions normally
vary between 1 and 5 per cent of the payroll, with the average
probably between 2 and 3 per cent.

HOW A HEALTH PROGRAM WORKS

In discussing health plans under collective bargaining the term
"administration of the plan" is frequently confused among three
different things: 1. Administration of the actual operation of the
plan — paying benefits or providing services ; 2. Administration of
a fund earmarked for health insurance; 3. Handling of day-to-day
details such as processing of claims or dealing with complaints.

Operating the Plan

Usually the administration of plan operation (1. above) is very
distinct from the administration of a fund (2.). Under most com-
mercial indemnity plans. Blue Cross and Medical Society contracts,
and group-practice plans, the insurance company, hospital, or other
association is the administrator of the plan, while the union or the
company (or both) may administer the fund out of which premiums
are paid or subscriptions purchased. There are, however, instances
in which the two functions are merged. For example, the trustees
of a fund may share in the administration of a commercial insur-
ance plan; they may accept claims, process them and pay out the

\ 161

benefits on behalf of the insurance carrier. Or, benefits may be paid
directly from the fund to the beneficiaries without the intermediary
of any insurance company. This latter method implies the prior
accumulation of reserves to assure the solvency of the fund.

Administering the Fund

Establishment of a fund is often considered an efficient and
flexible method of handling all moneys earmarked for health pur-
poses. It permits the contracting parties to change the plan. It also
makes possible the accumulation of a reser^■e which may be used
to expand the original program, especially when large capital out-
lay is desired (as, for example, in building a clinic).

Before passage of the Taft-Hartley Act, the trustees of union-
management health funds were composed of 1. union representa-
tives alone, 2. union and employer representatives (equally divided
or with union members in the majority), or 3. representatives of
the union, management, and some outside community group or
agency.

Under the present law, however, all health fund arrangements
set up after January 1, 1946, must be administered by boards which
have equal representation from union and management and include
provision for settling of deadlocks by some neutral party.

Day-to-Day Details

The third aspect of "administrative" problems involves handling
certain day-to-day details such as processing employees' indemnity
claims. These claims are handled through union offices, employer
offices, or by the insurance company. Under any arrangement prob-
lems arise in connection with procedures for filing claims, requesting
services, routing payments, and informing employees of their bene-
fit rights. Active participation in these procedures by the union or
employer often is necessary to make them work smoothly and
efficiently. Many workers may fail to get what they are entitled to
if they are not informed about their rights under the program and
how to use available benefits. Many parties to collective bargaining
contracts have discovered the value of establishing a "complaint
office" where employees can come for information and advice.
This office can correct misunderstandings, improve the efficiency of
procedures, and eliminate possible injustices.

[17]

Differences may also arise between union and employer over the
interpretation of the collective bargaining contract; between union
or employer and carrier company over proper application of the
terms of an indemnity policy; and between union or employer and
service plan over the medical services. Many unions and companies,
therefore, have found it advisable to establish formal procedures
for settling these disputes. Such machinery helps establish fair and
consistent policies.

Sometimes doubt may arise whether a specific illness or acci-
dent is subject to the state workmen's compensation law or is "non-
occupational." In order to keep such confusion from delaying
medical care or cash benefits, health benefits are sometimes granted
pending final determination of any doubtful case.

Legal Problems

State laws, of course, have a direct bearing on health plans
which unions and employers can establish. In certain states laws
may definitely limit the alternatives available to the contracting
parties, and in other states laws may help them carry out their
objectives. Adequate legal advice, therefore, is an early necessity,
particularly in establishing funds and in organizing group-practice
plans.

EVALUATING HEALTH PROGRAMS

Cost is a crucial consideration in evaluating any plan. Costs vary
depending on the geographic area or the type of plan. The many
differences in health programs make costs difficult to compare. In
addition, accurate and worth-while comparison is complicated by
the fact that the "true" cost can be determined only by a study of
the plan in operation over a period of time. In other words, it is not
merely the per capita cost of a plan for specified health benefits that
counts. More important is this cost in relation to total benefits
actually received by the entire group over a given period. Hence,
the extreme importance of keeping complete records of a plan as it
runs from year to year. In his book Voluntary Medical Care Insur-
ance in the United States, Dr. Franz Goldmann summarizes the
over-all problem of evaluation in this way:^

^ Columbia University Press, 1948. Quoted by permission.

\ 18 1

The factual knowledge which is the key to the evaluation of voluntary
medical care insurance may be obtained in various ways. Intensive field
studies of plans of various types may be made or pertinent information
may be gathered by questionnaires. Material published in folders, bylaws,
and annual reports may be analyzed. Statistical data on plans similar in
type of provisions and method of organization may be collected, computed,
and studied. The opinions of the people receiving service, of the partici-
pating professional persons and hospitals, and of the administrators may
be ascertained by personal interviews or correspondence.

In actual practice all these methods have been employed separately
or in varying combinations. The best results can be expected from the
combination of systematic field studies of representative organizations,
personal interviews, and analyses of basic statistical data regularly re-
ported by all plans.

The subject matter to be investigated is vast and lends itself to in-
numerable special studies. For the purpose of appraising individual plans
and groups of similar plans, information must be assembled that answers
at least the following fourteen questions:

1. Is the plan operated for profit or incorporated as a non-profit organi-
zation ?

2. Is the plan designed to pay cash indemnity or to render service in
return for prepayments?

3. To what types of health conditions do the provisions apply?

4. What are the type, scope, amount, and duration of benefits or
services?

5. What are the methods of organizing professional services, and what
are the methods and rates of payment to the participating members of the
professions ?

6. What are the methods of organizing hospitalization and the methods
and rates of payment to the participating hospitals?

