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Disability and insurance plans in the public and private sectors.

Both private industry employers and State and local governments include in their employee benefits packages health and life insurance and protection against income loss because of disability. Plan details, however, often differ between the two sectors. This article examines these differences by comparing findings of the Bureau of Labor Statistics most recent employee benefits survey of medium and large firms in the Nation's private industries-conducted in 1986-and its 1987 employee benefits survey of State and local governments, the first in the public sector.'

The discussion covers the major employee disability and insurance benefits: health care and life insurance, and plans providing disability income, such as paid sick leave, sickness and accident insurance, and long-term disability insurance.

Data for full-time workers in medium and large firms in private industry are compared with those for three groups of full-time government workers-"regular" employees, teachers, and police and firefighters. (Regular employees are all workers except teachers, police officers, and firefighters.) This classification of government workers shows differences in compensation practices for the three occupational groups.

Because insurance and disability benefits have evolved over the years, a comparison of 1986 and 1987 survey findings may be incomplete. For example, the higher participation in health maintenance organization (HMO) plans among State and local government workers (24 percent were enrolled in 1987) than among workers in private industry (13 percent in 1986) is caused in part by the overall growth in HMO enrollments between 1986 and 1987. Furthermore, such insurance plan provisions as deductibles 2 and employee premium contributions are often amended in line with increases in wages and prices.

Incidence of coverage

Virtually all full-timeemployees in the private and public sectors were enrolled in health plans. Nearly all of these plans covered the major categories of medical care, such as hospital room and board, care by physicians and surgeons, diagnostic x-ray and laboratory work, prescription drugs, and private duty nursing. Dental care, however, was not as common among State and local government workers as it was for employees in private industry. For example, 71 percent of the private sector participants had some type of dental benefit in 1986, but only 62 percent of the workers in State and local governments had coverage in 1987, The incidence of vision care was nearly equal in both sectors, with approximately 40 percent of the participants covered.

About 85 percent of"the workers in the public sector received life insurance coverage, compared with 96 percent of all private sector workers. The lower availability of life insurance in the public sector is offset to some extent by the fact that nearly I of 5 government workers had available lump-sum death benefits through their defined benefit pension plans. These lump-sum benefits were much less common in medium and large firms in private industry.

Almost all employees in both sectors were protected against short-term interruptions in earnings caused by nonoccupational sicknesses or accidents. Employees in private industry were more than twice as likely to have sickness and accident insurance-a benefit found most often among blue-collar workers-than workers in State and local governments (49 percent, compared with 18 percent for regular workers in the public sector). The incidence of paid sick leave, however, was reversed (97 and 70 percent) because blue-collar government employees were usually covered by sick leave, rather than sickness and accident insurance. 4

Long-term disability insurance, which provides income to workers during extended periods of absence, was available to a higher proportion of private industry workers than public workers (48 and 31 percent). Teachers were the most likely public employees to have this benefit (41 percent), and police and firefighters were the least likely (18 percent).

Health care

While the incidence of health care plans was nearly equal in the private and public sectors, the provisions within these programs differed considerably. The most striking difference was the higher level of HMO enrollment in State and local governments.' Although traditional feefor-service plans were the primary instrument for health care, 24 percent of the government participants were enrolled in HMO'S, compared with 13 percent reported by the 1986 private sector survey. Even accounting for continued growth in HMO enrollment during 1987, participation by the private sector probably would have not equaled that in government. The difference between the two sectors may be caused by the higher concentration of governmental units, and consequently employment, in larger metropolitan areas that are more likely to be served by HMO,s.

Services covered. The higher HMO participation in the public sector survey affected the incidence of several specific categories of care. (See table 1.) Federally qualified HMO,s, which account for a large majority of HMO participants in both sectors, must provide certain health services that may not be included in traditional fee-forservice plans. For example, home health care is a basic service which must be provided by federally qualified HMO'S. In 1986, two-thirds of all full-time employees participating in HMO'S were covered for home health care in the private sector; but in the 1987 public sector survey, where relatively more participants were enrolled in HMO'S, more than three-fourths of the regular employees were covered for home care.

