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  What Are the Broad Socio-Economic Trends Affecting the Workplace?

 

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What Are the Major Challenges Facing the Employee Benefits Industry?

The rising cost of healthcare and health insurance premiums continues to be a major challenge for both employers and employees.

  • It is estimated that in 2005, just over 16% of the gross domestic product was spent on healthcare in the United States, up from 13.8% in 1993.1
  • As baby boomers begin to retire, healthcare spending is expected to reach 20% of GDP by 2015.2
  • With healthcare premiums more than doubling in the past decade, controlling healthcare costs is at the forefront of pressures facing employers.3
  • It is suggested that, if action is not taken soon to rein in healthcare costs, health insurance costs will overtake profits for some employers in 2008.4

Challenges for U.S. Employers

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What Is the Impact of Increasing Healthcare Costs On Employees?

  • With employment-based health insurance premiums more than doubling since 1997, the proportion of Americans with access to employer-based health insurance benefits has been steadily declining since 2000.5
  • With premiums rising five times faster, on average, than workers' earnings since 20006, the percent of workers participating in their employer's plan has also been dropping.7
  • The number of uninsured Americans has now reached nearly 45 million.8

Top Employee Financial Concerns

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Why Are Healthcare Costs and Premiums Increasing?

The three primary factors contributing to increases in healthcare premiums are:

  1. General inflation;
  2. Healthcare price increases in excess of general inflation (due to higher-priced technologies, cost-shifting from Medicaid and the uninsured to private payers, and provider consolidation/broader-access plans); and
  3. Increases in utilization.9

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What Are the Causes for the Increases In Utilization of Healthcare?

Increases in utilization are estimated to account for 43% of the overall increase in healthcare premiums10. The three most relevant to the changing employee benefits arena include an aging population, advances in medical treatments and deteriorating lifestyles.

Aging population

  • According to the U.S. Census Bureau, the fastest growing age group is people over age 50.11
  • This aging of America is creating a profound cost-management challenge for employers, as each additional year adds 2.5% - 3.0% in healthcare costs.12
  • Medical costs are reported to rise an estimated 25% from age 40 to 50 and 35% from age 50 to 60.13
  • The driver of excessive healthcare costs by age is a result of the relative health risk the person has, rather than the age itself.14

Advances in medical treatments

  • With the eradication of serious infectious diseases such as mumps and measles, and great strides being made in fighting once-fatal afflictions like cancer, the overall life expectancy of Americans has increased.15
  • Chronic diseases are the leading causes of disability and death in the nation, and account for three-quarters of the nation's total healthcare costs. More than two-thirds of all deaths are due to five leading chronic diseases heart disease, cancer, stroke, chronic obstructive pulmonary disease, and diabetes.16
  • Medical advancements virtually ensure that cancer, heart attacks and strokes are more likely to disable an individual than to cause death before the age of 65.17

Deteriorating lifestyles

  • The presence of risk factors associated with chronic disease, such as smoking, obesity, lack of exercise and diabetes, increases healthcare costs by 300% to 400%.18
  • In 2005, among the total U.S. adult population surveyed, 60.5% were overweight; of those who were overweight, 23.9% were obese and 3.0% were extremely obese.19
  • The costs associated with obesity are daunting with direct and indirect costs, such as loss of income from decreased productivity and absenteeism, exceeding $100 billion.20

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How Does Increasing Diversity in the Workplace Affect Employers?

Older workers are staying in the labor force

  • Between 2004 and 2014, the 55 and older age group is expected to grow at an annual rate of nearly four times that of the overall labor market.
  • The majority of workers today say they plan to work during retirement for an average of nine years.21
  • Some economists agree that a labor shortage is inevitable, perhaps starting as early as 2011. If that occurs, the United States could face a shortage of 35 million workers, if current trends continue. The biggest concern for employers in such a scenario is the potential loss of highly skilled workers.22
  • There will be a need for comprehensive reviews of employee benefits in order to identify and implement benefits and programs that appeal to older workers.

Multi-generational workforce

  • For the first time in history, many organizations have workforces that comprise of four different generations.
    • The Matures/Traditionalists23
      • Ages 60 to 78
      • Grew up in tough economic times during the Great Depression and WWII
      • Dedicated, great team players, carry their weight and don't let others down
    • Baby Boomers24
      • Ages 41 to 59
      • Grew up in an era of economic prosperity and experienced the tumult of the 1960s at an impressionable age
      • Optimistic, idealistic and good team players
      • Driven and highly competitive
    • Generation X25
      • Ages 28 to 40
      • Witnessed their parents' experiences with corporate downsizing and restructuring in the 1970s and '80s
      • Value flexibility, work-life balance and autonomy on the job
      • Appreciate a fun, informal work environment
      • Technologically savvy, eager to learn new skills, comfortable with change
    • Generation Y/Nexters26
      • Ages 27 and younger
      • Tend to be well organized, confident, resilient and achievement oriented
      • Excellent team players, like collaboration and use sophisticated technology with ease
      • Comfortable with, and respectful of, authority and relate well to people who are older
      • Matures and baby boomers make up well over half the American workforce, while Generations X and Y comprise approximately 44% of the labor market, according to the Department of Labor.27

Work-life balance

  • Baby boomers are becoming "sandwiched" between the needs of their children and those of their aging parents.
  • Among primary caregivers defined as the "sandwich generation," 58% of those who are age 25 to 64 are employed. Of the remaining caregivers who are not working, 56% once worked but stopped while providing care.28
  • The Society for Human Resource Management (SHRM) found that both men and women rate work-life balance in the top five categories for job satisfaction.29

