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Editorial Note

This publication is a revision of an earlier Bulletin, "Health Pro-
grams in Collective Bargaining," by John M. Brumm, Assistant Pro-
fessor of Labor and Industrial Relations and Extension. It was first
issued in February, 1949, by the Institute of Labor and Industrial

The author has brought the Bulletin up to date w^ith changes made
necessary because of new developments in the subject area. However,
he has left the major portion as it originally appeared.

This publication is part of a series designed to present information
and ideas on subjects of interest to persons active in the field of labor
and industrial relations. While no effort is made to treat the topics
exhaustively, an attempt is made to answer the main questions raised
about the subject under discussion. The presentation is non-technical
for general and popular use.

Additional copies of this Bulletin and others listed on the last page
are available for distribution.

Milton Derber Donald E. Hoyt

Acting Director Editor


(Formerly Series A)


Volume 49, Number 12; Sept., 19SL Published seven times each month by the University
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 Build-
ing, Urbana, Illinois.



By John M. Brumm


"health benefits" for inckistrial workers are now a well-recognized
development in industrial relations in this country. By the summer
of 1950, more than 7 million workers were covered under collective
bargaining agreements providing "one or more health and/or in-
surance benefits," according to estimates recently announced by the
Bureau of Labor Statistics of the U.S. Department of Labor. ^ This
was more than double the estimated number of employees covered
by such plans in mid- 1948. Decisions by the National Labor Rela-
tions Board have indicated such benefits are one of the legitimate
objects of collective bargaining, under the Labor Management Re-
lations Act, 1947 (Taft-Hartley Act).

This bulletin will describe the main features of current health
benefit plans and discuss some outstanding problems and issues.
The discussion is designed to give interested persons a general
outline of the subject. For those especially concerned with the
practical problems of developing a health program, the bulletin
offers aid and suggestions for obtaining necessary additional in-
formation 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 dif-
ferent professions 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 the "health benefit"
programs. This is only one of the possible objectives of "health and
welfare funds" established by unions and management. Among the
most common benefits provided by these funds are life insurance,
retirement pensions, disability insurance, and 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 their dependents

'"Employee-Benefit Plans Under Collective Bargaining, l\Iid-1950," Evan
Keith Rovv^e, Monthly Labor Reviezv, February 1951.

[ 3 ]

in connection with non-occupational injury or illness. The benefits
may compensate for loss of wages when disabled or help make avail-
able needed hospital and medical services.


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
unemployment and 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 four states, however, (Rhode
Island, California, New Jersey, and New York) have set up systems
granting limited benefits to workers in connection with non-occupa-
tional illness or injury. Federal legislation 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 (commonly called "sickness
and accident") insurance which is designed to protect individual
employees against the loss of wages due to disabling illness or acci-
dent; and medical care insurance which is designed to protect em-
ployees 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 frequency
of occurrence. Health insurance thus can relieve the individual of
financial worry in connection with illness and help provide adecjuate
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 turnover rate, 3. pro-
tecting against physical deterioration of employees which would

[ 4 ]

lower productivity, 4. protecting against recurrent conditions whicli
increase workers' susceptibility to industrial accidents and disease,
5. providing insurance against the high cost of replacement of
skilled and experienced employees lost by early death or forced into
retirement by poor health, and 6. improving plant morale through
employees' increased 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 w-age stabilization
policies of the War Labor Board effectively restricted union bar-
gaining 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 approve
and which would have an obvious value for workers in dollars and
cents and in improved morale. Paid vacations and paid holidays
were the most popular of these w^age-substitute demands. They were
widelv established by the end of the war in union-management
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 cpestion 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 employment"
as used in the collective bargaining provisions of the Act clearly
include pension and retirement funds. In April, 1949, the U.S.
Supreme Court declined to review the above-mentioned decision of
the Circuit Court of Appeals. The NLRB, in another case, ruled
that group health insurance plans also fall within the meaning of
these terms.

[ 5 ]

Plans Found in Many Industries

Health benefit plans of some sort are now found frequently in
collective agreements in the following industries: automobile, steel,
coal mining, men's and women's clothing, millinery, textile, local
transportation, upholstering, furniture, machinery, rubber, paper,
fur and leather, retail and wholesale trade, cleaning and dyeing,
hotel and restaurant, communications, 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

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 medical benefit
programs from their own funds. By 1935, this number had dwindled
to some seven. IMoreover, 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 com-
prehensiveness or have sponsored commercial group insurance plans.
These plans have been both with a'nd 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.