Routine physical examinations, another benefit required in federally qualified HMO'S, covered 36 percent of public sector participants, compared with 18 percent of private sector participants. While coverage in an extended care facility is not required of federally qualified HMO'S, it is usually provided to H Mo participants. Thus, a portion of the 8-percentage-point difference in incidence between the public and private sectors (78 and 70 percent) may result from the higher HMO participation among government workers,

Surgical benefits in both sectors were largely based on a percentage of usual, customary, and reasonable charges.' In 1986, 87 percent of the private sector employees had surgical coverage geared to the usual, customary, and reasonable rate, compared with 93 percent of government employees in 1987. Maximum scheduled dollar allowances for surgery were infrequently found in either survey year.

Dental coverage was more common among workers in medium and large firms in private industry than among workers in State and local governments. For both sectors, hearing care was provided to 2 of 10 health plan participants and vision care to 4 of 10.

Almost all participants in both sectors were enrolled in plans with mental health benefits. Three-fifths of the participants in medium and large firms had more restrictive hospital coverage for mental illnesses than for other ailments. This was also true for almost four-fifths of the public sector plan participants. (Although HMO plans almost always set such restrictions, they are less common in fee-for-service plans.)

Both surveys show that similar restrictions for outpatient mental health care applied to approximately 9 of 10 plan participants. Outpatient coverage was more restrictive for mental health care than for other illnesses for both HMO'S and fee-for-service plans.

The survey finds that medical treatment and referral services for alcohol and drug abuse are also basic requirements of federally qualified HMO's. Alcohol and drug abuse treatments were available to 87 and 86 percent, respectively, of all government health plan participants, compared with 70 and 66 percent in private industry.

Cost containment Of the cost containment features studied, the pattern was mixed as to whether they were more extensively found in public or private sector health plans. (See table 1.) For example, 35 percent of the private sector participants were required to seek a second surgical opinion, compared with 23 percent of participants in the public sector. If a second surgical opinion was not obtained for specified procedures, the rate of payment was lower than that for other surgery. This feature, however, is not relevant to HMO'S, which are more common among government workers. However, plans that made full benefits for hospital confinement contingent upon preadmission certification covered 22 percent of the public sector participants, compared with 16 percent in private industry. Incentives to audit hospital bills were rare in both sectors.

Plan reimbursements.

Reimbursement arrangements in traditional health plans generally include three categories: maximum benefit limitations on the amount of expenses paid by the plan for participants over their lifetimes or a specified duration; deductibles, the amount of covered expenses that the participant must pay before charges are paid by the plan; and coinsurance, the percentage of charges actually paid by the plan. These features, called "major medical" provisions, are largely absent in HMO'S.

Three-fifths of all health insurance participants in each sector had major medical lifetime ceilings on payments. (See table 2.) In both sectors, the most single common limitation was $1 million, but a limit this high occurred much more frequently for public sector participants. The average lifetime ceiling was also substantially higher in the public sector. Among government workers, teachers had a higher average ceiling than regular employees and police and firefighters.

With few exceptions, major medical benefits are not paid until the participants have met a deductible requirement. The deductible is designed to keep insurance costs down and discourage unnecessary use of medical services. For nearly all plan participants in both sectors, deductibles were determined on an annual basis. (See table 3.) Where these applied, one-balf of all government plan participants were subject to a $100 annual deductible, compared with 42 percent of the private industry participants. Annual deductibles for regular government employees in 1987 averaged $133 and for private industry in 1986, $126.

Four-fifths of major medical participants in both sector had "stop loss" coverage. In these plans, all covered expenses were paid by the plan after a specified level of costs was incurred during a year. For example, a plan might pay 80 percent of expenses until an employee had paid $1,000 in "out-of-pocket" expenses during a year (in addition to the deductible), and then pay 100 percent thereafter. "Stop loss" coverage thus protects employees and their families from a heavy financial burden should they experience a serious illness or injury.

Outlays for covered expenses were capped at $1,000 or less per year for 80 percent of private plan participants and 87 percent of public plan participants with "stop loss" coverage. (See table 4.) State and local government workers averaged lower out-of-pocket caps than their private industry counterparts-about $800, compared with $1,000.

Employee contributions. Differences were also found in the extent to which employees were required to help finance their health insurance coverage, Thirty-five percent of all government workers were required to pay part of the premium for individual coverage in 1987, compared with 43 percent of private industry plan participants in 1986. (See table 5.) For family coverage, the situation was reversed: 71 percent of all government workers had to contribute for family coverage, compared with 63 percent of private industry workers.

