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 EmployerSponsored 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. Percent of covered workers Figure 1. Distribution of Percentage of Premium Paid by Employers for Single and Family Health Insurance Coverage, 2005 56% 60% 47% 50% 40% 31% 30% 21% 20% 20% 10% 15% 2% 6% Employer pays 0% to 50% of premium Pays more than 50%, up to 75% Pays more than 75%, less than 100% Employer pays 100% of premium 0% 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 2001 2002 2003 2004 2005 2006 2007 Avg Growth 2001-06 Average annual premium for single coverage Employer contribution $2,292 $2,606 $2,875 $3,137 $3,413 $3,615 $3,785 Worker contribution $360 $454 $508 $558 $610 $627 $694 $2,652 $3,060 $3,383 $3,695 $4,024 $4,242 $4,479 9.4% 15.4% 10.6% 9.2% 8.9% 5.4% 5.6% Total premium Growth in premiuma 9.8% Average annual premium for a family of four Employer contribution $5,256 $5,870 $6,656 $7,289 $8,167 $8,508 $8,824 Worker contribution $1,800 $2,084 $2,412 $2,661 $2,713 $2,973 $3,281 Total premium $7,056 $7,954 $9,068 $9,950 $10,880 $11,480 $12,106 Growth in premiuma 11.2% 12.7% 14.0% 9.7% 9.3% 5.5% 5.5% 10.2% 3.4% 3.2% NA 2.6% Average growth in prices for all goods and services CPI-U 2.8% 1.6% 2.3% 2.7% 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 salaries 72.6% 72.4% 71.8% 71.0% 70.4% 70.1% 70.0% Total benefits 27.4% 27.6% 28.2% 29.0% 29.6% 29.9% 30.0% Health insurance 6.1% 6.5% 6.9% 7.2% 7.5% 7.6% 7.9% All other benefits 21.3% 21.1% 21.3% 21.8% 22.1% 22.3% 22.1% 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 Percent of compensation 9% 8% 7% 6% 5% 4% 3% 2% 1% 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 Cost/hr worked $25 $20 $15 $10 $5 Wages & salaries Health insurance 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 $0 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 12% 10% 8% 6% 4% 2% 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 -2% 1993 0% 1992 Cost increase/hour worked 14% -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.