Spending by Employers on Health Insurance: A Data Brief
Order Code RS22735
October 10, 2007
Spending by Employers on Health Insurance:
A Data Brief
Jennifer Jenson
Specialist in Health Economics
Domestic Social Policy
Summary
To attract and maintain a skilled workforce, many businesses provide health
insurance and other benefits for their employees. As the cost of health insurance rises,
employers face a growing challenge paying for benefits while managing labor costs to
succeed in a competitive market. All types of businesses report problems, including
both small businesses and firms with thousands of employees and retirees.
Despite concerns about the cost of benefits, small and large employers together
provide health coverage for most Americans, about 60% of the population in 2006.1 But
as the amount that employers pay for health insurance has been increasing — both
absolutely and as a share of labor costs — the percent of the population covered has
been decreasing.
To describe employer contributions for health insurance, this report presents data
from two employer surveys. The first, conducted by the Kaiser Family Foundation and
the Health Research and Educational Trust, provides information on premiums for
employer-sponsored health insurance. The second, from the Department of Labor,
provides information on employer costs for employee compensation, including costs for
wages and salaries, health insurance, and other benefits.
Premiums for Employer-Sponsored Health Insurance
Although not all employers provide work-based health coverage, those that do pay
most of the premium. As shown in Table 1, in 2007, employers paid 84.5% of the cost
for single coverage and 72.9% for family coverage. Employers paid a smaller share of
health insurance premiums in 2007, compared with 2006.
1 U.S. Census Bureau, Income Poverty, and Health Insurance Coverage in the United States:
2006, Current Population Report no. P60-233, August 2007, p. 58. The actual estimate for 2006
was 59.7%, down from 60.2% in 2005, and from 64.2% in 2000 (the 20-year high).
CRS-2
Table 1. Employer and Worker Contributions for Employer-
Sponsored Health Insurance, 2001-2007
2001
2002
2003
2004
2005
2006
2007
Employers’ share of premium
Single policy
86.4%
85.2%
85.0%
84.9%
84.8%
85.2%
84.5%
Family policy
74.5%
73.8%
73.4%
73.3%
75.1%
74.1%
72.9%
Workers’ share of premium
Single policy
13.6%
14.8%
15.0%
15.1%
15.2%
14.8%
15.5%
Family policy
25.5%
26.2%
26.6%
26.7%
24.9%
25.9%
27.1%
Source: CRS calculations based on data from the Kaiser Family Foundation and Health Research and
Educational Trust, Employer Health Benefits 2007 Annual Survey, 2006 Annual Survey, 2005 Annual
Survey, 2004 Annual Survey, 2003 Annual Survey, 2002 Annual Survey, and 2001 Annual Survey.
Note: Data are based on a national sample of public and private employers with three or more workers.
The above shares are average contributions by employers, but different firms pay
different shares, and even the same firm may pay different shares for different workers.2
As shown in Figure 1, in 2007, employers paid 100% of the premium for health insurance
for 20% of workers with single coverage and 6% of workers with family coverage. They
paid 50% or less of the premium for only 2% of workers with single coverage.
Figure 1. Distribution of Percentage of Premium Paid by Employers for
Single and Family Health Insurance Coverage, 2005
56%
60%
47%
rkers 50%
o
Employer pays 0% to 50%
w 40%
of premium
31%
Pays more than 50%, up to
vered 30%
75%
21%
20%
Pays more than 75%, less
f co 20%
15%
than 100%
t o
Employer pays 100% of
6%
10%
2%
premium
rcen
e
0%
P
Single Coverage
Family Coverage
Percent of premium paid by employer
Source: CRS calculations based on data from the Kaiser Family Foundation and Health Research and
Educational Trust, Employer Health Benefits 2007 Annual Survey.
2 In addition, as mentioned already, not all employers offer insurance. According to the
KFF/HRET survey, in 2007, 99% of firms with 200 or more workers offered health benefits.
Offer rates for smaller firms were: 45% (3-9 workers), 76% (10-24 workers), 83% (25-49
workers), and 94% (50-199 workers).
CRS-3
Although the average share that employers contribute for premiums has been
relatively stable over the 2001-2007 period (Table 1), the average amount has increased
substantially. As shown in Table 2, employer payments for single and family coverage
both increased by about two-thirds between 2001 and 2007, from $2,292 to $3,785 for
single coverage, and from $5,256 to $8,824 for a family of four.