Average monthly employee contributions were higher in the public sector than in the private sector: $15,74 compared with $12.80 for employee coverage, and $71.89 compared with $41.40 for family coverage. The greater difference between family coverage contributions arises because in many government sponsored plans, employees were required to pay all or a large part of the additional cost for their dependents. In many medium and large firms in private industry, as well as in the Federal Government, the employer subsidizes at least part of the cost of dependent coverage.

Coverage for retired or laid-off workers. State and local government plans are less likely to provide for the financing of coverage for laid-off or retired workers. While 34 percent of participants in medium and large firms in private industry were enrolled in plans where health care benefits were wholly or partly employer-financed during the initial months of a layoff, only 15 percent of government participants were in plans spelling out such coverage. The somewhat lower probability of layoffs in government may account for this difference.

Among private industry participants, 62 percent were in plans that extended fully or partially employer-financed benefits to retirees before age 65 (when Medicare benefits begin) and 56 percent were in plans that extended benefits at age 65 or after. In State and local governments, 48 percent of all workers had at least partially employerfinanced coverage during retirement before age 65, and 44 percent at age 65 or after.

Eligibility requirements. Four-fifths of the health insurance participants in State and local governments and one-half in medium and large firms in private industry were allowed to join their plans immediately upon being hired. Length-of-service requirements for remaining employees rarely exceeded 6 months.

Disability benefits

During periods when they are disabled from working, employees receive income through paid sick leave, sickness and accident insurance, and long-term disability insurance. Paid sick leave nearly always continues an employee's full salary for at least the initial portion of the disability, and is paid for out of the employer's operating funds, rather than through insurance carriers. Sick leave almost always begins the first day of the disability; waiting periods are rare. Sickness and accident insurance, however, usually replaces a part of a worker's regular salary, is funded through insurance carriers or trusts, requires a waiting period before benefits commence, and may be partially employee-paid. Benefits under both plans are referred to as short-term disability coverage, because plan payments usually continue for only 1 year or less. Long-term disability insurance typically provides partial income replacement to disabled employees for periods longer than 1 year.

Short-term disability coverage. More than 90 percent of the workers in State and local governments and in medium and large firms in private industry have short-term disability coverage. The manner of providing coverage, however, contrasts sharply. Paid sick leave was almost universal among government employees, but sickness and accident insurance was uncommon. In contrast, about half of the private industry employees with short-term disability coverage were in a sickness and accident insurance plan, typically for production workers. (See table 6.)

Sick leave. Virtually all employees with sick leave in State and local governments could receive a specified number of days per year. (See table 7.) The most notable exception was among police and firefighters, where 8 percent were in plans that provided sick as needed." Plans that renewed benefits for each new disability ("per disability" plans) were rare in the public sector.

A different mix of sick leave coverage applied to workers in medium and large firms in private industry. Seventenths were in annual sick leave plans, while one-fifth were in "per disability" plans. The more liberal nature of the latter was balanced by the frequency of carryover provisions in the public sector. Forty-three percent of workers with annual sick leave plans in medium and large firms in private industry could carry over unused sick leave from year to year, compared with 97 percent in State and local governments.

On average, regular employees and teachers with annual sick leave plans were eligible for about 12 sick leave days a year, after 1 year of service. This average increased only slightly with longer service. Police and firefighters also had plans that changed little with seniority, averaging 18 days per year after I year of service.

Medium and large firms in private industry provided, on average, 15 sick leave days after 1 year of service. These plans, however, typically provided more days of coverage with increasing seniority. This widened the disparity between the private and public sectors for long-service employees. For example, private industry employees averaged 40 days after 20 years of service. Again, the greater potential to carry over unused days from year to year in the public sector should be noted.

Sickness and accident insurance. Sickness and accident insurance benefits were very similar in the public and private sectors. Such plans commonly replaced 50 to 75 percent of pay for a fixed period, usually 26 weeks, after a 1 - to 7-day waiting period. Private sector plans were twice as likely as public sector plans to require employees to be on the job for a specified time before becoming eligible for benefits.

Long-term disability insurance Once sick leave and sickness and accident insurance are exhausted, long-term disability insurance may take over for the disabled employee. In both sectors, disability benefits generally continue as long as the worker is disabled or until retirement age. For workers disabled after age 60, however, disability benefits usually continue for 5 years or less.

