Some interesting data from the 2006 Towers Perrin Health Care Cost Survey (press release is here):
1. U.S. employers are facing an 8% increase in their 2006 health care costs. Moreover, the cumulative effect of years of double-digit increases has produced a record high for employer-sponsored health care costs in America. In flat dollar terms, next year’s gross health care expenditure is expected to rise by an average of $597 per employee, to an average total cost of $8,424 — representing a 140% increase over the last 10 years.
2. Employers continue to shoulder the majority of the burden. Employees on average will pay $155 more in 2006, representing a 10% increase from the year before. Employers, on the other hand, will see an increase of $442 per employee, absorbing 74% of the total cost increase. Overall, employers will pay 80% of premium costs and employees will pay 20%.
3. Employees are paying 64% more in health care costs today than they spent five years ago. Employers, meanwhile, are paying 78% more in health care costs today than five years ago.
Excerpt from the press release indicating that benefits are becoming “a larger piece of the total compensation pie”:
“As health care costs continue to rise faster than the rate of general inflation, it’s more important than ever for employees to actively participate in controlling the overall spend and realize that increasing costs will affect them in both direct and indirect ways,” said Guilmette. “Clearly, as the company’s health care costs increase, the employee’s cost goes up as well. Continuing high inflation rates mean that employees’ out-of-pocket health care expenses will also rise. And, at the end of the day, employees need to recognize that a larger piece of the total compensation pie is being taken up by health care costs.”
“The money has to come from somewhere, and increasingly we’re seeing it come from resources set aside to reward employee performance,” adds Ron Fontanetta, Principal in the Towers Perrin Health and Welfare practice. “Health care has become a tremendous financial burden on employers, and unless health care cost increases moderate, the funds available for compensation and rewards will be reduced. Moreover, as employees plan for retirement, they need to factor in health care premium costs because future retirees will often have to pay the entire amount.”
Excerpt from the press release regarding retiree medical:
Meanwhile, the Medicare Modernization Act is changing the landscape for employer-sponsored retiree medical programs. With a 2006 effective date for Medicare Part D on the horizon, the vast majority (83%) of the survey respondents who offer retiree medical say they will provide prescription drug coverage at least as rich as Medicare’s new program and take the federal subsidy offered to employers who provide this benefit.For many companies, however, the 2006 approach could be an interim step toward a new strategy for the longer term as the impact of rising costs, changing demographics and the new Medicare law combine. Notably, over half (53%) of responding companies offering retiree medical say the Medicare changes will prompt them to rethink their commitments to all retirement programs, including both medical and retirement income benefits.
The survey includes data on the health benefit programs provided by more than 200 of the nation’s largest employers, covering over five million U.S. employees, retirees and dependents.