NCPA - National Center for Policy Analysis

Health Care Cost Hikes Hit Smaller Companies Hardest

August 29, 2000

Companies employing fewer than 50 workers are being confronted by greater jumps in health-coverage costs than companies having more than 1,000 workers, according to a study by William M. Mercer Inc., a unit of Marsh & McLennan Companies. Moreover, the cost gap between smaller and larger employers is growing.

  • In 1999, companies with just 10 to 49 employees saw their average health-care costs escalate by 13.8 percent -- to $3,779 per employee.
  • At midsize companies -- those with up to 999 employees -- health-care costs rose 8.5 percent, to $3,836.
  • Health-care costs at companies with 1,000 or more employees rose last year by 7.2 percent to $4,357 per employee -- excluding covered retirees.
  • The hefty increases of 1999 come after several years of mild increases, the survey reports.

Cost containment during the 1995 to 1998 period is attributed to companies shifting from plans which allowed consumers their choice of doctors to managed-care plans. In 1994, some 46 percent of mid-size employers had traditional health plans which included choice of doctors. But by 1999, that proportion had dwindled to 15 percent.

Experts say the shortage of workers has forced many businesses -- especially smaller ones -- to offer potential employees greater health coverage, including extending coverage to their families.

Source: Joshua Harris Prager, "Smaller Firms See Biggest Jump in Health-Care Costs," Wall Street Journal, August 29, 2000.


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