The Problem With Ending Employer-Based Health Care

In Economic Planning, Economics, Health Care Reform, History and Politics, Inequality, Living Wage, New Deal, Politics, Politics of Policy, Regulation, Social Democracy, Unions on September 7, 2009 at 2:36 pm


One of the difficulties of being a progressive is that you belong to a diverse coalition, the parts of which don’t always understand each other perfectly. An example of this is the public argument between middle-class activist/blogger/policy types like Ezra Klein and Matt Yglesias, who want to fund universal health care by capping the tax exemption for employer-based health care, and unions, who don’t want their health care plans taxed. In the eyes of Ezra Klein and Matt Yglesias, the unions appear as selfish special interests sabotaging a political project they support; in the eyes of the unions, Klein and Yglesias no doubt appear to be oblivious well-off college kids who blithely recommend that others should make sacrifices for the greater good.

In the interests of preserving solidarity, I’m going to make two points: one, employer-based health care should end. Two, unions have a bona fide reason why they don’t want employer-based health care to end yet. If we’re going to thread this needle, progressives need to understand how the nexus of health care and employment have created this tangle.

To make my own position totally clear, I believe that the goal of the progressive movement, after ensuring the passage of health care reform with a public option, is to move towards a single-payer system and end employer-based health care (EBHC). In addition to the effects it has on individual workers, namely making them dangerously dependent on their employers, worsening the impact of unemployment, and denying entire classes of workers coverage, employer-based health care is terribly bad for the union movement. As an enormous cost that it extremely unevenly distributed, EBHC creates a competitive disadvantage for U.S companies versus companies from single-payer countries and between union firms and nonunion firms. Moreover, in labor relations between unions and management, EBHC becomes a benefit that has to be defended first even when this means acceding to wage cuts and other take-backs (such as was the case in the 2007 and 2008 UAW contract negotiations), and something that can be threatened by management during strikes, raising the stakes of defiance.


Given all this, why would unions defend their employer-based health care plans to the extent of openly attacking progressive Democratic Senators and threatening to refuse support for universal health care legislation? The answer lies in labor history.

Walter Reuther, 1948

Walter Reuther, 1948

Prior to World War II, health care was not a major issue in collective bargaining. During the 1930s, the ascendant labor movement, especially the militant CIO unions organizing in the big industrial centers, largely focused their efforts on winning recognition and organizing new factories, and once recognized, most contract fights tended to focus on two major issues – industrial democracy and the living wage. Industrial democracy, as interpreted by unions in the 1930s, meant establishing the rule of law and civil rights within factories, by establishing semi-judicial procedures for grievances with their own systems of appeals and arbitration, by establishing workers rights to free speech and due process through just cause regulations for firing and disciplining and by establishing factory committees and union stewards to enforce workers’ rights on the factory floor. In this way, unions hoped to establish clear and rational systems for hiring, promotion, assignment, discipline, and termination, so that workers would no longer live in a chaotic, semi-feudal world in which the foreman’s word was law. The living wage, as interpreted by unions in the 1930s, meant seeking broad wage increases that sought to smooth out the difference between skilled and unskilled workers, make pay scales rational and transparent, tie wages to the cost of living, and generally provide enough for an “American standard of living” for one’s family. Where issues like health care and pensions came up, they usually came up in the context of union-run social insurance programs which the company might be made to contribute to.

However, World War II dramatically changed American labor relations. The War Labor Board’s decision to establish “maintenance of membership,” essentially establishing the union shop throughout industrial America meant that union recognition and collective bargaining was nigh-universal, as much as employers resented the fact. In return, the CIO pledged that they would not strike during the war, as a patriotic gesture. However, efforts to control inflation through the “General Maximum” (an order freezing prices and wages) meant that the normal contest over the division of profits couldn’t take place. As a result, huge tension between workers and management began to build up, and be channeled exclusively in the direction of industrial democracy’s focus on shop-floor control. Despite the rapid growth of grievance systems, workers in factories across America increasingly asserted their right to control their work spaces, launching “wildcat” strikes without authorization from their unions whenever management’s actions threatened their democratic rights. Desperate to find some way of quelling irreconcilable conflict, the War Labor Board hit on fringe benefits as a way of achieving their goals – if worker’s ire at frozen wages couldn’t be assuaged, health care, pensions, and vacation time could serve as proxies for wage fights. Fringe benefits, the War Labor Board declared, were now mandatory topics of collective bargaining.

