Lesson 4: Employer Health Insurance Costs

Lesson 4: Employer Health Insurance Costs

To attract competent workers after wage and price controls were implemented in the 1950s, employers started offering fringe benefits to workers instead of increases in wages. These benefits were exempted from taxes and were very effective in attracting and retaining much – needed workers.
According to an article found on Medscape Today (2004), employers spend more on health insurance for their employees than they spend on any other single benefit, and the cost of providing health insurance to employees is one of the largest costs of doing business in the United States. An analysis of Bureau of Labor Statistics data found that health insurance benefits accounted for 23 percent of nonwage employee compensation in the first quarter of 2004. These costs are projected to continue increasing every year well into the future. This report also discovered that employers spent an estimated $ 330.9 billion to fund employee health insurance benefits in 2003, representing an increase of 12.1 percent over 2002 and a 51.4 percent increase since 1998. Once used to attract and retain employees for a business, the health insurance benefit has become extremely costly for employers to continue to offer to all their employees, and at times it affects their ability to remain competitive. Indeed, the health insurance coverage issue has become a nightmare, not only for employers but also for employees.

According to a study by economists Kenneth Thorpe and David Howard (Health Affairs, 2006), health care spending will constitute 18.7 percent of gross domestic product (GDP) by the year 2014. Over the last twenty years, two major trends have been developing in the delivery of health insurance to employees: a significant decrease in the number of workers receiving health insurance from their employers and a sharp increase in the insurance premiums paid by workers as companies pass increased costs along. U.S. census figures released in August 2006 (Bureau of Labor Statistics & U.S. Census Bureau, 2006) revealed that the number of people having health insurance provided by their employer dropped from 62.6 percent in 2001 to 59.5 percent in 2005. As health care costs continue to rise above the inflation rate, many groups, from state and
federal legislators to business owners, are struggling to reduce the costs associated with delivering health care to their respective constituents. This decline in health insurance coverage has been most profound in the small employer segment of American business, but all companies are feeling the pressure. The Wall Street Journal reported in 2006 that 11 percent of the small business owners who offer their employees health benefits were considering dropping these benefits in 2007 (Breeden, 2006). Overall, the percentage of small firms offering health benefits dropped by 9 percentage points from 2000 to 2005, according to a survey published by the Kaiser Family Foundation in 2005. The firms not offering employees health insurance cited high premiums as the most important reason for not doing so. If the costs of health insurance could be controlled
or reduced, businesses seem interested in continuing the insurance coverage. Robert W. Fogel, a professor at the Graduate School of Business, University of Chicago and a Nobel Laureate, predicts that by the year 2030 about 25 percent of the GDP will be spent on health care. Victor Fuchs, an economist at Stanford, agrees with that projection but argues that the issue is not how much is being spent on health care but whether the extra dollars are buying marked improvements in health (Kolata, 2006). We know, for example, that Medicare beneficiaries treated for five or more chronic conditions account for virtually all program spending growth in recent years (Health Affairs, 2006). The American workforce is growing older and sicker, and workers are bringing their medical health issues, developed in their working years, into retirement with them. A major health factor behind the Medicare spending increase was overweight and obesity.
According to Robert W. Woodruff, professor and chair of the Department of Health Policy Management at Emory University ’ s Rollins School of Public Health, “ We need interventions that go beyond what current Medicare policy does, to reach the ‘ near elderly ’ and work with people before they approach the age of Medicare eligibility to fight obesity and chronic disease ” (Health Affairs, 2006). These near elderly can be found in the workplace, and for many years have been practicing the high – risk health behaviors that have predisposed them to multiple chronic conditions.
A recent survey conducted by Hewitt Associates (2008) points out that businesses in this country are seeing health and productivity as a business issue. This survey also revealed that the majority of employers plan to invest in long – term solutions designed to improve the health and productivity of their workers over the next few years. To make these changes, the possible interventions by businesses need to be thoroughly evaluated. Part of this evaluation will include an economic evaluation of prevention programs in the workplace.