Health Benefits Take Bigger Bite Out of Paychecks

Health care makes up 7.6% of companies’ annual budgets, SHRM finds

By Stephen Miller, CEBS Sep 2, 2016
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Health care cost increases are eating up more of U.S. companies' annual budgets even as employees pay more for their health care benefits, according to new research findings by the Society for Human Resource Management (SHRM) and others.

The average cost of health care benefits makes up 7.6 percent of a company's annual operating budget and equates to an average of $8,669 per covered employee, according to SHRM's Health Care Benchmarking Report, released on Aug. 30. (These figures represents total plan costs without regard to how premiums are divided up between the employer and employees.)

The average cost per covered employee has increased by nearly $500 over three years; employers spent an average of $8,171 per employee in the previous fiscal year, according to the report. The researchers analyzed data collected from a sampling of 2,124 SHRM members from February to April 2016, reflecting the previous 12 months.

"More and more employers are having to push the increasing cost of health care onto employees," said Evren Esen, director of workforce analytics at SHRM. "High-deductible health plans such as health savings accounts [HSAs] and health reimbursement arrangements [HRAs] are one way that employers are attempting to counter the high costs."

Currently, 48 percent of organizations offer HSAs, and 23 percent offer HRAs, the researchers found.

Health Plan Benchmarks

Below are additional findings from the report:

Health Care Coverage

  • 98 percent of organizations offer health care coverage for full-time employees.
  • 92 percent offer coverage for the spouse of employees, down from 96 percent in 2011.
  • 23 percent offer health care coverage for part-time employees, down from 27 percent in 2014.

Deductibles, Premiums and Co-pays

Across all plans, the average annual in-network deductible for employee-only coverage is $1,554, the total monthly premium for employee-only coverage is $461 and the total monthly premium for family coverage is $1,292.

Average health care premiums for all plan types:

Total monthly premium for employee-only coverage$461
Total monthly premium for spouse or domestic partner coverage$959
Total monthly premium for family coverage$1,292
Percentage of premium employer pays for employee-only coverage77%
Percentage of premium employer pays for spouse of domestic partner coverage60%
Percentage of premium employer pays for family coverage59%

Source: SHRM Customized Health Care Benchmarking Report.

Looking at deductibles for nonpreventative care, flat-dollar co-payments due at the time of service, and the co-insurance percentage that employees pay for services, the survey found the following:

Average deductibles and co-pays for all plan types:

Annual in-network deductible for employee-only coverage$1,554
Annual out-of-network deductible for employee-only coverage$2,450
Co-pay for in-network primary care office visits for employee-only coverage$22
Co-pay for out-of-network primary care office visits for employee-only coverage$27
Co-insurance for in-network primary care office visits for employee-only coverage38%
Co-insurance for out-of-network primary care office visits for employee-only coverage43%

Source: SHRM Customized Health
Care Benchmarking Report.

Consumer-Directed Health Plans

On average, employers contribute:

  • $576 to their employees' HSAs.
  • $1,885 to employee HRAs.

Prescription Drug Coverage

The average employee co-pay is:

  • $11 for generic medication.
  • $33 for formulary brand medication (insurance carriers' preferred drugs).
  • $58 for nonformulary brand medication.

Ninety-two percent of companies offer generic prescriptions, while 95 percent offer a 90-day mail-order prescription service.

Higher Costs for Lower Coverage

The median in-network deductible on an employer-sponsored preferred-provider organization (PPO) health plan increased 50 percent, from $1,000 to $1,500 in 2016, according to preliminary results from the 2016 Health Plan Survey from United Benefit Advisors (UBA), a nationwide network of employee benefits brokerage and advisory firms.

The findings, based on responses from 11,524 employers surveyed earlier this year about their 2016 health plans, show that:

  • Average plan costs for employers actually decreased slightly, from $9,736 in 2015 to $9,727 in 2016.

  • Of the $9,727, employees contributed an average of $3,378 and employers contributed on average $6,350 (whereas in 2015, employers paid $6,403 of the $9,736 average overall cost, while employees paid $3,333).

