New Report Details Cost of Employee Benefits
Source: International Foundation of Employee Benefits Plans
A new report released today by the Office of Advocacy of the U.S. Small Business Administration (SBA) details the cost of employee benefits by firm size. The report specifically looks at the cost of health insurance, pension plans, paid vacation, and sick leave.
The report finds that the offering of benefits and their associated costs can vary dramatically with firm size. For instance, the latest data show that the per-participant administrative costs of defined-contribution pension plans (such as 401(k) plans) are as much as 14 times more for the smallest firms than for their largest counterparts.
The authors also examined the share of all private industry employees eligible to enroll in health insurance plans. They found that about 40 percent of employees in the smallest firms were eligible for health insurance coverage while slightly more than 77 percent of the largest firms’ employees were eligible for health care coverage. [Text continued at site.]
According to the Small Business Administration, more than 56 million Americans — some 28.5% of those between the ages of 15 and 65 — are employed with businesses of 500 employees or fewer[1] (.pdf). That is an awful lot of Americans with limited or no access to benefits many others would consider “traditional.”
The reason for the limit is obvious: cost. Actuaries can give a more precise explanation of this issue, but under our current system the lowest administrative costs for benefit programs (of many types, not just employment) are associated with the largest groups. The rise of demand for association health insurance and similar programs, which tend to be cheaper than small-group plans, exemplifies this fact. It is also a significant factor in the growth of the PEO industry, where I work, and similar human resources and/or employee benefits outsourcing arrangements.
As the cost of benefits rises, pricing more and more businesses (and many will have more than 500 employees) out of the benefits market, there may come a time when a de facto universal system comes into being. We’re still a long way from such a situation but it is a logical projection of current trends. Now is the time to consider, though, who will be in charge of that system: will it be the businesses that stand to profit from it, the businesses that are its clients, or the entire base of this country’s people?
[1] This figure excludes farming businesses.