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August 2004, Vol. 127, No. 8
Medical and retirement plan coverage: exploring the decline in recent years
William J. Wiatrowski
Between 1992–93 and 2003, the percentage of private sector workers participating in employer-provided medical care plans steadily declined. Medical care covered 63 percent of workers in 1992–93, compared with 45 percent in 2003.1 There were less dramatic declines in retirement plan coverage; such plans covered 53 percent of workers in 1992–93, compared with 49 percent in 2003. These declines may be the result of shifts in the composition of the labor force, changes in employer decisions to offer coverage or employee decisions to choose coverage, or some combination of these and other factors. Using data from the Bureau of Labor Statistics National Compensation Survey, this analysis begins to quantify how some of these factors affect the overall decline in benefits coverage. This is just a first step, however; further analysis planned by BLS is identified at the end of this article. (See exhibit 1 for a discussion of benefit measurement issues.)
Medical care coverage declined for various populations within private industry. Among full-time workers, there was a 17-percentage point decline in medical care coverage over the decade, from 73 percent in 1993–94 to 56 percent in 2003. Part-time workers rarely have medical care coverage, thus there was little change in the percent of part-time workers covered. (See table 1.)
While overall retirement plan coverage declined only slightly over the decade, there was a continuation of the widely reported shift from defined benefit to defined contribution plans.2 The percent of workers covered by defined benefit plans shows a clear decline—coverage among private industry workers declined by more than one-third over the decade. While such plans are more prevalent among larger employers, coverage has declined in both larger and smaller establishments. At the same time, there have been increases in defined contribution coverage. The net result has been a slight decline in the percent of workers with any retirement coverage as well as a slight decline in those covered by both a defined benefit and a defined contribution plan. The introduction of 401(k) plans in the 1980s led to a period of dual defined benefit and defined contribution plan coverage for many employees.3 The decline in defined benefit coverage is having the effect of slowly eliminating the occurrence of dual coverage.
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1 The term "medical care" is used throughout this article to refer to coverage for medical conditions, such as hospitalization, physician visits, and substance abuse treatment. Separate coverage for dental or vision care expenses was excluded from this analysis.
Due to changes in survey methodology, the percent of workers participating in medical care in 2003 excludes 8 percent of workers who had some type of coverage (medical, dental, vision, or some combination) that could not be identified in the survey data collection process. This may serve to exaggerate the decline in medical care coverage. In his article, "New statistics for health insurance from the National Compensation Survey," in this issue of the Review, Michael Lettau imputes a coverage type for the 8 percent of workers with missing data. After imputation, Lettau shows that 51 percent of workers have medical care coverage in 2003, identical to the participation rate found in the prior survey, conducted in 2000.
2 A defined benefit plan provides a periodic benefit at retirement, which is derived from a fixed formula and is guaranteed by the employer. A defined contribution plan specifies a formula for depositing funds into an account for each employee, but does not guarantee a future benefit. The trend over the last quarter century has been away from defined benefit plans toward defined contribution plans. For more information on this trend, see Employee Benefit Research Institute, EBRI Research Highlights: Retirement Benefits, Issue Brief number 258, June 2003.
3 Section 401(k) of the Internal Revenue Code, enacted as part of the Revenue Act of 1978, allows employers to establish defined contribution plans that permit employee contributions to be made on a tax-deferred basis. These plans, commonly referred to as 401(k) plans, became popular beginning in the early 1980s, once regulations addressing plan design issues were finalized.
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