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The rising cost of healthcare and health insurance premiums continues to be a
major challenge for both employers and employees.
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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
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As baby boomers begin to retire, healthcare spending is expected to reach 20%
of GDP by 2015.2
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With healthcare premiums more than doubling in the past decade,
controlling healthcare costs is at the forefront of pressures facing employers.3
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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
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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
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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
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The number of uninsured Americans has now reached nearly 45 million.8
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The three primary factors contributing to increases in healthcare premiums are:
- General inflation;
- 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
- Increases in utilization.9
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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
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According to the U.S. Census Bureau, the fastest growing age group is people
over age 50.11
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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
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Medical costs are reported to rise an estimated 25% from age 40 to 50 and 35%
from age 50 to 60.13
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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
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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
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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
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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
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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
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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
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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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Older workers are staying in the labor force
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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.
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The majority of workers today say they plan to work during retirement for an
average of nine years.21
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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
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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
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For the first time in history, many organizations have workforces that comprise
of four different generations.
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The Matures/Traditionalists23
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Ages 60 to 78
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Grew up in tough economic times during the Great Depression and WWII
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Dedicated, great team players, carry their weight and don't let others down
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Baby Boomers24
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Ages 41 to 59
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Grew up in an era of economic prosperity and experienced the tumult of the
1960s at an impressionable age
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Optimistic, idealistic and good team players
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Driven and highly competitive
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Generation X25
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Ages 28 to 40
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Witnessed their parents' experiences with corporate downsizing and
restructuring in the 1970s and '80s
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Value flexibility, work-life balance and autonomy on the job
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Appreciate a fun, informal work environment
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Technologically savvy, eager to learn new skills, comfortable with change
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Generation Y/Nexters26
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Ages 27 and younger
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Tend to be well organized, confident, resilient and achievement oriented
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Excellent team players, like collaboration and use sophisticated technology
with ease
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Comfortable with, and respectful of, authority and relate well to people who
are older
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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
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Baby boomers are becoming "sandwiched" between the needs of their children and
those of their aging parents.
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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
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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
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According the U.S. Census Bureau, single Americans now outnumber married
couples with children.
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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
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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
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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.
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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
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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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