When helping employers cultivate employee benefits packages, we’re often asked to aggregate insights on what their peers are spending on their benefit programs. The answers vary widely based on multiple factors, including geography, industry, size of the workforce, the overall health of the workforce population, and the health of their respective businesses and the economy.
Employee benefits benchmarking is one of the best ways to figure this out and the best way to get at this data is through a combination of public and proprietary information (the latter of which can be costly, but also quite necessary).
Some of our favorite sources for benchmarking include Truven, Kaiser Family Foundation (KFF), Mercer, Windsor, the Society for Human Resource Management (SHRM), the International Foundation for Employee Benefits (IFEB), and the Bureau of Labor Statistics (BLS).
We are also in a unique position to provide an informed perspective thanks to our exclusive access to another unique employee benefits benchmarking tool - the United Benefits Advisors (UBA) Health Plan Survey, which is the largest in the United States.
In addition to high level market trends and insights, the UBA Health Plan Survey allows us to compare our clients’ benefit plans to custom benchmarks for total plan costs, coverage tier-specific employee contributions, and plan designs (in and out-of-network deductibles, out-of-pocket maximums, copays, pharmacy benefits, and HRA/HSA funding).
This unique combination of benchmarking resources yields a clearer perspective of our clients’ current positions, relative to the broader employee benefits market, which is a strategic advantage for any organization.
We also tap into cost data from the Bureau of Labor Statistic (BLS), as they track and share this information on a quarterly basis.
The Bureau of Labor Statistics (BLS) report breaks data down into multiple categories, including various components of compensation by sector (public, civilian, government).
Let’s take a moment to look at the most recent data from the BLS so you can compare how your employee benefits costs stack up.
Average Cost of Employee Benefits
Through December 2017 the average cost of employee benefits for employers per employee (including financial compensation and employee benefits) was $35.87 per hour. Of that amount, compensation accounted for an average of $24.49 (68.3%), with benefits accounting for the remaining $11.38 (31.7%).
In other words, employers spend an average of $11.38 per hour per employee on benefits.
From there, the BLS provides more detailed information about exactly what these benefits are, including insurance paid time off, retirement and other legally required benefits (like social security, workers’ compensation, and unemployment insurance).
Average Cost of Employer-Sponsored Insurance
According to the BLS report, the term “insurance” encompasses four different types of coverage: health, life, short-term, and long-term disability. How much employers spend on each varies widely across sectors and industries.
Civilian (Private Sector
In the public sector, the average employer-paid portion of all insurance types is $3.14 per hour per employee, which is about 8.7 percent of compensation. Of course, this varies across industries. For example:
- Education and health services spend an average of $4.19 per hour per employee (about 10%of compensation).
- Colleges and universities spend a bit more ($5.90, or 11.6%), while primary and secondary education institutions technically spend more dollars on teachers ($6.73), but it makes up a slightly smaller percentage (11%).
- Sales “and related” professionals are on the lower end of the spectrum, with just $1.52 per hour per employee being spent on insurance (6.3%).
There is more data for the private sector, and the data is broken out for all the available industries and categories. The private sector pays the smallest share of health insurance, coming in at an average of just $2.70 per hour per employee, making up about 8% of total compensation.
Here are some additional points of interest:
- The service industry comes in at the bottom, with just $1.10 per hour per employee being spent on insurance, making up about 6.9%of compensation.
- “Management, professional, and related” came out on top in terms of dollars, at $5.28, making up about 7.7% of compensation.
- Generally, goods-producing industries paid more into insurance ($3.74, or 9.5%of compensation) than service-producing industries ($2.49, or 7.6% of compensation).
- And of course, there is a lot of variety within each type of industry, with food service being the lowest ($0.72, or 5.4 percent) and utilities being the highest ($4.00, or 10.1%).
State and Local Government Workers
Not surprisingly, state and local governments spend a bit more than the public and private sectors. The average employer-paid portion of all insurance types is $5.82, or about 11.8% of compensation.
- Government-funded education and health services typically spend about $6.07 per hour per employee (about 11.7%).
- Likewise, the trend continues for government-funded colleges and universities, which spend a bit more — $6.42 per hour per employee (11.1%). Perhaps in part because of a strong union, primary and secondary education institutions spend about $7.42 (the highest in terms of dollars), which is about 11.4%.
- The lowest end of the government worker spectrum is (perhaps surprisingly) in hospitals, where $5.10 is spent per hour per employee, but still makes up 11.1%of compensation.
Employer Health Insurance Premium Coverage
Applicants and potential employees view medical benefits as one of the most important factors in any employee benefit package. Offering desirable health insurance gives organizations a competitive advantage for acquiring top talent.
In fact, the Bureau of Labor Statistics states that 70% of civilian companies and 67% of private firms offered medical insurance to employees in March of 2016.
When considering how much of the medical premium to cover for employees, it’s important to check with your medical carrier as they sometimes mandate a certain percentage (usually starting at 50%).
According to a report by the Kaiser Family Foundation in a 2016 Employer Health Benefits Survey, for employers covered an average of 82% of premium costs for those enrolling in individual coverage.
On average, covered workers contribute approximately 18% of the premium for single coverage, and 30% of the premium for family coverage. For workers in smaller firms, the average contribution percentage for family coverage is closer to 39%.
Benchmarking Beyond Cost
When you’re trying to figure out how much your business should spend on employee benefits, BLS data can be a good place to start, but cost is just one of many facets of your employee benefits package which can and should be benchmarked.
While your entire benefits package doesn’t need to be benchmarked, there is an essential list you should measure.
Here are the items we recommend:
Health Insurance offerings, including:
- Employee Premium Cost (Individuals & Family)
- Employer Premium Cost (Individuals & Family)
- Employee Premium Contribution Percentage (Individuals & Family)
- Employer Premium Contribution Percentage (Individuals & Family)
- Out-of-Pocket Maximum (Individuals & Family)
- Deductible (Individuals & Family)
- Prescription Drug Copay (Individual & Family)
- Coinsurance Percentage
- Emergency Room Copay
- Office Visit Copay
- Specialty Office Visit Copay
Voluntary Benefits offerings, including:
- Critical Illness Insurance
- Accident Insurance
- Cancer Insurance
- Pet Insurance
- ID Theft Protection
- Life Insurance
- Short-term Disability
- Long-term Disability
In addition to:
- Worker’s Compensation
- Salaries By Title
- Network Access
- Service & Medical Management Capabilities
- Total Program Cost
- Network Performance and Discounts
- Administrative or Unit Cost
- Financial Stability
- Performance Guarantees
Providing your employee benefits broker subscribes to Truven or some other reliable benchmarking resources, they should be able to help you determine if your offering is below, better, or on par with your competitors.
It’s also important to keep in mind that your competitors in this instance are not those whom you compete with for customers, but rather whom you compete with for talent.
For help with benchmarking the cost of employee benefits for your organization, request a complimentary benefits review here.
If your employee benefits broker doesn’t seem able to help you with benchmarking the cost of employee benefits, we certainly can! Leave us a comment below or contact us. We’d love to hear from you!
*This post was originally published on August 14, 2018