Employers' Health and Benefit Costs Outpace Wages

Employers’ average cost for total wages and benefits grew by 12%; increases in benefit costs outpaced wages by 8 percentage points, according to new GAO report..

A new U.S. Government Accountability Office (GAO) report states that employers’ average cost for total wages and benefits they offer employees grew by 12% from 1991 to 2005, with increases in benefit costs outpacing wages by 8 percentage points since 2002, according to the Society for Human Resource Management.

The report is based on data from two federal surveys: the Bureau of Labor Statistics’ (BLS) National Compensation Survey (NCS) and the Agency for Healthcare Research and Quality’s Medical Expenditure Panel Survey (MEPS).

NCS measures costs per employee hour worked; MEPS measures costs as an annual average. The NCS information, the GAO said, reflects costs for active employees and does not include costs for benefits employers may provide to retirees per employee-hour worked.

Among the GAO findings:

    • Medium-size employers (100 to 499 employees) and large employers (500 or more employees) saw about a 20% increase in their total compensation costs.

    • Small employers did not see statistically significant increases in their total compensation costs.

    • Total compensation costs for full-time workers rose by 16%; the costs for part-time workers rose by 13%.

    • Employers with union workers saw compensation costs grow by 21%; those with nonunion employees experienced an increase of 13%.

    • By 2005 health insurance costs equaled paid leave, traditionally the most expensive benefit that employers offer, in part because of health insurance costs growing by 28% since 1991, compared to paid leave, up only 5%.

    • Retirement income was the least costly benefit for employers.

The increased cost of providing health insurance and retirement income was the biggest reason for the increase in the cost of a total benefits package between 1991 and 2005, the GAO found.

Meanwhile, the inflation-adjusted wages of an average U.S. worker grew only about
1% for the 24-month period through the second quarter of 2005, according to a CNN report in January, citing the U.S. Bureau of Labor Statistics.

Employers have been seeing a “significantly” larger real dollar cost of about $1,000 more per year in benefit costs for each full-time employee, the GAO report says.

While U.S. per capita spending on health care remains twice that of many other industrialized countries, the GAO says, employers expect median health care benefit costs to increase 8% in 2006. That’s down from the 10% increase they expected last year, with 86% saying their health care benefit costs were at or below budget in 2005. They expect to see about an 8% increase in 2007.

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