-- Posted Thursday, 13 February 2003 | Digg This Article
By: Mario Ricchio
According to Bloomberg, Health insurance costs are “surging” due to an aging U.S. population, rising costs for prescription drugs and hospital consolidation. I will also throw in the rise in malpractice insurance for good measure.
According to Towers Perrin, the average cost of providing health benefits for an individual rose to $3156 per employee last year from $2736 in 2001. More importantly, the cost for retirees under 65 surged to $4704 per employee from $3768 in 2001.
Below appears a chart forecasting the rising costs of Employee health care for the periods 2003-2006. Based on my research from Mercer Human Resources and Tower Perrin, I use a 15% annual growth rate to forecast the ominous trend developing for U.S employers.
To give one an idea of the problem facing US corporations, 2001 Employee health care benefit costs were $2736 per individual. By 2006, Employee health benefit costs could hit $5568. Basically, if healthcare costs aren’t contained in the foreseeable future, benefit costs will double in 2006 from 2001 levels.
More problematic, US corporations haven’t the pricing power to pass the cost increases along to the consumer. In a global marketplace, foreign competition will undercut any domestic price increase. So we have a situation where corporate costs accelerate and goods prices decline.
The continuing profit squeeze will affect the US labor market. Employers will either have to accept higher healthcare costs and lower profits or cut healthcare and overall expenses by doing more with less. Management will lay-off employees and shift labor overseas or lay-off employees and force existing labor into twice the workload. Another option for employers is too shift to part-time work, whereby paying benefit costs are avoided. There is also the trend for employers to shift the cost to employees in the form of higher deductibles, co-pays, premiums, etc.
Rising healthcare costs are pricing US labor out of the global marketplace. Globalization provides the means for employers to lower costs and prop the bottom line. Even in situations where corporations remain in the United States, the prospect for downsizing to cut healthcare costs appears strong. In the end, I expect the U.S. unemployment rate to be negatively affected by the healthcare crisis and to accelerate the momentum behind outsourcing and offshore investment.
- Mario Ricchio, Ricchio Report http://xtremeinvesting.com
