Trend of the Month: Health Insurance Is Most Expensive Employer-Paid Benefit

Private employers now spend more on health insurance for their employees than on any other single benefit, edging out paid leave. An analysis by the Employment Policy Foundation (EPF) of data from the US Bureau of Labor Statistics found that health insurance benefits accounted for 23% of nonwage employee compensation in the first quarter of 2004. Paid leave, including paid vacations and sick leave, was the second most costly benefit, accounting for 22.6% of nonwage employee compensation.

Private employers spent an estimated $330.9 billion to sponsor and fund employee health insurance benefits in 2003 (Cover Figure). This represents an increase of 12.1% over 2002 and a 51.4% increase since 1998.

In 2003, employer costs for employee health insurance benefits averaged $1.71 per employee hour, based on total expenditure by employers for health insurance benefits and total hours worked for all employees, up 11.2% over the $1.54-per-hour average cost in 2002. In 2003, employer costs for health insurance amounted to 7% of total compensation costs. As costs for health insurance have increased, the number of employees not covered by employer-provided health insurance has increased. In 2003, only 45% of employees were covered by employer-sponsored health insurance, down from 53% in 1999. While some employers may not offer benefits, coverage may have declined because employees choose to be covered under another plan (that of a spouse, for example).

Employers paid an average of $3.80 per hour for each employee with health benefits in 2003 (Figure). Since 1999, the hourly per-employee cost to employers to provide health insurance benefits for participating employees increased by more than 100%.

The participation-adjusted employer cost of health insurance benefits for employers who offer health insurance benefits has increased steadily since 1999. (Data from Employment Policy Foundation, US Bureau of Labor Statistics.)

The percentage of participating employees contributing to individual coverage increased to 78% in 2003, from 68% in 2000. The average contribution amount for individual coverage was $54.40 per month. The proportion contributing to family coverage increased to 90% in 2003, from 81% in 2000. Average employee contribution for family coverage was $179.75 per month.

"As health insurance costs continue to escalate, it is likely the level of coverage will continue to decline," said Ed Potter, president of the EPF. The increasing cost burden is making it progressively more difficult for US-based employers to compete against foreign firms whose health care cost burden is significantly less, he added.

Data in "Trend of the Month" is from the Employment Policy Foundation, Washington, DC, and the US Bureau of Labor Statistics.