Benefits - Are Employer-provided Health Care Benefits Keeping Pace With Health Care Costs?

Spending on health care has nearly tripled over the last 40 years. "Health care" here includes preventive care, hospital/clinical services, dental care, home health care, mental health services, nursing home care, etc.

The graph shows annual per capita expenditures in constant dollars. Total and private sector expenditures are charted; the "private" portion, of course, is a subset of total. Private sector expenditures include both the employer's contribution and the employee's participation. Public-sector expenditures account for the difference between the two sets of bars in the graph. Public expenditures include payments under Medicare, Medicaid, Department of Defense Medical and Veterans' Administration programs, and all government employee health coverage.

Employer-provided health insurance benefits have remained relatively constant since the mid-1980s (previous panel). But actual costs of health care have risen. Weekly average wages and salaries are charted in the graph above; they produce a more or less flat curve at the bottom of graph. This line reflects none of the increased cost of health care experienced during the period shown. Even when looking at the recent 1986 to 1999 period, one sees that spending by the private sector rose 7%. Weekly employer contributions rose only 4%. Who is paying the difference?

Percent of employees with health care coverage asked to contribute towards the cost of coverage.
Year	Single Coverage	Family Coverage
1980	26	NA
1982	27	NA
1984	36	NA
1986	43	NA
1988	44	64
1989	47	66
1991	51	69
1993	61	76
1995	67	78
1997	69	80
NA - Not Available

The workers! They are getting less health care coverage and/or they pay more of the cost of the coverage they do receive.

Employers are asking workers to carry a larger part of the health care burden. They're also offering this benefit to fewer employees. Health care coverage among full-time employees (of establishments with more than 99 employees) declined from 82% in 1993 to 76 % in 1997.

The overall picture for employee benefits may be mixed, but a clear downward trend emerges in the case of health care. Fewer people are getting medical benefits. More of those who do are paying for part of the package. Rising health insurance costs largely explain this. Employer-provided health care benefits are not keeping pace with the cost of the coverage.

The next panel takes a look at the traditional set of benefit plans and how participation in them differs by size of employer.

Sources : Wage data are from the Council of Economic Advisers' Economic Report for the President, January 2001, Table B37 - Civilian employment by demographic characteristic, 1955-2000, Table B47 - Hours and earnings in private nonagricultural industries, 1959-2000. Health expenditure data are from the U.S. Department of Commerce, Bureau of the Census, Health Cost Financing Administration's web site http://www.hcfa.gov/stats/nhe-oact/tables/nhe99.csv, October 2001. Population data are from the U.S. Department of Commerce, Bureau of the Census, Table B34 - Population by age group, 1929-2000, available online at http://w3.access.gpo.gov/usbudget/fy2002/erp.html#erp2. Table of employee contributions to employer health plans is from the U.S. Department of Labor, Bureau of Labor Statistics' Employment Benefits Survey 1998, available online at http://146.142.24/cgi-bin/surveymost?eb. Figures for the percentage of employees receiving health care coverage by size of firm are from the U. S. Department of Labor's Employee Benefits in Medium and Large Private Establishments, 1997, September 1999, Chapter 1. Expenditure data were converted to constant 2000 dollars using the Bureau of Labor Statistics' Consumer Price Index for urban dwellers (CPI), Health Costs Series (for the health cost expenditures) and All Items Series (for all other expenditures).