The end of the war, and the end of the labor movement’s “no strike” pledge brought all of these simmering tensions to a boil. The largest strike wave in American history erupted across the country, as the ever-stronger union movement increasingly demanded not merely a living wage, but also a democratic say in their work. The best example of this was Walter Reuther, President of the UAW, who made the focus of his union’s campaign a dramatic call for significant wage increases without an increase in the cost of cars – an explicit attempt to ally the union movement with consumers, to claim the right of unions to determine the division of profits and a voice in pricing policy, normally a prerogative of management. At the same time, Walter Reuther was a major proponent of expanding the social welfare state to include universal, single-payer health care to ensure that workers would be covered and much less dependent on their  employers; after all, if you had a generous UI system and single-payer health care, the risk of a strike would be greatly diminished.

The Big Three regarded this as nothing less than the advent of a socialist revolution, and refused outright. After a long and grueling strike, the so-called Treaty of Detroit was reached: Reuther agreed to drop his demands to “open the books” and determine pricing policy and to sign a long-term contract that protected American automakers from further strikes; in return, Reuther got his wage increases, and an extensive private system of health, retirement, and unemployment benefits was established.

Thus, to the labor movement, employer-based health care doesn’t just represent a vehicle for health care; it represents their inheritance, won with great effort generations ago. Employer-based health plans are in a very real way an enormous sum of employee compensation, won at a time when labor’s strength was more than triple what it is today. Should union health care plans be taxed, they will likely be dissolved in favor of payment towards private or public insurance bought on the health care exchanges. What unions fear is that when this happens, the huge amounts of money saved by their employers will be diverted into corporate profits, to restore the viability of G.M and Ford and Chrystler’s stock prices. All of that sweat equity, built up by generations of workers who fought long odds and desperate battles, could vanish, leaving union workers with less than they had to begin with.

And that’s why unions are opposed to taxing employer-based health care.

Ending EBHC:

One way or another, though, employer-based health care is going to end, and there is no better social movement vehicle for doing so than the union movement, who’ve been pioneering large-scale organizing efforts for over a century now.

To begin within, you are going to need a strategy that works both inside (i.e, through union contract bargaining, by systematically dismantling existing private plans and requiring employers to sign their employees up through the public option), and outside (i.e, by pressuring large employers who are non-union to sign up through the public option when the mandate comes). Here, one of the best models for how to do this comes straight out of SEIU’s Justice for Janitors playbook – pressuring employers to switch to the public option will require both top-down corporate campaigns (pressuring employers through public protests, media campaigns, and pressuring their customers and suppliers, allying with local politicians, community organizations, religious groups, ethnic associations) in order to move large workforces, and bottom-up worker organizing, combining signing up unorganized workers into the union with signing them up for the public option.

The potential prize here is that you can, with one stroke, move 12.4% of the workforce, as well as their families and retirees, into the public plan, swelling its numbers way beyond the 30 million in current estimates. Moreover, by combining union organizing with health care organizing, this strategy has the long term effect of linking the interests of the policy-focused progressive movement with the interests of the labor movement, and vice versa, such that the struggle for single-payer can be assisted by reforming labor laws.

Division of Spoils:

In order for any of that to happen, however, there needs to be a bargain made between labor and management about what’s going to happen to the savings on compensation costs from moving from employer-based health care towards the public option and eventual single-payer. As Christiana Romer’s chart below shows, this is no small matter:

We’re talking about the division of about $10,000 per worker per year, or as much as $1.5 trillion dollars. That much potential profit is an enormous lure for businesses hit hard by the recession to pocket the savings entirely in the name of protecting the health of the company. Even if the union movement was twice as strong as it is today, you would still get enormous resistance to dividing that much money fairly – and yet, ensuring a more equitable division of wealth in the American economy is not only just but necessary for the future health of the economy.


If, and increasingly I believe this will become when, universal health care passes, there will be a major conflict over the division of this enormous windfall between workers and management. And if policy-oriented progressives want unions to get on board with the idea of ending employer-based health care, the quid pro quo is going to have to be some form of legislation that guarantees that the distribution of these savings is at least broadly even. A 50-50 split of savings would still mean a dramatic improvement in living standards for workers and profits for employers, but that won’t happen unless there is a strong countervailing force both in the labor movement and in progressive legislation to make that happen.

Progressives – the opening is there. It’s up to you to take it.

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  4. […] workers, however, employers began offering other benefits—such as health insurance. Unions forwent other potential bargaining points after the war, instead opting to maintain these health […]

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