7. What are the prepayment rates, extra charges for services, and
additional obligations? Who bears the expenses and to what extent?

8. Where is administrative control vested, what is the composition of
the administrative bodies, and what are their powers, duties, and functions?

9. What is the total number and the sex and age distribution of the
persons enrolled at a given date?

10. What is the total number of participating professional persons,
broken down by type of practice, and of beds in participating hospitals,
broken down by type of service?

11. What is the number of eligible persons, by sex and age, who have
received specified benefits or services during a certain period of time?

12. What is the number of specified benefits or services received by the
eligible persons during a certain period of time?

13. What is the total earned income and the "other income" of the
plan during a certain period of time?

14. What are the total expenditures for benefits or services and for
administration, and what contingency reserves have been set aside during
a certain period of time?

[ 19]

In evaluating the material assembled through the methods described
before, including the systematic collection, proper classification, and cor-
rect computation of dependable statistical data, special attention must be
given to the measurement of the services in regard to their quantitative
and qualitative adequacy and of the costs in relation to both the average
annual family income of the subscribers and the amount and quality of
care received. The findings will show to what extent the plans encourage
prevention of disease and promotion of good health, early diagnosis and
treatment, and psychosomatic medicine; assure completeness, continuity,
and consistency of service; improve the quality of medical care; and bene-
fit the persons enrolled, the participating professional persons and hospitals,
and the community as a whole.

Many unions and employers, of course, are not in a position to
process or analyze such factual data even if they did make a con-
tinuing effort to collect the basic information. However, there is
little doubt that their efforts in this regard would be rewarding.
Several agencies, interested in medical care plan research, would
welcome such information and would be willing to help the inter-
ested parties in its analysis and interpretation.

SUMMARY

Collective bargaining on health benefits is a new development
in industrial relations. V^oluntary insurance plans, however, have
a long and varied history in this country. Employees in many occu-
pations and industries have been covered under industry-sponsored
programs. Certain unions also, from their earliest days, have pro-
vided health benefits for their members.

When employers and unions began writing health benefit pro-
grams into their collective agreements, they were carrying along a
tradition already established for workers in industry. In some cases
they organized special plans administered directly by one or both
of the parties. In most cases, however, they participated in estab-
lished commercial or non-profit voluntary health insurance plans.

This survey of voluntary plans has shown that they follow no
single pattern. Classification is difficult, since they vary with re-
spect to control, type of benefits, eligibility, scope of benefits, and
standard of services. One fundamental distinction can be made be-
tween cash indemnity benefits and medical service benefits. In this
respect, however, labor-management health programs frec|uently
combine both kinds of benefits.

The establishment of these new management-union programs

[20 1

through collective bargaining creates several problems which are
quite independent of the operation of the health benefit plans them-
selves. Among C|uestions raised by such problems are: what items
to include in the contract; how to finance the plan; what basis to
set for contributions; how to administer the "health fund"; how
to arrange for handling day-to-day details ; and what procedure to
establish for settling disputes and grievances.

Evaluation of any health insurance plan reciuires the careful
collection of several kinds of facts. Through this knowledge alone
can sponsors of a plan determine the effectiveness of any plan and
its cost in terms of the health benefits it provides.

Health insurance plans are designed primarily to ease the eco-
nomic burden of illness. Finding a satisfactory solution to the
economic problem is only one aspect of adequate health care for the
country's population. As noted in this bulletin, certain health plans
emphasize purposes other than economic. Medical care plans, how-
ever, make up only one type of the private and public health
programs in the total picture. Among other important programs
are those in health education, industrial hygiene and safety, pro-
fessional medical education and research, public assistance to aged,
dependent, and handicapped persons, public health, and workmen's
compensation. Development of all health programs and cooperation
among them will alone lead toward the goal — the raising of the
health of the nation through prevention of illness and disease.

21

A SELECTED LIST OF READINGS

Health Programs in Collective Bargaining

American Federation of Labor. Health-Benefit Plans by Collective Bar-
gaining. Washington, D. C, 1946. (Collective Bargaining Series
No. 1.)

Baker, Helen and Dahl, Dorothy. Group Insurance and Sickness Benefit
Plans in Collective Bargaining. Princeton, N. J., Princeton University,
Industrial Relations Section, 1945. (Research Report Series No. 72.)

Congress of Industrial Organizations. Department of Research and Edu-
cation. "Two-way Drive for Social Security." Economic Outlook,
December, 1948.

Simsarian, Arax. "Group Insurance in Union Agreements." Conference
Board Personnel Management Record, August, 1948.

U. S. Bureau of Labor Statistics. "Medical Service Plans Under Collective
Bargaining." Monthly Labor Review, January, 1948.

. Health-Benefit Programs Established Through Collective

Bargaining. Washington, D. C, 1945. (Bulletin No. 841.)

Voluntary Health Plans

Avnet, Helen H. Voluntary Medical Insurance in the United States. New

York, Medical Administration Service, 1944.
Fletcher, Andrew. "Role of Management in Medical Plans." Journal of

American Medical Association, November 23, 1946.
Goldmann, Franz. Voluntary Medical Care Insurance in the United States.

New York, Columbia University Press, 1948.

General

Chamber of Commerce of the United States. Health Insurance in America.

January, 1943. (Addresses at Second National Conference on Social

Security.)
U. S. Federal Security Administration. The Nation's Health. Washington,

D. C, 1948. (A report to the President by Oscar R. Ewing, Federal

Security Administrator.)
U. S. Social Security Administration. Research and Statistics Bureau.

Medical Care and Costs in Relation to Family Income; a Statistical

Source Book. Washington, D. C, 1947. (Bureau Memorandum

No. 41.)

(40423)
(41155)

22