Growth in health insurance premiums has varied year-to-year, always exceeding
growth in prices for all goods and services, as measured by the Consumer Price Index.
Over the 2001-2006 period, premiums for single coverage in an employer-sponsored
health plan grew at an average annual rate of 9.8%; average growth for family coverage
was 10.2%. Over the same period, average annual growth in consumer prices was 2.6%.
Table 2. Premiums for Employer-Sponsored Health Insurance, and
Growth in Prices for All Goods and Services, 2001-2007
Avg
2001
2002
2003
2004
2005
2006
2007
Growth
2001-06
Average annual premium for single coverage
Employer
$2,292
$2,606
$2,875
$3,137
$3,413
$3,615
$3,785
contribution
Worker
$360
$454
$508
$558
$610
$627
$694
contribution
Total
$2,652
$3,060
$3,383
$3,695
$4,024
$4,242
$4,479
premium
Growth in
premiuma
9.4%
15.4%
10.6%
9.2%
8.9%
5.4%
5.6%
9.8%
Average annual premium for a family of four
Employer
$5,256
$5,870
$6,656
$7,289
$8,167
$8,508
$8,824
contribution
Worker
$1,800
$2,084
$2,412
$2,661
$2,713
$2,973
$3,281
contribution
Total
$7,056
$7,954
$9,068
$9,950
$10,880
$11,480
$12,106
premium
Growth in
premiuma
11.2%
12.7%
14.0%
9.7%
9.3%
5.5%
5.5%
10.2%
Average growth in prices for all goods and services
CPI-U
2.8%
1.6%
2.3%
2.7%
3.4%
3.2%
NA
2.6%
Source: KFF/HRET employer health benefit surveys (see Table 1). Data on growth in prices are from the
U.S. Department of Labor, Bureau of Labor Statistics, at [http://www.bls.gov].
Notes: CPI-U=Consumer Price Index-All Urban Consumers. NA=not available. Data are based on a
national sample of public and private employers with three or more workers. Components may not add to
totals because of rounding.
a. Growth in premium from previous year.
CRS-4
Health Insurance and Labor Costs
Employer contributions for health insurance are an important component of labor
costs. Firms use health and other benefits to attract and retain workers, and workers value
access to subsidized health coverage. As shown in Table 3, in March 2007, health
insurance accounted for 7.9% of employee compensation; other benefits, including paid
leave, pensions, and required contributions for Social Security and Medicare, accounted
for 22.1%.3 Wages and salaries made up the remaining 70% of total compensation.4
Table 3. Wages and Salaries, Benefits, and Health Insurance as a
Percentage of Total Compensation, 2001-2007
2001
2002
2003
2004
2005
2006
2007
Wages and
72.6%
72.4%
71.8%
71.0%
70.4%
70.1%
70.0%
salaries
Total benefits
27.4%
27.6%
28.2%
29.0%
29.6%
29.9%
30.0%
Health
6.1%
6.5%
6.9%
7.2%
7.5%
7.6%
7.9%
insurance
All other
21.3%
21.1%
21.3%
21.8%
22.1%
22.3%
22.1%
benefits
Source: U.S. Bureau of Labor Statistics, Office of Compensation and Working Conditions, Employer Costs
for Employee Compensation (ECEC), Historical Listing, 1991-2001, 2002-2003, and 2004-2007, at
[http://www.bls.gov/ncs/ect/home.htm].
Notes: Data are for civilian workers. Percentages are based on data reported in March of each year.
(Through 2001, estimates were published annually in March; since 2002, estimates have been published
quarterly.) In June 2007, the share of compensation for health insurance was 7.9% (most recent data).
The 7.9% share of compensation represents average spending on health insurance
for civilian workers: individual employers may devote a higher or lower share, or nothing
at all. Contributions also vary by broad industry group. For example, in June 2007,
spending by state and local governments on health insurance was 11.0% of total
compensation, while the share for private industry was 7.1%.5 Differences in employer
3 In addition to the benefits listed above, the 22% share includes overtime and other supplemental
pay, life and disability insurance, and required contributions for unemployment insurance and
workers’ compensation.
