With the cost of employee benefits rising both in real terms and as a percentage of total salary, corporations in general and small businesses in particular are being increasingly squeezed to find new ways to reduce healthcare contributions.

Also putting pressure on companies is the fact that benefits as a percentage of wages rose in each of the previous three years. This scenario has created a situation in which companies are looking at alternatives with increasing diligence.

According to the Bureau of Labor Statistics, in March 2004, on average, across the nation, employers paid insurance benefits averaging $1.65 for every hour of paid labor. This represented 7.1 percent of total compensation.

Overall, private industry employer compensation costs averaged $23.29 per hour worked. Wages and salaries averaged $16.64 per hour (71.5 percent), while benefits averaged $6.65 (28.5 percent.)

To put these statistics into another perspective, as of March, 2004, $.29 of every dollar earned is paid in benefits with about a quarter of those costs allocated to insurance premiums, according to the Department of Labor.

The result, according to recent surveys by Small Business Digest, is that most small businesses (59%) are responding by passing more of the healthcare insurance costs on to their employees.

Workers Getting Less

In actuality, wages and salaries, as a percentage of total compensation in the private sector, have dropped in the past five years from 73.0 percent of total compensation in March 1999. This means, employers are paying more in benefits while their employees are receiving less of each dollar earned.

According to the Bureau of Labor Statistics, in dollar terms for all public and private employees, wages and salaries, which averaged $17.71, accounted for 71.0 percent of these costs, while benefits, which averaged $7.23, accounted for the remaining 29.0 percent.

Moreover, there is a significant variance in pay scale for workers by number of employees.

Total compensation costs were $19.47 per hour worked in establishments with fewer than 100 workers, less than the compensation costs ($27.81) for establishments with 100 workers or more.

Businesses with fewer than 50 workers had averaged hourly wages of $19.37, those with 50-99 workers averaged $19.81, those with 100-499 employees averaged $23.91, while those with 500 or more employees averaged $32.54.

These figures measure employer costs for wages, salaries, and employee benefits for non-farm private establishments.
As economist Dr. Kenneth E. Lehrer reports in his study of projected HSA acceptance rates, the pressure on small businesses to curb healthcare costs are driving them to pass on more-and-more of insurance costs to employees. Recent polls by Small Business Digest confirm this trend with a growing number of companies significantly reducing their healthcare commitments or moving more of the cost to their employees.

Health Savings Accounts, designed to alleviate the situation, were still unknown to more than 47% or responding senior managers and presidents in the latest Small Business Digest poll.