EBRI: Health Care in Line to Lead Workplace Benefits Costs

December 12, 2005 (PLANSPONSOR.com) - Fast-growing health care costs are soon to become the largest portion of employers' total benefits outlays.

A news release from the nonpartisan Employee Benefit Research Institute (EBRI) reported that, in 2004, retirement costs narrowly pushed ahead of health care as the leading item of employers’ total benefit spending – 47.1% for retirement, 43.2% for health care, and 9.8% for all other benefits.

The EBRI data also showed how the health care share of total benefits spending has grown from 8.8% in 1950, to 26.7% in 1980, to 38.3% in 1990.

“While total retirement benefits currently constitute the largest single share of employer spending on benefits, health costs are growing fast, and are on a course that could soon make them the largest portion on benefits expense,” the study said.

As the health-care share of total employer benefits spending has increased, the percentage allotted to other benefits has fallen, EBRI asserted. Retirement spending accounted for 56.3% of employers’ total benefits outlays in 1950, rose to 61.2% in 1970, and has been falling ever since. Other benefits (such as life insurance) represented one-third of employers’ total benefit spending in 1950 but have fallen over time to less than 10% of the total now.

Health care already accounts for the largest share of spending on benefits that employers voluntarily provide to workers, the study said. The shift took place between 1980 and 1990. In 1980, retirement benefits accounted for 61.6% of employers’ spending for voluntary benefits, compared with 36% for health care.

But by 1990, employer spending on health care hit 52.1% of voluntary benefits costs, compared with 45.8% for retirement outlays. The difference was even greater in 2004: 57.4% for voluntary health care benefits, compared with 41.2% for retirement plans.

Wages and salaries remain by far the largest share of employers’ total compensation costs, but the percentage has been declining over the years, according to the EBRI data. In 2004, wages and salaries accounted for 81% of total compensation costs, compared with 95% in 1950. Over that same time, the percentage of total compensation going for retirement went from 3% to 9%, while the percentage allotted to health care rose from one-half of 1% to 8%.

The study is here .