Nearly half of the full-time employees in medium and large firms in private industry had disability insurance coverage, compared with three-tenths of the State and local government employees. Government workers, however, were more likely to have access to immediate disability retirement pension benefits than were their private industry counterparts: About 8 of 10 government workers had pension plans with immediate disability retirement clauses, compared with 4 of 10 private industry workers.

In both the public and the private sectors, the large majority of participants had long-term disability benefits based on a fixed percent of earnings. (See table 8.) The most common benefit formulas for both classes of workers provided either 50 or 60 percent of monthly pay. In both sectors, most participants were in plans that had a limit on maximum monthly payments (71 percent in private industry and 60 percent in State and local governments). These maximum limits typically ranged from $2,000 to $5,000.

Life insurance

Life insurance benefits are usually stated as a flat dollar benefit (for example, $10,000) or as a multiple of annual earnings. Insurance benefits based on earnings were more common in the private sector: 66 percent with life insurance had this type of benefit, compared with 45 percent of government workers. (See table 9.) The percentage was slightly lower for teachers and police and firefighters. Conversely, flat dollar amounts of life insurance were more common in the public sector.

The incidence of benefit ceilings in multiple-of-earnings formulas varied considerably between the survey groups. Of all private industry employees with this type of life insurance, 52 percent were subject to a maximum benefit level, compared with 40 percent of regular public employees. Plan maximums were found less frequently for teachers (34 percent) and police and firefighters (20 percent).

About 17 percent of public sector employees participated in pension plans that provided death benefits of one or more times annual earnings. Flat amount lump-sum death benefits of $2,000 or more were featured in plans covering an additional 2 percent of public sector workers. In private industry, however, only 5 percent had a lumpsum death benefit of one or more times annual earnings and 1 percent had flat dollar lump-sum death benefits of $2,000 or more.

Life insurance is sometimes reduced for older active employees, usually at age 65. A reduction often takes into account the additional cost of term life insurance as an employee ages. The reduction is usually stated as a percentage reduction from the original benefit. (For example, many plans provide active employees over age 65 only 50 percent as much insurance protection as those under 65.) Reductions were observed frequently in both the private and public sectors. About 56 percent of private sector plan participants were subject to a life insurance reduction related to age; 49 percent of State and local government participants encountered this provision, with the incidence nearly equal among the three occupational groups.

Few differences were noted in the incidence of auxiliary life insurance benefits. Availability of nonoccupational accidental death and disability coverage was similar between the public and private sectors: approximately two-thirds or more of participants in all groups had this benefit.

Additionally, little variation was noted in the incidence of partially employer-paid supplemental life insurance. In most groups, supplemental insurance was available to almost 10 percent of the employees. The opportunity to purchase additional insurance by paying full group rates was not studied.

Survivor income benefits were offered to 10 percent of the workers in the private sector, but were rarely available to public employees. Benefits are paid monthly to beneficiaries, in addition to life insurance, and can be short term (up to 24 months) and/or long term (usually until the surviving spouse remarries or reaches age 65).

Dependent life insurance was available to 17 percent of participants in private industry insurance plans. Although police and firefighters were as likely as those in private industry to have coverage provided for dependents, the overall availability of coverage was much lower for public sector employees.

Contributions towards basic insurance premiums were required of one-tenth of the private industry employees; two-tenthsof the government employees were required to make contributions. Contributions are commonly expressed as a fixed monthly rate for each $1,000 of insurance.

Around 50 to 60 percent of participants in all categories had life insurance that continued after retirement. Benefits after retirement would be continued indefinitely for a majority of participants in both sectors, while less than 5 percent had coverage that ended at some point during retirement.

Minimum length-of-service requirements for participation in a life insurance plan were much more common in the private sector. Teachers had the lowest incidence of these service requirements (19 percent), while regular employees had the highest (31 percent), This is in contrast to the private sector where 54 percent of participants had to complete a service requirement, usually 1 to 3 months.
COPYRIGHT 1988 U.S. Bureau of Labor Statistics
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1988 Gale, Cengage Learning. All rights reserved.

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Author:Blostin, Allan P.; Burke, Thomas P.; Lovejoy, Lora M.
Publication:Monthly Labor Review
Date:Dec 1, 1988
Words:3513
Previous Article:Comparing employee benefits in the public and private sectors.
Next Article:The comparative value of pensions in the public and private sectors.
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