Benefit costs shift into reverse - employee benefits

Nation's Business, Feb, 1996 by Roger Thompson

Lower medical costs made it possible for employers to spend less on workers' benefits in 1994, the first such decline since the U.S. Chamber of Commerce began surveying employers about benefits nearly 50 years ago.

The Chamber's latest study found the average cost of all benefits for a full-time employee slipped to $14,678 in 1994, down $129 from the year before, when spending on benefits hit an all-time high. The total figure includes Social Security, pensions, holidays, and vacations.

Benefit payments as a percentage of payroll declined to to 40.7 percent from a high of 41.3 percent in 1993.

The study, Employee Benefits 1995 Edition surveyed 929 employers nationwide. The first such survey was conducted in 1947. The 1995 report cites two major reasons for the reversal in the upward spiral of benefit expenditures:

* Employers used more over time in 1994 rather than hiring new employees, saving on benefit costs. "Overtime has reached a record high," says Martin Lefkowitz, author of the study and director of special projects at the U.S. Chamber. Health insurance and other benefits are tied to the number of workers, not the hours worked.

* More important, employers broke the pattern of rising health-insurance costs by relying more heavily on managed-care organizations and by shifting more costs to employees. Average health-insurance premiums paid by employers declined in 1994 to $2,579, down $272 from the 1993 figure.

Rapidly rising health-insurance costs have forced employers in recent years to implement a variety of cost-containment measures. Some affect plan design; others shift costs to employees.

Nearly two-thirds of the companies surveyed now offer health maintenance organizations (HMOs), which provide service for a fixed annual fee. And 57 percent offer preferred provider organizations (PPOs), which negotiate discounted fees with doctors and hospitals.

The study also found that 47 percent of those surveyed had increased or instituted health-insurance deductibles during 1993 and 1994. Employees pay deductibles out of pocket before the insurance kicks in. Over the same period, 41 percent had increased the amount of premium paid by employees.

Spending for all medically related benefits also decreased in 1994, to $3,754, down $241 from the year before. Medically related costs include active and retiree health-insurance premiums; long-term and short-term disability benefits; dental, vision, and wellness benefits; and other health-related spending.

Among the four regions used in the survey, the West registered the highest spending on medically related benefits at $4,991 per employee. The Northeast ranked second with $4,318, followed by the Southeast at $3,393 and the East North Central (Illinois, Indiana, Michigan, Ohio, and Wisconsin) at $3,029.

Since 1990, medically related benefit costs have climbed 50 percent in the West, compared with only 11 percent in the East North Central.

Other highlights of the study:

* Manufacturing firms paid significantly more in benefits than nonmanufacturing firms. (See the accompanying chart.)

* Fifty-six percent of the companies said they made contributions for their employees to 401(k) savings plans in 1994, up from 39 percent in 1987. Seventy-five percent said they offer a 401(k) plan, meaning that a number of employers that provide the plans do not make contributions.

* Thirty-six percent reported contributing to traditional pension plans, down from 48 percent in 1987. But 67 percent reported having traditional defined-benefit fit plans in place, indicating that almost half have sufficient funds in their plans not to need to contribute.

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