Health costs hitting company profits

Jul 19 2005 by Brian Amble Print This Article

U.S. employees face higher health insurance bills and smaller pay rises as spiralling health costs eat into company profits and push up employment costs.

Half of large U.S. companies say that increased healthcare costs have contributed to slower profit growth over the past 12 months and, as a result, more than three-quarters may ask employees to pay a greater share of health insurance costs.

One in four companies said double-digit healthcare cost increases may force them to lower wage increases for employees, and one in five expects to slow hiring of new permanent employees in the year ahead.

The findings, from a survey of 150 top executives at large, U.S.-based multinational companies by PricewaterhouseCoopers' Health Research Institute, also reveal that healthcare costs per employee had risen by an average of 12 per cent over the past year, and they project another increase of 11 per cent over the next 12 months without any changes to plans.

While making employees pay a higher share of healthcare costs appears to be the solution for the majority of employers surveyed, one in five employers said that doing so would have very little impact on reducing their company's overall healthcare costs.

But the most popular option for reducing corporate healthcare cost increases is to provide financial incentives for employees to live healthier lifestyles, according to more than eight out of ten of the executives surveyed.

"Shifting a greater share of spiralling healthcare costs to employees is a trend that is likely to continue, but if employers push too far, workers may opt out of coverage altogether," said Sandy Lutz, director of research for PricewaterhouseCoopers Health Research Institute.

"However, consumers need to understand the connection between rising healthcare costs and their own behavioural issues, such as smoking and obesity, that drive up spending."

However when asked about the correlation between healthcare costs and behaviour, the survey results were split. While almost half of employers said requiring employees who exhibit unhealthy behaviour (e.g., smoking, poor nutrition) should be responsible for paying a larger share of their health benefit costs, four out of 10 disagreed.

Nevertheless, said PwC's Michael Thompson, "there is a growing trend for employers to expect employees and their families to take more personal accountability for managing their own health through prevention and lifestyle choices."