	Background

Many U.S. workers participate in employer-sponsored health benefit and  retirement pension programs and the costs of these benefits in recent  years have risen faster than wages. Health and retirement benefits help employers attract and retain skilled  workers; however, the costs of these benefits have accounted for an  increasingly larger share of workers’ total compensation. To contain rising health care costs, employers have made several changes  to health benefits. While managed care relies primarily on health care providers to control  rising costs, more recently employers have also looked to workers to  assume greater responsibility for controlling these costs, such as by  offering consumer-directed health plans (CDHP). Some of these changes may  particularly affect low-wage or less healthy workers. Fewer Small Employers Offered Health Benefits

In recent years, the share of employers offering health benefits has  declined, due largely to a decrease in the share of small employers offering  coverage, and the share of individuals covered by these benefits has also  declined. Employers Continued to Offer Retiree Health Benefits, but Shifted More of the Costs to Retirees, and Some Employers Eliminated Health Benefits for Future Retirees

The extent to which employers offered health benefits to retired workers  and the extent to which retired workers enrolled in these benefits has  remained relatively steady for the last several years. Similarly, experts are concerned that further cost-shifting of retiree health  benefits may eventually lead some retirees—particularly those with lower  retirement incomes—to drop this coverage, though the implications of this  for some Medicare-eligible retirees might be mitigated by the recent  introduction of Medicare Part D. Less healthy workers may be more  affected by increased cost-shifting than others, because those who are  high utilizers of health care may spend a greater share of their income on  the care they receive, and if they are unable to afford it, they may forgo  needed care. In  addition, some labor and consumer advocacy groups are concerned that  mini-medical plans will lead to reduced benefits for some workers, such as  those whose comprehensive benefits are fully replaced by mini-medical  plans. The Ongoing Shift to Different Types of Employer-Sponsored Retirement Plans Continues to Affect Both Employers’ and Workers’ Roles in Retirement Planning

The trends in employer-sponsored pension benefits that have emerged  over the last several decades have continued. Participation in DB plans  continues to fall as employers continue to terminate existing plans or  freeze benefits for active workers. Conversely, participation in DC plans continues to  rise as employers increase their offerings of these plans. Benefits experts stated that  employers’ decisions regarding the retirement plans they offer reflect their  attempts to control retirement benefit costs and make them more  predictable. With DC plans, workers assume the responsibilities and risks for  managing their retirement accounts; however, a growing number of  employers are attempting to increase participation rates and retirement  savings in DC plans by automatically enrolling workers, escalating worker  contributions and offering investment funds that require less worker  management. A survey of employers found that 82  percent of employers who froze or terminated their DB plans cited cost  volatility as a significant factor. Workforce Restructuring Can Result in Different Benefit Arrangements for Workers and May Affect Employer Benefit Costs

Workforce restructuring through the use of contingent workers may affect  workers’ benefits. The use of contingent workers can  reduce the costs associated with providing these benefits for employers;  however, benefits experts presented mixed views on whether employers  have been changing the composition of their workforces for this reason. To reduce benefit costs, some employers are employing  only a core of full-time workers in key positions to whom they provide  benefits, while other work is outsourced or done by workers who are not  included in the employers’ benefit plans. The challenges workers face in assuming  greater cost, risk, and control of their health and retirement benefits can  make it more difficult for low-wage earners to afford health care coverage  and save for retirement. Although these challenges may weigh most  heavily on the less wealthy and less healthy segments of the workforce,  they affect a broad spectrum of the American workforce and could prove  challenging to many. Employers, individuals, and government share the responsibility of finding  long-term solutions with the goal of ensuring that individuals of varying  economic and health backgrounds are prepared for their health and  retirement needs. DOL did not provide written  comments, but did provide technical comments, which we incorporated as  appropriate. GAO-07-21.
Why GAO Did This Study

Many U.S. workers receive health and pension benefits from employers, and the cost of these benefits represents a growing share of workers' total compensation. Employers have made changes to control these rising costs, contending that these changes will allow them to remain competitive, particularly in an increasingly global market. Some advocacy groups are concerned that workers may receive reduced benefits or incur additional costs as a result of employers' cost-control strategies. Moreover, they contend that these changes may disadvantage certain groups of workers, such as sicker, older, or low-wage workers. GAO was asked to examine the practices employers are using to control the costs of benefits. To evaluate changing employer benefit practices and their potential implications, GAO examined: (1) current and emerging practices employers are using to control the costs of health care benefits; (2) current and emerging practices employers are using to control the costs of retirement benefits; and (3) employers' workforce restructuring changes. GAO reviewed studies of employer benefit trends; interviewed representatives of business, government, labor, and consumer advocacy and research organizations; and reviewed and analyzed data from surveys of employee benefits. The Department of Labor provided technical comments, which were incorporated as appropriate.

What GAO Found

Many employers have recently changed health benefits, often to control costs. The share of employers offering health benefits has declined from 2001 to 2006, due mostly to an 8-percentage point drop in the share of small employers offering benefits. Many employers that offer health benefits have required workers to pay a higher share of out-of-pocket costs and some have recently introduced consumer-directed health plans, which trade lower premiums for significantly higher deductibles. Also, some employers now offer mini-medical plans that provide more limited coverage at lower premiums. Similar to coverage for active workers, an increasing share of retiree health benefits costs is being shifted to retirees and many employers have terminated benefits for future retirees--a trend that experts believe will continue. Some of these recent changes may affect some workers more than others, such as low-wage workers who are less able to afford higher out-of-pocket costs and less healthy workers who use more health care. The trends in retirement benefits that have emerged over the last several decades are continuing. Active participation in defined benefit plans fell from 29 million in 1985 to 21 million in 2003 as employers terminated existing plans or froze benefits for active employees. At the same time, active participation in defined contribution plans rose from 33 million in 1985 to 52 million in 2003 as employers increased their offerings of these plans. Benefits experts stated that employers' decisions on what type of retirement plans to offer reflects their preference for benefit cost control and predictability in funding and accounting. Employers' decisions to offer defined contribution plans requires workers to assume more responsibility for their retirement planning; however, a growing number of employers are attempting to increase retirement savings by automatically enrolling workers and offering investment advice, for which recent legislation provides additional flexibilities. Workforce restructuring through the use of contingent workers--workers who are not employed full-time and year round with an employer--may affect workers' access to and participation in benefit programs. Benefits experts presented mixed views on whether employers have been changing the composition of their workforces to reduce benefit costs. Employers, individuals, and government share the responsibility for providing a U.S. benefits system that addresses the health and retirement needs of individuals of varying economic and health backgrounds, while allowing employers to remain competitive in a global market environment. The challenges workers face in assuming greater cost, risk, and control of their health and retirement benefits make it more difficult for low-wage earners to afford health care coverage and save for retirement. Although these challenges may weigh most heavily on the less wealthy and less healthy segments of the workforce, they affect a broad spectrum of the American workforce and could prove challenging to many over time.