Employee Benefits

Employee
Contributions for

Medical Care
Coverage

BY ANN C. FOSTER.

As employers saw dramatic increases in the cost of pro-
viding medical care benefits to their employees, many of
them imposed or increased cost-sharing requirements.’ The
extent of these measures is reflected in data from the Em-
ployee Benefits Survey that show an increase in the propor-
tion of employees who must contribute to the cost of their
coverage as well as in the average required employee con-
tribution.

Ana C. Foster is an economist in the Division of Compensation Data
Anaylisis and Planning, Bureau of Labor Statistics. Telephone (202) 606-6222.

Employers are increasingly requiring employees to pay
for part of their health care benefits. (See table 1.) In 1993,
61 percent of covered full-time employees in medium and
large private establishments (those with 100 or more em-
ployees) had to contribute to the cost of their individual
medical care coverage, up from the 47 percent in 1989.? In
small private establishments (those with fewer than 100
employees), 52 percent of full-time workers contributed to
their coverage in 1994, compared with 42 percent in 1990.?
The proportion of State and local government workers con-
tributing to the cost of their coverage was 47 percent in

Table 1. Percent of participants receiving medical care benefits by required contribution, full-time employees, 1989-90 and 1993-04

1989-90 1993-04
Medium Small- State and Medium Smail State and
Employee contributions andlarge | private local andlarge | private local
private establish- | govern Private establish- govern-
establish- ments ments establish- ments ments
ments ments
individual coverage
Total...... 100 100 100 100 100 100
Employee contribution required 47 42 38 61 52 47
Employee contribution not required 53 58 6 a7 46 49
Not determinable ... () () () 2 2 3
100 100 100 100 100 100
6 67 65 76 76 71
RA a 18 2
0) i é 3 6 7
$25.31 $25.13 $25.53 $31.55 $40.97 $30.20
72.10 109.34 117.59 107.42 159.63 149.70

+ No employees in this category.
? The average monthly contribution includes those plans requiring
the employes to pay a flat monthly contribution.

51 Compensation and Working Conditions September 1996

NOTE: Because of rounding, sums of Individual ltiems may not
equal totals.



1994, compared with 38 percent in 1990.4

For family medical care coverage, increases were less
dramatic. The proportion of full-time employees in medium
and large private establishments required to contribute to
the cost of family coverage was 76 percent in 1993, com-
pared with 66 percent in 1989. In 1994, 76 percent of small
private establishment employees and 71 percent of public
employees had to contribute to the cost of family coverage,
compared with 67 percent and 65 percent, respectively, in
1990.

The average required contribution also increased. In
1989-90, the average monthly contribution for individual
medical care coverage was about $25 for employees in all
sectors. By 1993, this increased to almost $32 for employ-
ees in medium and large private establishments. By 1994,
the average required contribution increased to $41 for small
private establishment employees and to $30 for State and
local government workers.

Increases were far greater for family coverage. In 1989-
90, required contributions for family coverage ranged from
an average of $72 for participants in medium and large
Private establishments to $118 for participants in public
employee plans. Among small private establishments, the
average employee contribution was $109.5 By 1993-94, re-
quired contributions for family coverage had increased to
$107 for employees in medium and large private establish-
ments and to $160 for small business employees; for State
and local government employees, the average required con-
tribution was $150.

Employee contributions for medical care over time

Employee Benefits Survey data for medium and large
private establishments provide an interesting perspective
on benefit plan trends, including those for contributions,
These data show that between 1983 and 1993, average

employee contributions for individual medical care cover-
age tripled, from $10.13 to $31.55. Contributions for fam-
ily coverage also tripled, from an average of $32.51 to
$107.42.6

These trends are illustrated in chart 1, which also com-
pares them to the change in the medical care component of
the Consumer Price Index, All Urban Consumers (CPI-U).”
For ease of comparison, employee contributions data were
converted to a common base by dividing each year’s aver-
age by the figure for 1983. As the chart shows, employee
contributions increased at the same rate as the CPI-U, medi-
cal care component throughout the mid-1980s. Since then,
average employee contributions increased faster than the
change in medical care as measured by the CPI-U.

