April 1996

Employer Spending for Employee Benefit Programs

Public and private employer spending for employee benefit programs amounted to $746.5 billion in 1994, up from $265.8 billion in 1980 and $23.7 billion in 1960.

For the period 1960-1994, employer spending on benefits increased at an average annual rate of 10.7 percent. The rate of increase was higher for the first 20 years (12.8 percent for 1960-1980) than for the following 14 years (7.7 percent for 1980-1994).

In 1994, employers spent $305.1 billion for health benefits -- $263.0 billion on group health insurance, $40.7 billion for Medicare Hospital Insurance, and $1.4 billion for military medical insurance. Since 1960, employer outlays for all health benefits increased as a proportion of total compensation, from 1.1 percent of total compensation in 1960 to 4.4 percent in 1980 to 7.6 percent in 1994.

Since 1980, spending for group health insurance has constituted the largest single major component of nonwage compensation. Public- and private-sector employers spent $61 billion on group health insurance in 1980 and $263.0 billion in 1994, increasing at an average annual rate of 11.0 percent.

In 1994, employer spending for retirement income benefits totaled $351.5 billion -- $166.1 billion for Social Security Old-Age, Survivors, and Disability Insurance; $87.7 billion for private employer pension and profit sharing; and $97.7 billion for public employer retirement plans. In contrast to health benefits, the proportion of total compensation spent on retirement benefits increased from 4.8 percent in 1960 to 9.2 percent in 1980 and then decreased to 8.8 percent in 1994.

Before 1985, employer spending for public and private retirement plans (other than Social Security) collectively represented the largest major component of nonwage compensation. Employer contributions to public and private retirement plans are the only component of total compensation to decline as a percentage of total compensation every year since 1982, although the decline appears to have leveled off since 1990. This decline in employer spending on pension benefits is due in part to strong investment preformance in the 1980s.

Employer outlays for other employee benefits amounted to $89.9 billion in 1994 -- $30.1 billion for unemployment insurance, $52.6 billion for workers' compensation, and $7.2 billion for group life insurance. As a proportion of total compensation, spending for these benefits remained virtually constant between 1960 and 1994 -- 2.1 percent in 1960, 2.6 percent in 1980, and 2.2 percent in 1994.

Until 1988, annual increases in workers' compensation costs outpaced all other benefit increases, as premiums rose in many states. Much of the premium increase is attributable to increases in medical claims costs.

For more information, contact Ken McDonnell (202) 775-6342 or Carolyn Pemberton, (202) 775-6341.

Source: EBRI Databook on Employee Benefits, third edition, 1995.