Negotiated Plans

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 plans

[ 6 ]

are part of the contract, they affect all workers covered by the
contract. Second, they are financed entirely, or in larj^e part, by the
employer. Any funds involved are usually administered jointly by
the union and employer. In the third place, where a previously
existing employer-sponsored i)lan has been incorporated into the
contract, benefits have usually been increased. Finally, benefits are
uniformly considered as the "right" of a covered employee as soon
as his disability or medical expenditure has been verified.

The occurrence and duration of individual illness is unpredict-
able. But it is C|uite possible to estimate and measure the incidence,
frec^uency, 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, spread-
ing the costs over the group, and prepaying costs regularly and
periodically, on the basis of the average-estimated-cost per indi-
vidual. Establishing an insurance plan, therefore, requires enough
people to join together to .share the risks of future illness; and
sufficient funds paid into the plant 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 ccjntract, they normally make a selec-
tion from among the different kinds of existing voluntary plans.
They may wish to purchase group health insurance policies from
plans available to groups of employees over a wide geogra[)hic area,
or they ma}- wish to subscril)e to services provided only to em-
ployees in a restricted locality. To understand the characteristics of
health plans in collective bargaining requires, therefore, an analysis
of the dift'erent voluntary plans. The basic character of a voluntary
plan is not affected by the fact that collective l)argaining has jjrought
a certain group of workers under its i)rotection.

[ 7 ]


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.


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 indcninity (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

[ 8 ]

with a schedule which sets up maxiniuni heiicfits. Indemnity-type
payments may be provided under commercial or non-profit auspices.
They are designed to relieve the worker of part of his sickness

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
participating in the plan.

IMany plans have both service and indemnity features, which
sometimes make them dil^cult 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 of 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 eciually 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 cjuite frec[uently there is a recjuirement
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

[ 9 ]

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
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 wdiich 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-
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.


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 plant.

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 Ijenefits. Cash indemnity benefits — disability,
hospitalization, surgical — and sometimes paid directly from a
union-employer-controlled fund like that i)rovided 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 w4th 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. con-
tracting for the medical services of a panel of general practitioners
and specialists, for home, office, and hospital practice, 2. ownership
of a hospital, and 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 ar-
rangements. An example is the St. Louis Labor Health Institute,
supported by contributions provided for in contracts between Local
688, International Brotherhood of Teamsters (AFL), and the
St. Louis retailers and wholesalers. This plan provides two of the
three elements, but buys hospitalization for covered employees
through special arrangements with local hospitals. In the women's
garment industry in some cities, the L^nion Health Centers of the
International Ladies' Garment Workers' Union (AFL) provide
many clinical services, while many of the other aspects of these pro-
grams are handled on an indemnity basis.

Plans Already Available

Indemnity or service programs already are set up in many com-
munities and new groups of employees may be included in them.
These existing plans fall into five principal categories: 1. com-
mercial insurance indemnity plans providing policies fairly well
standardized among companies, which may be purchased separately
or combined in "packages," 2. Blue Cross or similar hospitalization
plans organized by hospital associations, 3. Blue Shield or similar
cash indemnity or service plans providing surgical benefits, and
sometimes including other (non-surgical) medical benefits, spon-
sored on a non-profit basis by local or state medical societies,
4. group-practice plans controlled by physicians, frequently pro-
viding comprehensive services, and 5. group-practice plans con-
trolled by consumers (that is, by the subscribers to the plan) or
other arrangements. Plans of this last type place varying degrees of
administrative responsibility in the hands of non-medical persons.

\ 12 1

It is not the purpose of this bulletin to suggest the standards
by which a plan might be intelligently selected to fit particular cir-
cumstances. Many experts, agencies, and organizations are available
for consultation on such questions. It is important to give careful
consideration to all available alternatives and to seek competent

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 preliminary
step in planning any health program:


Online LibraryJohn Moffett BrummHealth programs in collective bargaining (Volume BEBR Faculty Working Paper v. 3 no. 1) → online text (page 1 of 2)