Many U.S. workers participate in employer-sponsored health benefit and retirement pension programs and the costs of these benefits in recent years have risen faster than wages. The designs of these benefit programs have changed over the course of the past several decades, and these changes have often been made in response to growing costs associated with providing the benefits. Millions of workers are not in traditional full- time, year-round work arrangements and some may legally be excluded from benefit plans that are offered to full-time workers. Employers are not required to offer health and retirement benefits to any workers, although when they are offered, federal laws provide some protections to workers related to their provision. The U.S. system of employer-sponsored health and retirement benefits is financed by employers, individual worker contributions, and state and federal governments through foregone tax revenue. The degree to which individuals rely on employer-sponsored health care and retirement benefits depends on several factors, including age, income, employment status, and access. In addition to wages and other benefits, employers often provide workers with health and retirement benefits as a part of their total compensation. Employer-sponsored health benefits provide coverage to over 155 million individuals through coverage of active workers and their dependents. Employers may also provide health benefits to Medicare-eligible retirees and individuals who retire prior to their eligibility for Medicare (typically referred to as early retirees) and their dependents. Approximately 12 million retirees on Medicare and 3 million early retirees are covered under employer-sponsored health benefits.4, 5 About half of all private-sector workers participate in an employer-sponsored retirement plan according to the Bureau of Labor Statistics (BLS) National Compensation Surveys. The overall rate of worker participation in employer-sponsored retirement pension plans has not changed significantly in the last few decades. Health and retirement benefits help employers attract and retain skilled workers; however, the costs of these benefits have accounted for an increasingly larger share of workers’ total compensation. During most of the period from 1991 until 2002, wages and benefits increased by about the same percentage, after which time real wages began to stagnate and real benefit costs continued to grow through 2005. Figure 1 shows the real growth in hourly expenses attributable to wages and benefits between 1991 and 2005. Kaiser/Hewitt Surveys on Retiree Health Benefits, 2003-2005. Employer-sponsored coverage for early retirees often mirrors coverage for current workers. Retiree coverage for Medicare-eligible retirees supplements benefits covered under Medicare and provides additional cost-sharing protections, such as limiting retiree out-of-pocket expenses, which traditional Medicare fee-for-service does not provide. The costs of health care and health-related benefits have been increasing for decades. Several factors help explain the rise in costs, including increasing demand for services, advances in expensive medical technology, and an aging population. The Kaiser Family Foundation and Health Research and Educational Trust (Kaiser/HRET) Annual Employer Health Benefits Surveys found that from 2001 to 2006 annual premium costs for single and family coverage rose by about 60 and 63 percent, respectively, and in each of those years premiums grew more than twice the rate of wages. To contain rising health care costs, employers have made several changes to health benefits. For several decades, traditional fee-for-service plans were the predominant form of private health benefits sponsored by employers. These plans essentially reimbursed any providers for services covered by a plan based on providers’ actual costs with little or no incentives to control utilization. In the late 1980s employers increasingly looked to managed care plans, such as health maintenance organizations (HMO) and preferred provider organizations (PPO), as a way to contain these rising costs. HMOs and PPOs generally rely on providers to control service utilization and they provide financial incentives to encourage patients to use network providers who have agreed to accept fee discounts. Under an HMO, patients may be restricted to using only network providers, and they typically require that all specialty care be coordinated through a primary care physician. While enrollment in HMOs increased, some enrollees became resistant to the restrictions imposed by the plans and employers increasingly offered PPOs that offered more provider choice and flexibility. PPO enrollees face lower cost-sharing requirements when they receive care from network providers, but may choose non-network providers at a higher cost and do not typically need referrals to see a specialist. Despite these cost-control mechanisms, health care costs continued to rise. While managed care relies primarily on health care providers to control rising costs, more recently employers have also looked to workers to assume greater responsibility for controlling these costs, such as by offering consumer-directed health plans (CDHP). CDHPs combine a high- deductible health plan with a tax-advantaged account that enrollees can use to pay for a portion of their health care expenses. Unused balances may accrue for future use, potentially giving employees an incentive