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Costs Compared: Public vs. Private Sector Health Plans

Public workers' have generous health plans; bear lower share of costs

In 2014, the average total annual cost per employee in the U.S. for group health plan premiums was $9,504, of which the average employer cost was $6,276 and the average employee contribution was $3,228, according to survey data from the 2014 United Benefit Advisors (UBA) Health Plan Survey of nearly 10,000 U.S. employers.

Government (public administration) health insurance plans had the highest average total premium cost per employee at $11,329 per year—17.5 percent higher than the average group health plan. Despite this, public employees' share of their premiums was the lowest among all workers at $2,040—45 percent less than average, the survey found. Surprisingly, this already low contribution was 39.7 percent lower than two years earlier, when public employees contributed $3,051.

“The government sector historically has provided generous employee benefits,” said Les McPhearson, CEO of UBA, in a January 2015 news release. “The risk that taxpayers face is the forthcoming ‘Cadillac tax’ [on high-value health plans beginning in 2018] if public employers can't get their health care costs under the $10,200 premium threshold. The Cadillac tax is hefty—a nondeductible 40 percent excise tax on the excess benefit—which would increase the average cost per employee,” McPhearson noted.

Unlike studies focused on large employers, the annual survey by UBA, an independent employee benefits advisory organization, covers the small to midsize market that makes up a majority of American businesses as well as large companies. (Additional findings from the study were reported in the SHRM Online article Surge in Employees’ Share of Health Costs.)

Industry Variations

Among the industry-specific findings regarding premium variations that UBA highlighted:

Employer health care cost per employee for the manufacturing, health care, construction, retail and hospitality services sectors were all 4 percent to 8 percent lower than the overall industry average costs, making employees in these industries the least expensive to cover.

Employees in the construction industry were some of the least expensive for employers to cover at $5,373 per employee, but they contribute the most toward their health benefits, paying $3,620—approximately 11 percent higher than the average.

“The construction industry tends to be made up of young, single males who value higher hourly wages over health benefits,” said Josh Budke, employee benefits advisor with TrueNorth Companies LLC, a UBA partner firm. “Even ‘free’ benefits with no co-pays, like wellness exams and physicals, don’t get utilized in this industry as much as in others, which leads to a lower cost and higher benefit contribution.”

“In the past, a significant percentage of the employees in the construction and food services industries, many of whom are young, did not value a health plan as part of their compensation package,” added Scott Niederbrach, principal at Cherry Creek Benefits, a UBA partner firm.

“Employers responded by not including them and building a business in a relatively small margin industry without the health plan in the business formula,” Niederbrach noted. “Now that [the Affordable Care Act] requires the offering of a health plan to avoid the shared responsibility penalty, the employer is crafting a health plan offering that pegs the price of the plan close to the threshold of the definition of affordability under the regulations. The young demographic of these employees would be expected to lead to a lower health plan cost.”

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.

Related SHRM Articles:

State by State, Health Costs Outpaced Pay Raises, SHRM Online Benefits, January 2015

Health Premiums Claim Bigger Bite of Workers’ Income, SHRM Online Benefits, December 2014

Larger Increases in Health Premiums Expected, SHRM Online Benefits, November 2014

CDHPs Enroll Nearly a Quarter of Covered Employees, SHRM Online Benefits, November 2014

Surge in Employees’ Share of Health Costs, SHRM Online Benefits, October 2014

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