Costs of Health Benefits

Applications of business demography to the structure and dynamics of large corporate workforces have strategic implications for managing the cost of health benefits. Most

Americans receive health benefits through employers, making groups of employees (and their families) the basis for health care financing. How do changes in workforce size affect the cost of health benefits? Does reducing the workforce by a certain percentage reduce health care costs by the same percentage? Do employers have complete control over the number of persons receiving company-sponsored health benefits?

To answer these questions, Kintner and Swanson (1996) analyzed three possible sources of change in the health benefits group associated with salaried employees at General Motors (GM): (1) flows into and out of GM related to employment processes; (2) flows into and out of the health benefits group related to demographic processes; and (3) transfers from active employment to retirement or layoff.

The GM health benefits group includes employees and their dependents. Employees become eligible for benefits through hiring; they lose benefits through quits, discharges, and deaths. Employees also leave this group through layoff or retirement (but may still be eligible for health benefits). Figure 25.1 summarizes the flows into and out of the health benefits group. Additions include new hires and their families, plus births and marriages to employees already belonging to the group. The group loses members through quits, deaths, divorces, and lost eligibility. Transfers occur through retirement and layoffs.

Kintner and Swanson estimated these flows using record-matching techniques and identified the relative contributions of employment and demographic processes to changing group size. Their analysis revealed the limits that GM faces in controlling the size of its health benefits group. GM's use of window retirement packages for downsizing gives it some control, as does its control over hiring and firing. Nevertheless, demographic processes unrelated to turnover or transfers tend to have a substantial impact on changes over time in the size and composition of GM's health benefits group.

Entrants

Population Size at Time 1

Entrants

Population Size at Time 2

Exits

Transfers

Figure 25.1. Flows into and out of health benefits group.

Exits

Transfers

Figure 25.1. Flows into and out of health benefits group.

Was this article helpful?

0 0
Your Retirement Planning Guide

Your Retirement Planning Guide

Don't Blame Us If You End Up Enjoying Your Retired Life Like None Of Your Other Retired Friends. Already Freaked-Out About Your Retirement? Not Having Any Idea As To How You Should Be Planning For It? Started To Doubt If Your Later Years Would Really Be As Golden As They Promised? Fret Not Right Guidance Is Just Around The Corner.

Get My Free Ebook


Post a comment