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Employee Benefits Costs Continue to Rise, Especially Those Related to Health Care

Posted Monday, July 24, 2017 3:29 pm

The cost of providing employee benefits continues to rise, largely due to the cost of health insurance, according to a recent study by Willis Towers Watson.  The study, Shifts in Benefit Allocations Among U.S. Employers, found that the cost of providing employee benefits increased nearly 25% between 2001 and 2015.  Health care costs for active employees comprised about two-fifths (42%) of benefits provided in 2001, and retirement benefits made up the remaining three-fifths (58%).  A significant shift occurred during the intervening years, however, and by 2015, health care benefits accounted for just under two-thirds of costs (64%) and the retirement share fell to slightly more than one-third (37%).


During the study period, health care costs for active employees more than doubled by rising from 5.7% to 11.5% of pay. Total retirement benefits provided declined by 25% by dropping from 9.1% to 6.8%.  The study defines total retirement benefits as the combined value of defined benefit, defined contribution and postretirement medical plans.


"The rising cost of employee benefits remains a challenge as employers seek to get the most employee value from their pay and benefit programs," said John Bremen, managing director, Human Capital and Benefits, Willis Towers Watson. "Beyond the overall increase, there has been a seismic shift that can be characterized as a tale of two benefit programs. Health care benefits are eating up a larger portion of dollars while the amount spent on retirement programs is on the decline. This reallocation has major implications for employers and employees alike."


Researchers learned that employees may prefer a different allocation based on their needs and concerns.  According to Willis Towers Watson's Global Benefits Attitudes Survey, employees value health care benefits but are also worried about whether they have saved enough for retirement. "Employers may want to reevaluate the allocation of benefit dollars to better respond to employees' needs and concerns," said Alexa Nerdrum, senior retirement consultant at Willis Towers Watson. "This could consist of more tax-efficient saving mechanisms, such as the broader use of health savings accounts, as well as wiser spending on health care. While the solution for each organization will be unique, employers need to balance cost with the long-term returns on providing benefit packages that will be highly valued by their workers."


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