Reimbursement accounts

Employees who are required to contribute to the cost of
their medical care coverage may be able to do so with pretax
dollars, which also reduces their taxable income. In 1993-
94, 32 percent of covered employees in medium and large
Private establishments and 70 percent of covered State and
local government workers could pay for their medical care
coverage with pretax dollars.*

Such pretax payments are made through reimbursement
(or flexible spending) accounts. Most of these accounts are
freestanding, but a few are part of a flexible benefits plan.
Reimbursement accounts provide funds from which employ-
ees pay for expenses, such as medical care premiums and
dependent care, not covered by their regular benefits pack-
age. While usually funded by employee pretax contribu-
tions only, some accounts may be partially funded by em-
ployers. The proportion of employees eligible for these
accounts has increased in recent years. (See chart 2.)

The types of expenses that eligible employees may pay
from these accounts are shown in table 2. In 1993-94,

Chart 1. Changes in average employee contributions for
medical care in medium and large private establishments,
and In the Consumer Price Index, medical care, 1983-93
1983 = 100
0)
x0 sl
= Ba
150)
00 a eee
= A .
‘196319841985 “1986 1988 1989 1901 19883
Snge Family boa]
coverage coverage medical care
Sn

Chart 2. Percent of full-time employees eligible for
reimbursement accounts, 1989-90 and 1993-94
Percent
100

%

0

70

6

30

r

30

20

10

° 1 1
1989.90 1993-94
HE Mecien eg ase ‘Small private State and local
Private eatablishments |__| establishments ESM governments

Compensation and Working Conditions September 1996 52



the proportion of employees able to pay medical care ex-
penses ranged from 47 percent in medium and large pri-
vate establishments to 77 percent in both small private es-
tablishments and the public sector. Some flexible spending
accounts, known as premium conversion plans, are estab-
lished only for medical care plan participants to pay re-
quired contributions with pretax dollars.

A large proportion of eligible employees may use funds
for other health expenses not covered by their medical care
plan. Examples include plan deductibles and coinsurance,
as well as dental and vision care expenses. Eligible em-
ployees are often able to use these accounts for dependent
care expenses as well.

Table 2. Percent of full-time employees covered by reimbursement accounts, 1993-94

Medium and a
‘Small private ‘State and local
Expenses. ne, private eatabli

Total with reimbursement account | 100 100 100
Health premiums .. 47 7 7
Health premiums onl 18 38 24
Other health expenses ....... 69 50 55
Dependent care expenses....... 7 51 n
Legal expenses .... ) 1 2

‘Total is less than the sum of individual items because
many plans allow funds to be used for multiple purposes.

? All plans in this category are premium conversion plans.
* Less than 0.5 percent.

—Endnotes—

Employer spending on health care increased from 4.4 percent of total
compensation in 1980 to 7.3 percent in 1993, For more information, see
Celia Silverman, et. al., eds. EBR/ Databook on Employee Benefits, third
edition, Employee Benefit Research Institute, 1995.

2 See Employee Benefits in Medium and Large Private Establishments,
1993, Bulletin 2456, Bureau of Labor Statistics, 1994 and Employee Ben-
efits in Medium and Large Firms, 1989, Bulletin 2363, Bureau of Labor
Statistics, 1990.

2 See Employee Benefits in Small Private Establishments, 1994, Bulle-
tin 2475, Bureau of Labor Statistics, 1996 and Employee Benefits in Small
Private Establishments, 1990, Bulletin 2388, Bureau of Labor Statistics,
1991.

* See Employee Benefits in State and Local Governments, 1994, Bulle-
tin 2477, Bureau of Labor Statistics, 1996 and Employee Benefits in State
and Local Governments, 1990, Bulletin 2398, Bureau of Labor Statistics,
1992.

For a discussion of contribution trends prior to 1989-90, see Allan P.
Blostin, “Employee Contributions for Medical Care Benefits,” Compensa-

53 Compensation and Working Conditions September 1996

tion and Working Conditions, January 1992, pp. 12-13.

$The averages are for employees who are in plans requiring a flat monthly
contribution. In 1993-94, about three-quarters of private sector and nine-tenths
of public sector contributors were in such plans, Other employees with con-
tributory coverage pay a composite rate which covers more than one benefit
area (ex. health care and sickness and accident insurance) while others pay a
ate varying by options chosen under a flexible benefits plan or reimburse-
ment account. A few employees pay a rate varying by the amount of their

earings.

® The 1988 Employee Benefits Survey was expanded to include all ser-
vice industries. While this expansion had little impact on the proportion of
workers required to contribute to the cost of their medical care, it did affect
contributions. The increases shown for 1988 are somewhat larger (average
contributions increased about $1 per month for individual coverage and $8
per month for family coverage) due to the expansion.

7 See the Consumer Price Index, All Urban Consumers, U.S. City Aver-
age, 1982-84=100.

* Data for small business employees for 1994 are unavailable.