Health Care To Become The Most Expensive Employee Benefit
Health insurance will soon replace pensions as the most costly type of employee benefit, according to a newly released study by the Employee Benefit Research Institute (EBRI). But a further EBRI study indicated that, while many employers are considering adopting consumer-directed health plans to control costs, these high-deductible plans often fail to meet the needs of employees.
Based on an analysis of federal data, the EBRI study on the cost of employee benefits found that, in 2004, retirement plan expenditures represented 47.1% of employers’ total spending on benefits, while health care accounted for 43.2% of spending. By contrast, researchers noted, health care benefits made up 38.3% of total benefit outlays in 1990 and 26.7% in 1980.
When spending on mandatory benefits such as Social Security and Medicare were excluded, health care spending was found to be even higher. In 2004, 57.4% of spending by employers for voluntary benefits was for health care, compared with 41.2% for retirement plans. The study found that the shift in spending on voluntary benefits took place between 1980 and 1990: health insurance premiums represented 36.0% of voluntary benefits expenditures in 1980, and that share rose to 52.1% by 1990.
While the bulk of employee compensation remained in the form of wages and salaries, benefits expenditures comprised an increasing share of compensation outlays during the period studied. Benefits expenditures accounted for just 5% of total compensation in 1950, but they had risen to 19% by 2004, according to the report. Over the same period, the percentage of compensation that took the form of health care benefits jumped from 0.5% to 8%.
In another study, sponsored by EBRI and the Commonwealth Fund, researchers looked at employee response to high-deductible health plans (HDHPs) and consumer-directed health plans (CDHPs), new forms of health coverage designed to lower health care costs for employers by giving employees greater responsibility for their health care expenditures.
HDHPs have deductibles of $1,000 or more for individuals and $2,000 or more for families. HDHPs combined with tax-advantaged savings accounts, usually Health Savings Accounts (HSAs) or Health Reimbursement Arrangements (HRAs), are known as CDHPs. Contributions to CDHP accounts, which may be provided by employees and/or employers, are to be used to pay for health care not covered by the HDHP.
The national survey of participants in various types of health plans found that those enrolled in CDHPs and HDHPs tend to be less satisfied with their health coverage than individuals with comprehensive insurance: 63% of respondents with comprehensive health insurance said they were extremely or very satisfied with their health plans, compared with 42% of CDHP participants and 33% of HDHP participants. Moreover, only 46% of CDHP enrollees and 30% of HDHP participants indicated they were extremely or very likely to stay with their current health plans if given the opportunity to switch, compared with 60% of participants in comprehensive plans.
The survey also found that, on average, consumer-driven and high-deductible plan participants devote a larger share of their incomes to health care costs than comprehensive plan participants. Results showed 42% of respondents with CDHPs and 31% of those with HDHPs—but only 12% of respondents with comprehensive plans—reported spending 5% or more of their incomes on out-of-pocket health care costs and insurance premiums.
The prospect of having to pay for health care does appear to make participants more cost-conscious, but it may also discourage them from seeking needed care, the survey further revealed. Some 70% of CDHP enrollees and 60% of HDHP participants strongly or somewhat agreed that they considered costs when deciding whether to see a doctor or fill a prescription, compared with 40% of comprehensive plan participants. In addition, 35% of individuals with CDHPs and 31% of those with HDHPs said they had delayed or avoided obtaining care, compared with 17% of comprehensive plan enrollees. Participants with chronic health conditions or incomes below $50,000 were especially likely to forgo care, the survey found.
Karen Davis, president of the Commonwealth Fund, said, "These findings provide evidence that high-deductible and consumer-driven plans may undermine the two basic purposes of health insurance: to reduce financial barriers to needed care and protect against high out-of-pocket cost burdens for patients. Enrollees with low incomes or with health problems are particularly vulnerable to spending a high proportion of income on medical expenses under these types of plans."
