Cost%20of%20Employee%20Benefits%20in%20the%20United%20States,%201929-2000

1
Cost of Employee Benefits in the United States,
1929-2000
2000
37.5
33.8
1984
1975
30.0
21.5
1965
Year
17.0
1955
3.0
1929
0
5
10
15
20
25
30
35
40
45
Percent of Wages (note text re payroll)
2
How the Benefits Dollar Is Spent
3
Fig 12.2 Percentage of Employers Providing
Selected Benefit Plans
Medium and Large Private Firms
Small Private Firms
State and Local Governments
Health Insurance Retirement Plans Defined
Benefit Plans Defined Contribution
Plans Insurance Plans Life Insurance Long-term
Disability Ins Time-off Plans Paid
Vacations Paid Holidays Paid Sick
Leave Flexible Benefits Plans
74 21 56 77 45 98 100 50 12
88 83 29 75 35 100 100 59 34
60 9 42 54 25 87 100 26 4
U.S. Sept. of Labor, Bureau of Labor Statistics
(2000). Employee Benefits in state and local
governments, 1998.
4
Source Business Week, 6/13/05
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Legally Required Benefits

• Social Security
• Retirement Income
• Disability Income
• Medicare
• Survivor Benefits
• Workers Compensation
• Unemployment Insurance
• Unpaid Leave

6
Family and Medical Leave

• Although FMLA was widely perceived as maternity
  leave law, more than 80 of time its used by
  workers recovering from own illness or caring for
  sick family member
• Half of FMLA use involves serious illnesses
  lasting less than 10 days
• 42 of users are male

Source Business Week, 6/13/05
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Social Security in Context

• Before Social Security, aging in America often
  meant poverty and sometimes poorhouse
• Average life expectancy in 1900 47 years
• When America was agricultural nation, elderly
  frequently lived w/ children
• By 1920, more Americans lived in cities than on
  farms, urban homes smaller
• While life expectancy was increasing quickly,
  many Ers shunned older workers
• In 1930, almost 1/3 of American factories had
  maximum age limits for new ees (40, 45, 50)
• Retirement savings didnt exist, except among
  wealthiest Americans
• In early 20th century, only 2 of ees covered by
  pensions
• Most counties had poorhouse (shelters for
  indigent)
• Germany, Sweden, France, England legislated
  publicly-funded old-age insurance before
  Americans took up debate
• Opponents argued that sensible people would
  provide for themselves
• Social Security Act ruled to be constitutional by
  5-4 decision in 1937
• Source Wall Street Journal, 9/15/04

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Benefit Trends Health Care

• Ees rank health-care related benefits as most
  important
• 65 view as most important
• 17 as second-most important
• Less than 3 of U.S. health care spending can be
  attributed to preventive medicine and health
  education
• Estimated that as much as 50 of costs of illness
  in U.S. results from conditions that could be
  avoided or lessened by preventive care or healthy
  lifestyle changes
• Nearly 23 of population has body mass index of
  30 or higher (30 lbs over healthy weight)
• Source Compensation and Benefits Review,
  Sept/Oct 2000 USA Today, 11/7/04

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Health Care Costs

• Considerable cost-shifting to Ees
• Costs increased 10.1 in 2003 (have moderated
  since, somewhat)
• Biggest cost drivers more prescriptions of
  heavily-marketed drugs, increases in hospital
  prices, more expensive diagnostic tests, increase
  in visits to specialists (given shift from more
  restrictive HMOs)
• Average cost per Ee, 2004 6,679
• Up 86 since 1997 (3,594)
• 15.7 of U.S. population (46m) now uninsured
• 60 of Americans covered by Er-sponsored health
  benefits
• Between 1996 and 2004, number of private-sector
  ees who enrolled in health benefits plans offered
  to them declined from 88 to 81
• Source Mercer Human Resource Consulting, Census
  Bureau, Wall Street Journal, 11/2204 USA Today,
  8/30/05 Wall Street Journal, 8.25/06

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Workers Paying More of Health-Care Bills

• Ees provided family coverage thru Ers contributed
  2,412 on average in 2003, up from 1,619 in 2000
• Causing divides between lower- and higher-income
  workers in terms of health-care affordability
• Average premium for family plan increased from
  6,438 in 2000 to 9,068 in 2003
• Ees provided individual coverage thru Ers
  contributed 454 on average in 2002, up 27
• Ers paid 2,066 for individual, up 14
• On average, Ees pay about 16 of cost of single
  coverage, about 27 of cost of family coverage
• Ees obtaining brand-name drug when generic is
  available paid 26 on average, up 24
• Average deductible in PPO plans increased 37, to
  276
• Source Wall Street Journal, 9/6/02

