Most employers would probably agree that health premiums and employee earnings are major considerations when making health care choices. In fact, health premiums correlated directly with employee earnings, according to the ADP Research Institute® Annual Health Benefits Report: 2016 Benchmarks and Trends for Large Organizations.
Typically, lower income workers have lower health premiums while higher income workers pay more. However, when premiums are adjusted to account for dependents, premium costs tend to be similar across all income levels. Employer contributions to health premium costs also decreased slightly as income rose.
An Upward Trend
Premiums themselves are rising modestly each year. From 2014 to 2015, there was a 5 percent increase, according to the report. The cost per covered life rose 7.9 percent — a good indicator of medical health inflation. The difference between 7.9 percent and 5 percent can be attributed to a decline in the dependent ratio. Another key trend affecting these numbers is an emerging workforce that is younger and unmarried, meaning employees have fewer dependents.
The relatively modest increase shows that employers are taking positive steps to manage their health care costs while meeting the requirements of the ACA. However, there can be differences among industries and even among employers in the same industry. Even employers near or below the averages may be able to further mitigate health care increases. Even though the rate of increase slowed, health care still represents a significant cost for large employers. This means close examination of national and industry trends in health care cost changes is critical for organizations to best manage those expenses in the future.
Some organizations may achieve lower premium costs through the redesign of deductibles, models and provider networks, or better health management. Gym memberships, smoking cessation programs and similar efforts may help reign in premium costs and increases, while also resulting in a healthier workforce — meaning less time lost due to medical reasons. Employers should also examine their workforce in terms of dependents and see if they can get lower premiums by switching insurance carriers.
It should be noted that medical costs may also be driven by cost of living and compliance with state insurance laws for specific geographies. All else being equal, employers with higher medical costs relative to their peers will have a competitive disadvantage. With higher operating costs, there's less discretionary cash to fund employee direct compensation, retirement benefits and workforce training.
The connection between health premiums and employee earnings should be something that is considered with great care by employers when making health care choices to ensure that your organization is providing valuable, but still cost-effective, health care to employees.
To learn more about benefits trends in 2016, read the report: Annual Health Benefits Report: 2016 Benchmarks and Trends for Large Organizations.
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