4 Data on employer costs for employee compensation are based on a national sample of different
occupations in private establishments and state and local governments. Several groups are
excluded from the sample for private industry: the self-employed, farm workers, and private
household workers. Federal government workers are excluded from the sample for the public
sector. The data measure the average cost per employee hour worked that employers pay for
wages and salaries and benefits. Wages and salaries are defined as the hourly straight-time wage
rate or, for workers not paid on an hourly basis, straight-time earnings divided by the
corresponding hours. For more information, see BLS News, pp. 24-26 (technical notes), released
September 20, 2007, at [http://www.bls.gov/news.release/pdf/ecec.pdf].
5 BLS News, September 20, 2007, p. 3.
CRS-5
spending may be explained by differences in health insurance coverage rates, differences
in the generosity of benefits, and differences in the other components of compensation.
The 2007 share for civilian workers is high compared with the late 1990’s, when
employer contributions for health insurance accounted for less than 6% of compensation.
As shown in Figure 2, over the 1999-2007 period, the share of spending for health
insurance grew steadily, from 5.8% in 1999 to 7.9% in 2007. A previous upward trend
occurred between 1991 and 1994, when spending grew from 6.1% of compensation to a
peak of 7.0%, coinciding in time with President Clinton’s health reform effort. Between
1994 and 1998, spending fell from 7.0% of compensation to 5.8%, in part because of
growth in managed care plans that had some success in controlling health care costs.
Figure 2. Health Insurance as a Percentage of Total
Compensation, 1991-2007
9%
n 8%
tio 7%
sa
n 6%
e
5%
mp
o 4%
f c
t o 3%
2%
rcen
e 1%
P
0%
1991
1993
1995
1997
1999
2001
2003
2005
2007
Source: U.S. Bureau of Labor Statistics, Office of Compensation and Working Conditions, Employer Costs
for Employee Compensation (ECEC), Historical Listing, 1991-2001, 2002-2003, and 2004-2007, at
[http://www.bls.gov/ncs/ect/home.htm].
Notes: Data are for civilian workers. Percentages are based on data reported in March of each year.
Growth in health insurance as a share of total compensation does not itself provide
information on whether labor costs are increasing for employers. Labor costs change with
changes in all of the components of compensation, including wages and salaries, health
insurance, and other benefits. As shown in Figure 3, labor costs per hour worked grew
from an average of $16.45 in 1991 to $27.82 in 2007. Over the same period, costs for
wages and salaries grew from $11.81 to $19.47 per hour worked, health insurance costs
grew from $1.01 to $2.19, and costs for other benefits grew from $3.63 to $6.16.
Change in the components of labor costs varies year-to-year. As shown in Figure
4, over the 1991-2007 period, the change in employer costs per hour worked for health
insurance ranged from an increase of 11.9% in 1992 to a decrease of 6.3% in 1995; the
average annual increase in costs per hour was 5.0%. Over the same period, the average
annual increase in costs per hour worked was 3.2% for wages and salaries and 3.4% for
other benefits.
CRS-6
Figure 3. Employer Costs per Hour Worked for Employee
Compensation, 1991-2007
$30
$25
$20
rked
o
$15
r w
/h
st $10
Co
$5
$0
1
2
3
4
5
6
7
8
9
0
1
2
3
4
5
6
7
199
199
199
199
199
199
199
199
199
200
200
200
200
200
200
200
200
Wages & salaries
Health insurance
Other benefits
Source: U.S. Bureau of Labor Statistics, Office of Compensation and Working Conditions, Employer Costs
for Employee Compensation (ECEC), Historical Listing, 1991-2001, 2002-2003, and 2004-2007, at
[http://www.bls.gov/ncs/ect/home.htm].
Notes: Data are for civilian workers. Amounts are based on data reported in March of each year. Other
benefits include paid leave; overtime and other supplemental pay; life and disability insurance; pensions;
and required contributions for Social Security, Medicare, unemployment insurance, and workers’
compensation.
Figure 4. Growth in Employer Costs per Hour Worked for
Employee Compensation, 1991-2007
14%
12%
ed 10%
rk
o 8%
r w
u 6%
o
h
e/ 4%
2%
eas
cr 0%
n
t i -2%
s
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Co -4%
-6%
-8%
Wages & salaries
Health insurance
Other benefits
Source: CRS analysis, based on data from the Bureau of Labor Statistics (see Figure 3).
Notes: See Figure 3.