Nearly Half Employer Benefit Dollars Going to Health Insurance

In 2000, retirement benefits constituted 48% of total benefit spending, while spending on health benefits amounted to 42.1% of the total, according to the Employee Benefit Research Institute (EBRI).  In 1960 retirement benefits were nearly 60% of the total, while health benefits made up just 14.3% (‘other’ benefits were 25.7%, compared to just 10% of the total in 2000).

Still, the average annual growth rate in employer spending on benefits dropped off significantly during the 1990s, compared with the prior decade.  In the 1980s, the average annual growth rate was more than 8%, versus just 3.9% during the 1990s – a drop off attributable to the adoption of managed care among employment-based health plan sponsors, according to EBRI.

Further, the slower growth rate in employer spending on group health insurance accounted for a large part of the slower growth rate in overall spending on employee benefits, according to the report.

Health Spending Dips, Rises

The rate of employer spending on group health insurance has declined steadily from 1981, when spending on group health insurance increased 17.5%.  In fact, by 1997 employer spending on health insurance actually posted a negative growth rate of -4.9%.  Unfortunately for employers, since that time the growth rate of employer spending on group health insurance has once again been on the rise, reaching 7.1% in 2000.

Overall, employer spending on retirement income benefits, less Social Security, increased at an average annual rate of 1.9%, growing to $186.1 billion in 2000, up from $154.4 billion in 1990.  EBRI notes that private-sector employers spent $55.3 billion on retirement income benefits, less Social Security, in 1980 – an amount that increased to $62.6 billion in 1990, and to $69.8 billion a decade later.

The growth in spending by state and local governments was even more dramatic, growing from $19.1 billion on retirement income benefits, less Social Security, in 1980 to $33.0 billion in 1990, and to $44.2 billion in 2000.

During the 1990s private-sector spending on retirement income benefits increased at an average annual rate of 1.1%, compared with 3.0% among state and local governments.

Other Findings

Employer spending on other benefits (i.e., unemployment insurance, life insurance, and workers’ compensation) increased to $86.9 billion in 2000 from $78.7 billion in 1990, growing at an average annual rate of 1.0%. 

Meanwhile, employer spending on Social Security, Old-Age, Survivors, Disability, and Hospital Insurance (OASDHI), grew at an average annual rate of 5.0% in the 1980s, and 5.8% in the 1990s.