to purchase health care more prudently. The higher deductibles generally result in lower health insurance premiums because the enrollee bears a greater share of the initial cost of care. Although not required to do so, CDHP insurance carriers typically provide enrollees with decision-support tools, such as Web-based information on costs of services and quality of providers, to help them become more actively involved in making health care purchasing decisions. While not a new concept, employers often offer voluntary health and wellness programs in combination with CDHPs. These programs are intended to encourage enrollees to engage in healthy behaviors to help prevent certain chronic diseases and improve overall health. These benefits often include disease management programs in which individuals with certain high-risk conditions have access to a case manager to help them manage their disease; access to health advice lines; behavior modification programs such as smoking cessation; and health risk assessment programs to assess enrollees’ potential for health problems and suggest ways for participants to reduce their risk of disease. Health risk assessment programs can also provide employers with information about the overall health profile of their worker population that can be used to design targeted disease management and behavior modification programs. While most employer-sponsored health benefit plans provide comprehensive coverage, employers may also offer health benefits through mini-medical plans. A mini-medical plan provides basic medical coverage combined with lower premium costs and a lower coverage cap than a comprehensive or major medical plan. Annual coverage limits typically include restrictions on the number of services covered, a low maximum dollar cap on spending, or both. For example, a mini-medical plan might cover no more than five doctor visits or no more than $200 per year for physician services. While these plans may include coverage for a wide range of hospital or specialty services, annual and lifetime coverage caps for mini-medical plans are far below those of comprehensive health insurance plans. For example, a mini-medical plan’s coverage cap might be set at $25,000 annually with a lifetime cap of $50,000, while many comprehensive health plans have no coverage caps or have lifetime caps in excess of $1,000,000. Employer-provided retirement plans can generally be characterized as either DB or DC plans. Under a traditional DB plan, an employer provides periodic payments to workers beginning at retirement, using a formula that considers a worker’s salary, age, and years of service. An employer is responsible for funding benefits in compliance with federal laws. To participate in employer-sponsored DB plans, workers must meet eligibility requirements; to receive any future benefits from the plans, workers must be vested. Vesting provisions specify when workers acquire the irrevocable right to pension benefits. Some employers offer hybrid DB plans that specify the current account balance as a dollar amount like a DC plan, but assume the financial risk to provide that amount, like a DB plan. For example, a common type of hybrid plan is a cash balance plan, which expresses benefits as an “account balance” based on hypothetical pay credits (percentage of salary or compensation) and hypothetical interest credits to employee accounts rather than predetermined payment amounts at retirement. Qualifying DB plans are federally insured by the PBGC. The agency provides retirement benefits to eligible workers in the event that their plans are terminated without sufficient assets to pay promised benefits. PBGC had an accumulated $19 billion deficit at the end of federal fiscal year 2006. The recently passed Pension Protection Act of 2006 (PPA) seeks to increase PBGC funding by requiring some plans to pay higher PBGC insurance premiums and to bolster the financial viability of private pension plans by requiring some employers to increase the funding of their plans. Under DC plans, a worker’s benefits at retirement depend upon the accumulation of funds in a worker’s account, which may include employer and worker contributions, as well as the net investment returns on these contributions. Workers are generally responsible for managing their retirement assets. The common type of DC plan is the 401(k), which allows workers to choose to contribute a portion of their pre-tax compensation to the plan under section 401(k) of the Internal Revenue Code. To encourage participation in and contributions to such plans, employers may wholly or partially match worker contributions. Individuals covered by employer retirement plans include: active workers who currently work for the employer and participate in separated vested workers—workers who previously worked for an employer and qualify for future DB pension benefits or retain a DC account with their former employer; designated individuals of qualified deceased workers or retirees; and retirees. For the purpose of studying changes in employer-sponsored retirement plan participation, active workers are considered a better measure because they are part of the plans that employers are currently offering to workers. In contrast, a retired worker may receive benefits from an employer plan, even when the employer does not offer such a plan to current workers. Millions of Americans are no longer in traditional work arrangements as full-time, year-round workers.