To cover skyrocketing health care costs, employers have had to get creative. Sometimes that means cutting spending on other benefits.

A recent survey by the Employee Benefits Research Institute asking employees to rank benefits in terms of importance placed health care at the top of the list. But with premiums going up as much as 7% annually, it's going to be difficult for employers to continue to provide quality coverage without cutting elsewhere.

“When companies look at total compensation, they have a certain amount of dollars they feel they can spend,” said Ted Nussbaum, Watson Wyatt's director of health care consulting. "When health care eats up a disproportionate share of the total rewards or budget, you start to see smaller increases or actual decreases in other things, such as smaller bonuses, smaller starting salaries, less matching in the employee’s 401(k).”

Most large companies have a set allotment of how much they will spend on benefits for each employee based on their salary. At the same time, employers know that health care coverage is usually their employees' most highly regarded benefit. Thus they are reluctant to cut health care spending. 

“What you consistently find when you ask people what benefit is most important beyond pay and vacation, you’re generally between 75%-80% of employees that say, ‘what I want is health insurance’ depending on the survey year,” said Dallas Salisbury, president of the Employee Benefits Research Institute. “When you ask about what employees would like as a second benefit, you still get over 1/3 of workers that say ‘more health insurance.’”

So when health care costs go up, employers have to raise the extra cash either by asking employees to pay more for their health benefits, or by cutting back on contributions toward other employee benefits, said a recent study by the Families and Work Institute. Cutting salaries is usually out of the question.

“Where we saw a change was in the place where there’s a premium and employees are being asked to pick up a larger share of the premium,” said Ellen Galinsky, president of the Families and Work Institute. 

Galinsky said fewer companies are paying all of disability after the birth of new baby, and are also cutting back retirement contributions and matching dollars. "You see employers asking employees to pick up a larger share of the cost," she said.

There are, however, alternatives to cutting benefits. The National Institute of Businesses for Solutions works with large firms, often helping them trim their health care increases down to nothing. 

“Even though current statistics show the overall healthcare increase is 7% each year, many large employers have been working to keep the trend at 1 % or 0% by putting in active care programs,” said Helen Darling, president of the National Business Group on Health. “So for example you have someone with diabetes work with a nutritionist or specialist to keep them from going to the hospital to keep them from getting sicker.”

Using these various prevention tactics, prudent employers have been able to reduce their expenses from year to year, actually helping to push costs downward for an annual decrease in some organizations. And if costs don’t go up each year, the cost sharing among other benefits doesn’t go down.

When it comes to solving these high cost health care problems, employers are still not willing to cede control over to the federal or state governments; many in the business world still think they can find a better solution in the private sector. Another option that a small amount of employers is trying is consumer-directed health plans.

“We may start to see more consumer directed health care plans such as a health savings account or a health reimbursement account—a high deductible health plan that is account-based,” Nussbaum said.

Employers put money into these health reimbursement or savings account, and then employees are allowed to choose how they spend their company’s health care dollars.

“About 6% of companies have offered consumer-driven health plans on a complete basis,” Nussbaum said. “By 2009, we expect that number to climb to 9%.”