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Rising Health Costs Weigh on Workers

Posted on: Tuesday, 19 July 2005, 15:00 CDT

U.S. companies expect an 11 percent rise in employee health costs in the next year and, as a result, some may slow wage growth, hire fewer permanent workers or ask workers to share more of the expense, according to a survey of 150 executives.

The study, released Monday by consulting firm PriceWaterhouseCoopers LLP, found that in the last year health care costs rose 12 percent, slowing profit growth at half of large U.S. companies. Executives were surveyed at 109 companies with at least 1,000 workers and at 38 companies with fewer than 1,000 workers.

"I see this survey as playing a role in getting the educated public to recognize that when health care premiums go up, even if their employer pays for it, they're not getting off scot-free," said Paul Ginsburg, an economist and president of the Washington-based Center for Studying Health System Change.

Health spending last year grew 2.6 percentage points faster than the U.S. economy, according to a June 21 study by Ginsburg's center. This is the fourth year that employers increased workers' share of the cost of health insurance, through higher deductibles and co- payments, he said.

More than three-quarters of executives surveyed by PriceWaterhouseCoopers said they may ask workers next year to share more cost, with higher deductibles and co-payments for hospital care and prescription drugs. One in four said they may slow the rate of wage increases, and one in five said they may stall hiring of permanent workers. Eight in 10 said they use financial incentives to promote healthy lifestyles.

"Companies are putting in financial incentives to use the right care, be it disease prevention or disease management," said Kate Sullivan Hare, the U.S. Chamber of Commerce's executive director of health care policy.

About 48 percent of the executives polled said workers with unhealthy habits should pay a larger share of health costs, and 42 percent disagreed.

"That is the great upcoming debate," said Gary Claxton, director of the Health Care Marketplace Project at the Kaiser Family Foundation, which does its own annual survey on employer health benefits in September.

"It's popular, but somewhat challenging and legally questionable to penalize people" for not giving up smoking or losing weight, Claxton said.

The study confirms what economists have been hearing anecdotally for years, said Paul Fronstin, an economist and director of the Washington-based Employee Benefit Research Institute's health research program.

Fronstin's organization in 2003 published a survey of 500 employers with two to 50 workers, and found that 43 percent responded to health care increases by cutting back on other expenses, including wages.

Now large companies, including General Motors Corp., are talking about how health care expenses are affecting their performance. Chief Executive Rick Wagoner, who announced the company's biggest quarterly loss in 13 years in April, said health care spending for workers and retirees made the automaker uncompetitive. GM will spend $5.6 billion on care this year.

"This is something that has been going on, but it hasn't been at the front of executives' thinking," Fronstin said in an interview Monday. "GM is out there talking about it, and now other employers are thinking about it."

About 35 percent of executives surveyed by PriceWaterhouseCoopers said their company had a high-deductible health plan, which requires workers to pay more upfront for health-care services. Only 7 percent of those whose companies didn't offer such a plan said they intended to add one.

Source: Record, The; Bergen County, N.J.

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