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October 10, 2006
Study: Healthcare Costs to Eat Up Chunk of Pay Raises

An employee making $40,000 who receives an average pay raise will use 16 percent of that salary increase to pay for an increase in healthcare costs next year, according to a study by Hewitt Associates.

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The firm predicts that employees' total healthcare costs--including employee contribution and out-of-pocket costs--will rise from $3,065 in 2006 to $3,305 in 2007, an increase of 7.8 percent.

Meanwhile, the average increase to base salary for salaried employees will be 3.7 percent in 2007, according to a survey of large employers by Hewitt Associates. Therefore, an employee making $40,000 today who receives the average salary increase ($1,480) will use 16 percent of that salary increase to pay for the increase in healthcare costs next year.

The firm predicts that the average increase to healthcare costs for employers will be 7.7 percent in 2007, down from a 7.9 percent rise in 2006. The average health cost per person for major companies will increase from $7,744 in 2006 to $8,340 in 2007, according to Hewitt. In 2006, employers saw the smallest healthcare cost increase in eight years, according to the firm.

 "While it is always encouraging to see a decline in healthcare cost increases, we continue to be concerned about the overall cost of care for both employers and their employees," says Craig Dolezal of Hewitt Associates. "If we have any hope of ever truly improving costs and outcomes, we must focus on effectively influencing the interactions between patients and providers. That is where health care happens. We need to move beyond cost sharing, consumerism, and passive health risk management and focus on supporting the necessary behavior changes as people move from being consumers to becoming patients."

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