Study: Rising Health Care Costs Gobbling Up Workers’ Take-Home Pay

It’s no secret that the cost of health care for employers and employees has dramatically increased over the years. A new study, however, suggests these ballooning expenses may now also be depressing employees’ actual take-home pay.

Employers now spend about $537 billion on group health insurance policies per year, up about 15 percent from 2000 and roughly 20 times more than employers spent in 1960, according to a report issued Wednesday, February 13, by the Kaiser Family Foundation. The amount employers spent on health care increased almost every year during the past five decades, according to the report.

The Kaiser Foundation noted that employers have accordingly paid their employees lower total wages—as a portion of their total compensation—as these health care expenses have consistently increased. Specifically, Kaiser examined total employee compensation as a share of gross domestic product during a period of more than 45 years.

Total wages have fallen from 51.8 percent of GDP in 1960 to 45.6 percent of GDP in 2006. At the same time, however, health benefit costs have grown from 0.6 percent of GDP in 1960 to 4.1 percent in 2006.

“While policymakers and others bemoan the rapid growth in the already high cost of health care, policy options that would have a significant impact on cost growth have not emerged,” stated the report, which was prepared by Paul Jacobs, a health research consultant at the Kaiser Foundation. “Absent fundamental change in cost growth, or a retreat from our country’s reliance on employer-provided health insurance, these trends seem likely to continue.”

Also of note, the Kaiser Family Foundation pointed out that health insurance premiums have risen 78 percent since 2001, while inflation and workers’ earnings have increased only 17 percent and 19 percent, respectively, during the same period.

Souce: Mark Bruno of Financial Week, a sister publication of Workforce Management, 2/14/08.