Health care costs eating profits

NEW YORK (AP) — Employees are facing a double whammy when it comes to health care: Many companies are likely to ask workers to pay more for their insurance, while rising costs mean companies may dole out lower raises.

Half of large U.S. companies said that increased health care costs have contributed to slower profit growth. As a result, more than 75 percent of them may ask employees to bear an even greater share of the cost, according to a study released today by PricewaterhouseCoopers.

Twenty-five percent of the companies said double-digit rises in health care costs may force them to lower wage increases for employees, and one in five expects to slow hiring of permanent workers in the year ahead. The executives at the 150 companies surveyed said per-employee health care costs had risen 12 percent over the past year and were expecting an 11 percent increase in the coming year if no changes are made to the plans.

Although various indicators may point to improvement in the economy, health care costs are squeezing companies’ ability to hire more workers and raise pay, said PricewaterhouseCoopers consultant Barry Barnett. He said that between 12 percent and 15 percent of a company’s payroll costs stem from health care, up from about 8 percent five years ago.

“Health care costs are the reason job growth isn’t where the Bush administration would like it to be,” Mr. Barnett said.

Last month, 146,000 jobs were added to the economy, although 195,000 jobs were forecast.

Mr. Barnett said that although the auto industry has been vocal about health care costs dragging on profits, the problem extends to many sectors with large unionized work forces.

Employers seem conflicted over the best ways to reduce costs. Seventy percent said that requiring employees to pay higher deductibles would lead to a reduction of discretionary health care spending. But 60 percent said that would cause employees to defer seeking necessary care and risk long-term problems.

More than 80 percent of employers said they thought the most promising option for slowing the cost increase was to provide financial incentives for employees to live healthier lifestyles.

Still, only 48 percent of companies said that employees with unhealthy habits such as smoking should be responsible for paying a larger share of their benefits.