Report: Health Care Costs Shrink Wages, Benefits

By Stephen Miller Feb 25, 2008

With health insurance premiums growing four times faster than workers’ earnings from 2001 to 2007 (78 percent vs. 19 percent, respectively), one way employees might be feeling the impact of rising health care costs is through smaller increases in their paychecks, a new report from the Kaiser Family Foundation suggests.

The report, Wages and Benefits: A Long-Term View, finds that the total amount employers spent on group health insurance policies has grown more than 20-fold from 1960 to 2006. Employer payments for health benefits increased as a share of total compensation in every decade, while wages fell as a share of employee compensation.

Figure 1 

Source: U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts, 1960-2006 (compiled by the Kaiser Family Foundation).

"Many people feel the burden of health care costs directly when they use medical goods and services. However, another way these expenses may affect families’ wellbeing is by slowing the increase in their paychecks each year," says report author Paul Jacobs, a health research consultant at the Kaiser Family Foundation. "Absent fundamental change in cost growth," he adds, "these trends seem likely to continue."

Figure 2 

Source: U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts, 1960-2006 (compiled by the Kaiser Family Foundation).

Total compensation—wages plus benefits—as a share of the U.S. gross domestic product has remained fairly stable during the same period. However, average health benefit costs paid by employers increased from 0.6 percent of gross domestic product in 1960 to 4.1 percent in 2006, according to the report.

Figure 3 

Source: U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts, 1960-2006 (compiled by the Kaiser Family Foundation).

Stephen Milleris manager of SHRM Online's Compensation & Benefits Focus Area.

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