The 11 percent increase marked the third consecutive year of double-digit inflation as measured by the Association's annual survey of New Jersey employers. It followed a 13 percent increase in 2003 and a record 15 percent increase in 2002.

Looking ahead, survey participants said they expect their costs to rise by an average of 12 percent in 2005. In response to exploding costs, a declining proportion of survey respondents provided coverage in 2004, the first such decline in the survey's 12-year history.

"Years of relentless price increases have pushed the price of health insurance beyond the reach of many small companies. Now they are dropping coverage because they can't afford it. This is an alarming trend," Kirschner said.

The findings of the 2005 survey, which was conducted in January, are based on responses from more than 1,500 companies representing every industry in all 21 New Jersey counties. Eighty-six percent were small companies employing between two and 50 people.

Survey participants paid an average of $7,307 per covered employee to provide health benefits in 2004, up $735 or 11 percent from the year before. (See Table 1) The average cost of $7,307 per employee equaled 16 percent of reported average wages, a record high for this survey.

The average cost of $7,307 included coverage of both full-time employees with no covered dependents and full-time employees with covered dependents. This was the amount paid by the employer. It did not include any share of premium costs paid by covered employees.

For the first time in the survey's 12-year history, the proportion of respondents providing health coverage declined.

Ninety percent of survey participants said they provided coverage for full-time employees in 2004, down from 94 percent the year before. Eighty-seven percent of small companies (2-19 employees) provided coverage, down from 92 percent. (See Table 2 below.)

The survey found that employers are aggressively trying to control their healthcare costs by shopping around for new plans, offering less comprehensive coverage, requiring their employees to share in the growing cost, and in the case of larger companies, negotiating better deals. Employers frequently reported taking more than one of these actions.

Seventy-three percent of survey participants who reported taking cost control actions required employees to pay an increased share of those costs, either through higher deductibles or co-payments or by paying a larger share of the premium.

The survey also found that most health plans now include deductibles (annual amounts that employees must pay out-of-pocket before insurance coverage kicks in) of $500 or higher. Fifty-two percent of fee-for-service plans, 82 percent of preferred provider (PPO) plans and 81 percent of point of service (POS) plans required employees to pay annual deductibles of $500 or more in 2004. (The PPO and POS deductibles apply only to out-of-network medical services.)

Among other survey findings:

• The smallest companies not only paid the highest costs in 2004, but also experienced the highest cost increases. Companies with 2-19 employees saw their average cost rise by an average of $813, or 12 percent, to $7,444 per employee. (See Table 1 above.)
• The smallest companies, those with 2-19 employees, saw the biggest decline in coverage. Eighty-seven percent of small companies said they provided coverage to full-time employees in 2004, down from 92 percent the year before and the lowest level since 1994. The percentage of small companies providing coverage not only for full-time employees but also for dependents of those employees fell to 61 percent in 2004 from 67 percent the year before, the lowest level since 1995.