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Source Wall Street Journal, 11/7/06
14
Legal Environment for Health Care Plans

• Consolidated Omnibus Budget Reconciliation Act
  (COBRA)
• Must offer extended group health plan
  participation for up to 18 months following
  termination, 36 months for divorced/deceased
  spouse
• Cost borne by individual
• Health Insurance Portability and Accountability
  Act (HIPAA)
• Improves portability of health insurance
  (limits exclusions for pre-existing conditions,
  discrimination based on health status)
• Does not
• Ensure that Ee who changes jobs will have access
  to health insurance on new job
• Ensure affordability of health insurance on new
  job
• Enable individuals to maintain same group health
  plan on job change
• Privacy of health information

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Health Care Costs and Firm Competitiveness

• In 2004 health-care spending amounted to over
  1,500 for every vehicle GM produced in U.S.
  (Chrysler, 1,400 Ford, 1,100)
• American workers on average pay 32 of their
  health costs, GM salaried ees 27, UAW members
  7
• Current ees and families account for 1/3 of total
  health bill, retirees the remainder
• Competition prevents passing on cost to customers
• Japanese competitors have younger workforces with
  lower costs
• As of 2003, Big Three had 524,000 hourly
  retirees, Toyota 49 (258 as of 2006)
• Expense impacts bottom-line and investment in RD
• See also As Benefits for Veterans Climb,
  Military Spending Feels Squeeze, Wall Street
  Journal, 1/25/05
• Adding prescription drug benefit to Medicare will
  save automakers millions
• Companies lobbied for legislation that would
  cover all over 65, even those with retiree health
  coverage thru Er
• GM spends 924 million annually on prescription
  drugs for retirees, including those under age 65,
  Ford spends 300 million
• Source Fortune, 9/29/03 Wall Street Journal,
  4/7/05, 4/15/05 New York Times, 5/19/06

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Health Spending in Various Countries 2003
17
Health Benefits for Retirees Continue to Shrink

• 17 of retiree health plans have virtually
  eliminated liabilities by requiring retirees to
  pay full premiums
• 20 have eliminated such plans altogether for new
  hires
• Share of private-sector orgs offering health
  insurance to retirees 65 dropped to 11 in 2000,
  from 20 in 1997
• Source Wall Street Journal, 9/16/02

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Source WSJ, 7/16/08
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Consumer-Driven Health Plans, Health Savings
Accounts (HSAs), Health Reimbursement Accounts
(HRAs)

• Congress authorized HSAs in 2003, HRAs evolved in
  late 90s and early 00s
• Lower premiums, higher deductible (e.g.,
  2,000/yr), more consumer control of health care
  expenditures
• Er can match part or all of Ee contribution to
  account
• Pre-tax dollars into HSA, up to amount of
  deductible
• If you dont spend all your allowance on medical
  care, you carry over unused balance
• Once deductible is paid, traditional insurance
  policy takes over
• Maximum out-of-pocket spending limits (5k for
  individuals, 10k for families)

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Consumer-Driven Health Plans, Health Savings
Accounts (HSAs), and Health Reimbursement
Accounts (HRAs)

• Encourages consumers to take active role in
  keeping health-care costs down
• Ers will provide detailed information about
  prices and quality of doctors and hospitals in
  area
• Critics fear plans will discourage people from
  getting care they need
• Recent research indicates that when co-payments
  for prescription drugs increase, health of
  patients w/ certain chronic illnesses (e.g.,
  diabetes and asthma) can suffer
• Further, if healthy Ees sign up for HSAs while
  less-healthy Ees stick w/ traditional plans,
  costs of those plans will increase at even faster
  rate
• Tax breaks benefit wealthy more than low-income
  workers
• Less-educated workers may have trouble taking
  advantage of Web-based information
• By 2006 73 of U.S. Ers likely or somewhat likely
  to offer HSAs
• Source USA Today, 10/31/03 Wall Street Journal,
  6/23/04 Wall Street Journal, 5/19/04 Business
  Week, 11/8/04

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Advantages and Disadvantages of Flexible Benefit
Programs

• Advantages
• Employees choose packages that best satisfy their
  unique needs
• Flexible benefits help firms meet the changing
  needs of a changing work force
• Increased involvement of employees and families
  improves understanding of benefits
• Makes introduction of new benefits less costly
  added as one option among many
• Cost containment organization sets dollar
  maximum, Ee chooses within that constraint

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Advantages and Disadvantages of Flexible Benefit
Programs

• Disadvantages
• Ees make bad choices and find themselves not
  covered for predictable emergencies
• Administrative burdens and expenses increase
• Adverse selection Ees pick only benefits they
  will use, thus driving up costs