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The days of stable health care costs and declining overall benefit expenses may be nearing an end.
For the third consecutive year, employers' average total benefit costs declined in 1996, according to a U.S. Chamber of Commerce survey of just over 800 employers.
In 1996, total benefit costs slipped to an average of $14,086 per employee, down 3.9% from 1995. The last time benefit costs were under the $14,000 per employee level was in 1992, when they averaged $13,631 per employee.
Just as surging health care costs were the chief culprit for soaring benefit expenses in the late 1980s, the stability -- and in many cases a decline -- in health care costs are the major reason that employers' total benefit costs are dropping.
In 1996, employers' medical plan costs declined to an average of $2,568 per employee, down 3.8% from the year earlier.
With health care costs nearly stable, employers' benefit costs are continuing to fall.
But with health care premiums rising in 1997 and 1998, total benefit costs soon could be marching upwards once again.
The more favorable health care cost trends of the past several years have occurred for several reasons.
The chief factor has been employers' success in moving employees out of higher-cost traditional indemnity plans and into lower-cost managed care plans, especially health maintenance organizations. In some parts of the country, HMO costs are nearly $1,000 less per employee compared with indemnity plan coverage.
"Through managed care programs, they (employers) are reducing health care costs," the survey notes.
A competitive HMO market also has led -- at least until now -- to flat or even falling premiums as HMOs have battled for market share.
A booming economy also may have played a role in lower health care costs. During the early and mid 1990s, many companies restructured, letting go workers who often were older and whose benefit costs were higher than average. Now, with a booming economy, employment rolls have expanded, but companies have added a greater proportion of younger workers, whose health care costs are lower than those of older employees.
That trend reduces costs on a per employee basis, said Martin Lefkowitz, the survey's author and the Chamber's director of special projects and economic policy in Washington.
But some of these favorable trends are nearing an end.
As most employees have shifted into lower-cost managed care plans from indemnity plans, the opportunity for employers to reap big one-time savings is significantly reduced.
In addition, HMOs -- whose earnings suffered as they kept rates flat or cut them to increase market share -- now are raising rates to improve balance sheets (see story, page 3).
Congressional intervention in the health care arena also could swell costs, Mr. Lefkowitz says, referring to one new federal law mandating 48-hour hospital coverage for mothers and newborns after delivery and a second law requiring limited mental health care benefits parity. Both laws take effect Jan. 1.
In addition, Congress is widely expected to pass legislation next year that would impose new quality standards on managed care and perhaps other types of health care plans.
"I don't know what these mandates cost, but there is indeed a cost," Mr. Lefkowitz said.
Still, health plan coverage was not the only benefit whose costs declined.
Defined benefit pension plan costs dropped sharply last year to an average of $1,144 per employee, down 24.3% from the year earlier, the Chamber survey found.
The bull stock market has been a boon to defined benefit plans. With defined benefit plans heavily invested in equities, the jump in the value of plan assets reduces the need for employers to make contributions to the plans to pay for promised benefits.
"A lot of companies with pension plans said they have not made contributions for years," Mr. Lefkowitz said.
Retiree health care plan costs also eased, falling to an average of $328 per employee last year, down 44.7% from 1995. One reason for the decline is that many employers in recent years have temporarily offered -- as an incentive to get older employees to retire -- heavily subsidized health care coverage for the first few years of their retirement. As these programs have expired and the retirees moved into the Medicare program, employers' health care plan costs have declined, the survey notes.
In addition, roughly 100,000 retired employees and dependents a month are moving out of the traditional Medicare program and into so-called Medicare risk HMOs. These programs, in some parts of the country, offer such rich benefits that retired workers have less of a need for employer-sponsored retiree health care plans that supplement the traditional Medicare program.
Other survey findings include:
* Benefit costs varied significantly by area of the country.
As a percentage of payroll, benefit costs were highest in the Northeast at 44.8% of payroll, and lowest in the Southeast at 39.9% of payroll.
The key reason for this geographic disparity in benefit expenditures is that hospital expenses vary so dramatically around the country.
For example, according to the study, a semi-private hospital room in New York now averages more than $1,400 a day, while in parts of the South it is not unusual for a hospital room to cost less than $250 a day.
In fact, health care related costs in 1996 averaged $3,915 per employee in the Northeast and $3,030 in the South.
* Benefit costs as a percentage of payroll were highest in the transportation equipment industry -- 50.8% -- and lowest -- 27.9% -- in the textile products and apparel industry.
Copies of "Employee Benefits: 1997," are available from the U.S. Chamber of Commerce, Publications Fulfillment, U.S. Chamber of Commerce, 1615 H St., N.W., Washington, D.C. 20062; 1-800-638-6582. In Maryland, the number is 1-800-352-1450. The cost is $35. Appropriate sales tax should be added for deliveries in California and the District of Columbia.