After watching health-care costs rise more than 60% in the past five years, most of America's 177 million insured workers are bracing for another dose of pain. As this November once again brings open-enrollment season--that annual headache of working out how much more of our paychecks will go to health benefits next year--2007 looks to bring no relief. For the average employee, premiums and out-of-pocket expenses will reach $2,904 a year for a family, up $300 from 2006. That's the pass-along pain of the costs that employers now endure, nearly $9,000 per employee, up an estimated $518 from this year.
Containing those costs is a new corporate imperative. Among the tactics: bosses are skimping on raises. They're being more restrictive about covering family members and offering more preventive programs to keep workers healthy--or at least forcing them to take more responsibility for their health-care spending. That is, if they even offer health benefits. Thirty-nine percent of companies offer no medical benefits, up from 31% in 2000. About 60% of companies say they expect coverage to decrease. So it's not surprising that 80% of Americans polled say the system is broken. "Really all humanity has been stripped out," says Cathi Shaefer, a grocery clerk for the supermarket giant Safeway in Upland, Calif. "The care of people is getting a lot less attention than numbers."
The few companies that have been able to keep their costs down could gain an advantage over rivals, since the disparity between those paying the highest price for health care and those paying the lowest is estimated at $3,000 per employee. For a firm of 10,000 workers, that's $30 million, a chunk of change that would have nearly any executive sweating his competitiveness.
One antidote to the cost spiral: puny raises and fatter deductibles. "Most companies realize they couldn't hire anybody if they didn't offer medical benefits," says Helen Darling, president of the National Business Group on Health. "But they also expect employees to share more of the burden." Workers can't help feeling it. According to Department of Labor statistics, salaries rose 3% from June 2005 to June 2006, but inflation rose 4.7% and health care 8%.
Those numbers won't change much in 2007. Someone making $40,000 a year can anticipate a 4% pay increase next year. (Don't spend it all in one place.) With health-care costs expected to rise about 7%, that means at least 16% of that raise would go to higher premiums or new out-of-pocket expenses. Stated another way, your 4% raise is actually closer to 3%. Of course, employers tend to look at it differently. "It's a phenomenon we call the hidden paycheck because companies have essentially been substituting health-benefit dollars for salary and merit increases," says Ron Fontanetta of the benefits-consulting firm Towers Perrin.