Changing household composition

  • According the U.S. Census Bureau, single Americans now outnumber married couples with children.
  • Married couples currently make up only half of the population, married couples with children account for less than a quarter of U.S. households30, and the incidence of unmarried cohabitation increased ten-fold from 1970 to 2004.31
  • Many Americans who are considered "single" have similar responsibilities and concerns as their married counterparts nearly three in 10 children were living with a single parent in 2001.32

Ethnic diversity

  • Over the next decade, the labor force will become increasingly ethnically diverse as Hispanics and Asians become a greater proportion of the labor force, with immigration as the primary driver of growth.
  • Foreign-born workers are more likely to be younger, male, without a high school diploma, and employed in service occupation than is the U.S.-born labor force.33
  • Nearly two-thirds of new immigrants settle in one of six states: California, New York, Florida, Texas, New Jersey and Illinois.34

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1. Borger, Christine, et al, "Health Spending Projections Through 2015: Changes on the Horizon," Health Affairs, the Policy Journal of the Health Sphere, Volume 25, No. 6, November/December 2006.
2. Ibid.
3. LIMRA, "A Walk on Thin Ice: Managing the Rising Cost of Employee Benefits," LIMRA International, 2005, p. 11.
4. McKinsey and Company, "Will Health Benefits Costs Eclipse Profits," The McKinsey Quarterly Chart Focus Newsletter, September, 2004. [cited May 7, 2007]; available from www.mckinseyquarterly.com/newsletters/chartfocus/2004_09.htm
5. LIMRA calculation based on data from the Department of Labor and Kaiser Foundation, 1997-2005.
6. Kaiser Family Foundation/HRET, Employer Health Benefits: 2005 Annual Survey, 2005, p.5.
7. FRBSF Economic Letter, "Health Insurance Costs and Declining Coverage," #2006-25, September 29, 2006, p. 2.
8. "U.S. Uninsured Figures Found to Be Overstated," Associated Press, March 24, 2007.
9. PriceWaterhouseCoopers, The Factors Fueling Rising Healthcare Costs 2006, PriceWaterhouseCoopers, 2006, p. 9.
10. PriceWaterhouseCoopers, p. 11. Unum calculation based on PWC data (3.8//8.8=43%) 2006.
11. U.S. Census Bureau, 65+ in the United States: 2005, Current Population Reports, December 2005, p. 1.
12. Mercer/Marsh, Trends in Health, Productivity and Absence Management Programs: Highlights of the 2006 Mercer/Marsh Survey, September 26, 2006, p. 5.
13. Mitchell, Kenneth, "Productive Aging: The New Life Stage," World at Work Journal, First Quarter, 2006, p. 66.
14. Unum, Health and productivity in the aging American work force: Realities and opportunities, Unum, Spring 2005, p. 8.
15. National Center for Health Statistics. Health, United States, 2005: With Chartbook on Trends in the Health of Americans, 2005, p. 21.
16. Centers for Disease Control and Prevention, The Burden of Chronic Diseases and their Risk Factors National and State Perspectives, 2004, p. 15.
17. Carion, Mary Beth, "Actions Speak Louder than Trends," Health Insurance Underwriter, February, 2006, p. 64.
18. Mitchell, Kenneth, "Productive Aging: The New Life Stage," World at Work Journal, First Quarter, 2006, p. 66.
19. Centers for Disease Control and Prevention, Morbidity and Morality Weekly Report, "State-Specific Prevalence of Obesity Among Adults United States, 2005," September 15, 2006. [cited April 13, 2007]; available from www.cdc.gov/mmwr/preview/mmwrhtml/mm5536al.htm
20. Centers for Disease Control and Prevention, The Burden of Chronic Diseases and their Risk Factors National and State Perspectives, 2004, p. 58.
21. Merrill Lynch, "Preparing Your Business for the "New Retirement," 2006. [cited May 23, 2007]; available from http://askmerrill.ml.com/publish/marketing_centers/articles/bfs_article_BFS072/
22. General Accounting Office, Report to the Ranking Minority Member, Subcomittee on Employer-Employee Relations, Committee on Education and the Workforce, House of Representatives. "Older Workers: Employer Assistance Focuses on Subsidized Jobs and Job Search, but Revised Performance Measures Could Improve Access to Other Services," January 2003, p. 6.
23. Ceridian Connection, Generational Competence:TM A New Approach to Human Capital Management, Ceridian, July, 2005. [cited May 23, 2007]; available from http://www.ceridian.com/myceridian/connection/article/archive/0,3263,13072,58763,00.html
24. Ibid.
25. Ibid.
26. Ibid.
27. Ibid.
28. The Center on a Aging Society at Georgetown University, "Caregiving and Paid Work." Caregivers of older persons Data Profile, No. 4, August 2005.
29. Society for Human Resource Management, 2004-2005 Workplace Forecast: A Strategic Outlook, June, 2004, p. 10, Figure 3.
30. U.S. Census Bureau, "Families and Living Arrangements in 2003," pg. 2, Figure 1. [cited April 16, 2007]; available from http://www.census.gov/population/pop-profile/dynamic/FamiliesLA.pdf
31. Group Life Insurance: Factors Affecting Industry Prospects, LIMRA International, 2006, p. 14.
32. Ibid
33. U.S. Department of Labor, News Bureau of Labor Statistics, "Foreign-born Workers: Labor Force Characteristics in 2005," April 14, 2006. [cited April 16, 2007]; available from http://www.bls.gov/news.release/forbrn.toc.htm
34. The American Immigration Law Foundation, Immigration Policy Brief: The Growth and Reach of Immigration, August 2006; [cited May 23, 2007]; available from http://www.ailf.org/ipc/policybrief/policybrief_2006_81606.shtml