Health Insurance for Employees Has Become Most Expensive Benfit for Employers, Study Finds

The cost of providing health care benefits to employees has become the most expensive benefit for employers, surpassing for the first time in a decade the cost of providing of paid leave, according to a study released Tuesday by the Employment Policy Foundation, CBS Marketwatch/Tallahassee Democrat reports. Researchers from EPF analyzed government data from about 8,200 private employers and found that in the first quarter of 2004, medical benefits accounted for 23% of nonwage compensation, while paid leave accounted for 22.6%. The study also found that employer spending on workers' health benefits reached $331 billion last year -- or an average of $3.80 per hour for each worker participating in a health plan -- a 51% increase over the $219 billion spent in 1998. Between 2002 and 2003 alone, employer spending on health benefits increased more than 12%, more than five times the rate of inflation, the study found. The study also estimated that the percentage of workers who received health care coverage through their employers decreased to 45% in 2003 from 53% in 1999.

EPF President Ed Potter said, "The private sector, as far as I can see, has essentially maxed out on what it's able to do. When you have large companies who historically have been able to pay who no longer are able to be competitive by paying the bill, you come to appreciate there's a problem here." He added, "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" (Gerencher, CBS Marketwatch/Tallahassee Democrat, 8/6). The study is available online. Note: you must have must have Adobe Acrobat Reader to view this report.

In related news, General Motors Chief Financial Officer John Devine on Thursday at an automotive seminar in Detroit said that the cost of providing health care benefits to employees is the largest obstacle the company faces in competing with foreign automakers, the AP/Fort Worth Star-Telegram reports. According to Devine, GM spent $4.8 billion on employee health care benefits in 2003, and company officials expect health benefit costs to rise 8% this year. He added that GM and other Detroit automakers spent a combined $8.5 billion on health care last year. Last month at the National Governors Association conference in Seattle, Ford Motor Company Vice Chair Allan Gilmour said that providing health care benefits to company employees adds about $1,000 to the cost of every Ford car or truck built in the United States, 33% of which is related to prescription drug costs, the AP/Star-Telegram reports. Devine said, "I think we need to see some urgency" in finding solutions to rising health care costs in the United States (Porretto, AP/Fort Worth Star-Telegram, 8/6).