Soaring heath care costs point to more trouble ahead


As the cost of employee health coverage in the U.S. again surges ahead of inflation, more than half of workers are worried their health care costs will increase and the scope of their benefits decrease over the next few years.

The cost of employee health care coverage has risen by an average of 7.7 per cent this year, according to a survey by the Kaiser Family Foundation, more than double the rate of inflation and a rise of 87 per cent since 2000.

Despite the fact that this represents the third year in a row that cost increases have slowed, it still means that more and more firms – particularly smaller ones – are forced to reign in wages to pay for health benefits.

Meanwhile, some five million American workers are now uninsured because they – or their employers – could not or would not provide cover.

"The cost trend is moderating but nobody is celebrating," said Drew Altman, president of the Kaiser Family Foundation. "Businesses and workers are still being slammed year after year by rising health costs."

And although some six out of 10 employers still offer health coverage, a growing number of Americans are worried that the costs will continue to increase and their benefits decrease over the next few years.

A separate survey by consultants Watson Wyatt found that almost seven out of 10 workers are concerned their employer will increase out-of-pocket health care costs through higher deductibles and co-payments over the next three years.

Half also worry that their employer will reduce the scope of their health care benefits by limiting providers or items covered in the next two years.

Eemployees will increasingly consider health care benefits when deciding whether to stay with their current companies

"No employee wants to pay more for less, especially when it comes to their own health," said Ilene Gochman of Watson Wyatt Worldwide.

"As their concerns escalate, employees will increasingly consider health care benefits when deciding whether to stay with their current companies. And if the trend continues, these benefits could become a real differentiator as employers try to hold on to key talent."

As a result, employers are underestimating the role that health care and retirement benefits play in retaining top employees, Watson Wyatt argue. In fact, two-thirds of employees view health care benefits as an important reason to stay with their current company.

Meanwhile, Watson Wyatt's 2006 Strategic Rewards study found that almost a quarter (22 per cent) of top-performing employees cite health care benefits as one of the top three reasons they leave a company.

Employers, however, underestimate the importance of health care benefits in keeping employees. Astonishingly, none of the employers surveyed thought that health care coverage is a key reason top-performing employees leave.

It is a similar story as far as retirement benefits are concerned. More than four out of 10 employees are concerned their company will reduce pension, retirement or retiree medical benefits in the next three years, while one in three covered by a defined benefit pension plan are concerned their company will freeze or terminate their plan over the same time.

"It's not surprising that employees are concerned about benefits reductions, given the changing relationship between employers and employees," said Laury Sejen, director of strategic rewards at Watson Wyatt.

"Employers can help ease those concerns by explaining the competitive pressures they face in the marketplace and associated trade-offs in reward programs. By clearly communicating their total rewards strategy, management can pave the way to better employee understanding of their total package and acceptance of any benefit changes that need to be made."