UBA shared with SHRM Online 2016 annual health plan cost figures, which will be included in its forthcoming report, for preferred-provider organization (PPO) plans, health maintenance organization (HMO) plans, point of service (POS) plans, consumer-directed health plans (CDHPs) and exclusive provider organization (EPO) plans. 

2016 Annual Premiums: Total cost per employee:

Type of Plan Total Cost Employee Cost Employer Cost
PPO$10,134$3,520$6,614
HMO$8,886$3,186$5,700
POS$10,248$4,207$6,041
CDHP$9,391$2,979$6,412
EPO$10,141$3,567$6,574
All Plans
 (average)
$9,727

$3,378

$6,350

Source: 2016 UBA Health Plan Survey.

The survey also showed that families are bearing the brunt of the cost of health insurance. For an employee electing single coverage, the employer covers 71 percent of the monthly premium, but only 54 percent of a family premium.

2016 Monthly Premiums: Single vs. family coverage:

Type of Plan
Single-Only:
Total Cost
Single-Only: Employee Share

Family: 
Total Cost

Family: Employee Share
PPO$535$150
 (28.8%)
$1,292$587 (47.1%)
HMO$490$150
 (31.0%)
$1,191$555 (48.0%)
POS$525$177
 (33.7%)
$1,267$563 (53.2%)
CDHP$469$118
 (25.8%)
$1,157$460 (41.1%)
EPO$547$167
 (30.5%)
$1,308$564 (44.9%)
All Plans
(average)
$509 $144
 (28.8%)
$1,236 $552 (46.1%)

Source: 2016 UBA Health Plan Survey.

Regionally, average monthly family premiums were highest in the Northeast at $1,394, or 12.8 percent higher than the national average, while average family premiums in the Central region were the lowest at $1,109, or 11.4 percent below hte national average.

By raising the deductible $500, employers could avoid a premium increase of roughly 3 percent to 6 percent, UBA found.

"Overall, employer costs remained consistent because they are passing more and more of their increases on to employees—a trend we expect to see more of in the future," said Les McPhearson, CEO of UBA, in an online post. "Employers simply cannot continue to absorb unsustainable increases in health care costs. Unfortunately, neither can employees."

Some Forgo Care

Low-earning employees who switch to high-deductible HSA plans are more likely than their higher-paid colleagues to avoid certain types of health care—even though that care may be covered outside the deductible as preventative services, according to new research by the nonprofit Employee Benefit Research Institute (EBRI) in Washington, D.C.

The EBRI analysis, published in August, looked at health claims of one large Midwestern employer by workers' income levels, and found that:

  • Switching to an HSA-eligible high-deductible health plan caused a decline in outpatient office visits for workers at all income levels, but the decline was twice as large for workers and their dependents with incomes less than $50,000 as compared to those with incomes of at least $100,000.

  • Lower-income workers changing to an HSA plan reduced their use of influenza vaccinations more than higher-income workers, even though flu shots were preventative care covered on a first-dollar basis.

  • The HSA-eligible health plan was associated with an increase in emergency department visits and inpatient hospital admissions among lower-income individuals.

But these effects were most evident during an employee's first year under the HSA-eligible plan and then appeared to taper off.

"Since the increase in emergency department visits and inpatient admissions disappear over time, some plan sponsors and insurers may decide not to modify the designs of their plans as a result of these findings," said Paul Fronstin, director of EBRI's health research and education program and co-author of the report.

If plan sponsors are concerned about the impact of HSA plans on lower-income workers, "they can consider modifications to alleviate any negative impact on this group," Fronstin noted. For example, "employers could provide higher HSA contributions to lower-income workers," he said. "This would reduce the typically flat-dollar gap between the health plan deductible and employer contributions to the HSA, so that lower-income workers would have additional funds to pay for health care services."

Related SHRM Article:

Employers Project Health Premium Hike of 6% in 2017, SHRM Online Benefits, August 2016

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