Not a Member?  Become One Today!

Percentage of Health Care
 

   2/1/2007
 

The percentage of premiums that an organization pays for employee and dependent coverage is one of several measures that can help HR professionals better understand the employee benefits-related expenditures of an organization. Determining the percentage of premiums an organization pays for employee and dependent coverage can be accomplished through the use of a simple formula: divide the amount the organization pays for employee and dependent coverage premiums by the total premium amount.

Employee health care benefits are considerably more expensive to an employer when an employee’s adult dependents are added to the coverage because adult dependents have significantly higher health care premiums than children. Requirements for employer-provided health care benefits that include another adult have traditionally been based on an opposite-sex spouse. However, because of the necessity for an employer to provide benefits equally to all employees and their dependents, in recent years companies have increasingly been defining an adult dependent as a domestic partner. The term domestic partner is used to avoid the more traditional definition of an adult dependent as being of the opposite sex.

In 2006, the average cost to an employer to provide health care benefits for an employee and his or her dependent family was $8,508, while the cost to provide benefits to only an employee and not dependents was $3,615.1 Because employers incur a much greater cost when an employee’s dependents are included in the employer-provided health care benefits, many organizations develop strategies to encourage an employee’s adult dependents to look elsewhere for sources of health care coverage. One such strategy commonly used by employers is to reduce the percentage of health care premiums paid for by the employer. Across all industries in 2006, employers paid an average of 80% of the health care premium for employees but only 67% of the health care premium for coverage that included both employees and their dependents.2 This strategy not only directly reduces the health care-related expenditures of an organization but also serves to have a significant effect on the enrollment of employees and their dependents in employer-sponsored health care programs. By paying less of the premium for family health care coverage, many employers hope to reduce enrollment in employer-sponsored health care programs, thereby further reducing the total benefit cost to an organization. Table 1 provides a breakdown of the average percentage of employee and dependent health care premiums paid for by the company.

Table 1: Average Percentage of Employee and Dependent Health Care Premiums Paid by the Organization and the Employee

Industry

Number of Respondents

Company

Employee

All industries

478

67%

33%

Educational services

37

67%

33%

Finance

32

61%

39%

Government

39

69%

31%

Health-care services

42

67%

33%

High-tech

40

72%

28%

Insurance

27

58%

44%

Manufacturing (durable goods)

57

73%

27%

Manufacturing (nondurable goods)

25

72%

28%

Retail/wholesale trade

24

54%

46%

Services (nonprofit)

49

66%

35%

Services (profit)

29

56%

44%

Transportation and warehousing

14

68%

32%

Utilities

12

74%

26%

Source: Dooney, J., & Smith, N. (2006). SHRM human capital benchmarking study: 2006 executive summary. Alexandria, VA: Society for Human Resource Management.

HR professionals are increasingly being asked to find a way to minimize the increasing cost of employee health care benefits while still providing a meaningful incentive to employees. Given the importance of health care coverage to employee job satisfaction,3 employers should continually evaluate the health care benefits they provide to employees against the benchmarks of their respective industry in order to remain competitive in the attraction and retention of employees to their organization.

For more information on human capital metrics and to learn how the SHRM Customized Human Capital Benchmarking Service can take your HR department to the next level, please visit our Web site at www.shrm.org/Research/CustomizedBenchmarkingService/Pages/default.aspx or call 1-800-283-7476 ext. 6366.

Endnotes

1 The Kaiser Family Foundation and Health Research and Educational Trust. (2006). Employer health benefits 2006 annual survey. Retrieved January 10, 2007, from www.kff.org.

2 Dooney, J., & Smith, N. (2006). SHRM human capital benchmarking study: 2006 executive summary. Alexandria, VA: Society for Human Resource Management.

3 Esen, E. (2006). SHRM job satisfaction series: 2006 job satisfaction survey report. Alexandria, VA: Society for Human Resource Management.

Disclaimer

This article is published by the Society for Human Resource Management (SHRM). All content is for informational purposes only and is not to be construed as a guaranteed outcome. The Society for Human Resource Management cannot accept responsibility for any errors or omissions or any liability resulting from the use or misuse of any such information.

Author: James Kurtessis, SHRM Research Department

Copyright Image Obtain reuse/copying permission
 

 Links