Health care costs employers more than vacation, sick leave, report says

$331 billion spent in 2003

51 percent jump from 1998

August 06, 2004|By CBS MARKETWATCH

SAN FRANCISCO - The cost of providing health care to workers has surpassed that of paid leave as the most expensive benefit for employers, according to a new report.

In the first quarter of this year, medical benefits accounted for 23 percent of compensation outside of wages, compared with 22.6 percent for paid leaves, including vacations and sick time, according to a study from the Employment Policy Foundation, an economic research foundation that focuses on workplace issues.

It's the first time in the past 10 years health care costs exceeded the paid leave category, foundation President Ed Potter said. Employer spending on health benefits jumped 12.4 percent between 2002 and last year, more than five times the inflation rate, he said, noting that small employers face cost increases that are far higher.

The foundation, which receives about half its funding from businesses, examined government data from about 8,200 private employers. It found that employers spent nearly $331 billion last year for employee health insurance, a 51 percent jump since 1998, when they spent $219 billion. Companies paid $3.80 per hour, on average, for each worker who participated in their health plans last year.

The ballooning tab for medical benefits bodes poorly for workers' raises, Potter said.

"It's such an increasing part of the overall compensation for employees that there is the inevitable consequence that wage increases are going to be affected by this," he said. "Gradually, this benefit cost alone is eating away at the overall compensation pie."

Salaries are growing only modestly this year, according to a report from WorldatWork, a nonprofit that collects information on workplace compensation and benefits.

The percentage of private-sector workers covered by and participating in job-based health insurance declined to 45 percent last year from 53 percent in 1999, the report said. That number may reflect the 39 percent of working families who have two breadwinners and may choose to be covered under one policy, Potter said.

Still, the foundation's figures are far lower than those reported by the Center for Studying Health System Change, which said this week that the proportion of Americans younger than 65 covered by employer health benefits dipped to 63 percent last year from 67 percent in 2001.

Moving to a consumer-based or age-based system may help ease the mounting problems employers face in funding health insurance, Potter said.

Younger people, for example, may prefer to have a catastrophic policy rather than a more comprehensive "Cadillac" health plan so they can receive higher wages, while older people may prefer to allocate more of their compensation to broader coverage, he said.

"Presumably, as we get older our earning power should be better than it is when we're younger and we can elect to make some decisions about health care, where as a younger person we may prefer money instead," Potter said.

Overall, all health care payers need to re-evaluate their assumptions about medical costs, he said. "We've gotten to where we are because it did appear to be free and it has basically evolved into a system where you and I expect, if our knee is hurting, that an X-ray will not do, that we need an MRI instead," Potter said. "Even the richest nation in the world can't afford to do that for everybody."

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