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Health Costs

Snapshots: Employer Health Insurance Costs and Worker Compensation

Health insurance premiums have increased rapidly over the recent past, growing a cumulative 138% between 1999 and 2010 and outpacing cumulative wage growth of 42% over the same period. 1   These figures, which have been widely cited to demonstrate the growing burden of health insurance costs on employers and employees, illustrate overall trends in health benefit costs, but they do not show how this growing burden is affecting employers and employees in different settings.  To address this issue, this analysis shows employer costs for payroll and health benefits over an eleven-year period for workers in different occupations and at different establishment sizes.

Our analysis focuses on employer costs for health insurance for workers with access to health benefits and updates our earlier snapshot published in 2008.  Employer costs for health insurance increased significantly as a percentage of payroll between 1999 and 2010, and varied meaningfully across the workforce when viewed as cost per hour worked or as a percentage of payroll.  Employer costs per hour for health insurance were higher for workers in higher wage occupations than for workers in lower wage occupations, likely because more highly compensated employees want relatively generous health benefits at work and because existing tax subsidies favor those employees. 2  Viewed as a percentage of payroll, however, employer costs for health benefits are greater for workers in lower wage occupations than for workers in high wage occupations.  This means that workers in lower wage occupations on average get relatively less in employer contributions measured in cost per hour worked, but that what they get represents a relatively higher share of their payroll.

This information can be used by policy makers trying to understand the affordability of employer-sponsored coverage.  By showing the large variation in health benefit costs across establishments and occupations, this information helps policy makers better understand the issues facing different types of businesses and workers.   We show that employer costs as percentage of payroll

vary significantly across workers and settings, highlighting the challenge facing policy makers trying to encourage and provide support for the offering by employers and acceptance by employees of affordable coverage in the workplace.

Our analysis is based on data from the National Compensation Survey (NCS), which is a nationwide survey of labor costs in private and public establishments conducted quarterly by the Bureau of Labor Statistics (BLS). 3   Information is provided on employer costs for health insurance for employees with access to health benefits through their employer.  Details about the NCS and our analysis are available in a methodological appendix at the end of this analysis, although several facts should be highlighted upfront.  First, the data reflect employer costs for health insurance and do not include additional amounts that employees might contribute toward the costs of their coverage.  Second, employer costs are affected by enrollment in, and in some cases by eligibility for, health benefits offered by employers.  For example, employers may impose a waiting period before newly hired employees are eligible to enroll for health benefits, but these employees are treated as having access to health benefits in the data because most similar workers would be eligible after some period of tenure with the firm.

Definitions of key terms:

  • Payroll costs  include employer payments for wages, salary, overtime, vacation, holiday, sick days, bonus, and other cash compensation to employees, excluding severance payments and unemployment benefits.
  • Health costs  include all employer payments for health coverage, excluding employee contributions to premiums or out-of-pocket medical cost-sharing.
  • Non-health fringe benefits  include employer payments for life and short-term disability insurance, defined benefit and defined contribution plans, worker’s compensation, Social Security, and Medicare.
  • Total compensation  is defined as the sum of payroll and all fringe benefit costs including health.
  • Establishment size  is the number of employees at a selected plant or office.  Firms may be made up of one or more establishments.

Employer Costs for Health Insurance

Category: Insurance

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