Benefit System Collapse Possible: GAO

Since 2002, employer spending on benefits has shot up faster than wages, with the rise largely fueled by the rising costs of health insurance and retirement benefits.

Since productivity growth won’t support the rising cost of health-care and other benefits, the entire “employer-sponsored system of benefits in its current form may be unsustainable,” according to a panel of 17 experts questioned by the U.S. Government Accountability Office.

Indeed, the panel agreed that soaring benefit costs are already forcing employers and workers to make increasingly tough trade-offs between wages and benefits, according to a new GAO report on employee compensation.

Since 2002, employer spending on benefits has shot up faster than wages, with the rise largely fueled by the rising costs of health insurance and retirement benefits, according to the report, which is based on federal data on employer costs for active workers as well as on the views of the panel. (In recent years, however, the cost inflation of employer-paid health benefits has started to moderate, according to at least one recent survey.)

Between 1991 and 2005, employers’ average real cost of total compensation (wages and benefits) for current workers grew by 12 percent, with real wages growing by 10 percent and real benefits rising by 18 percent, according to the GAO. Until 2002, wages and benefits each increased by about the same percentage for most of the period. But after that, real wages started to stagnate and real benefit costs continued to burgeon.

The rise in the cost of a total benefits package from 1991 to 2005 largely consisted of increases in health insurance and retirement income costs. Earlier, paid leave had been the mostly costly benefit to employers, but by 2005, the cost of health insurance equaled that of paid leave. Although in comparison to paid leave and health insurance, retirement income was the cheapest benefit, it grew by an estimated 47 percent over the period.

During the 15-year period covered by the report, employees’ access to most benefits held steady. But “participation rates declined for health benefits as the real dollar amount of the premiums increased,” the report’s authors wrote. Between 1991 and 2003, about half of all employees took part in employer-provided retirement plans.

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