Losing The Race

July 11, 2007
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Premiums for employer-sponsored health insurance plans rose an average of 7.7 percent nationwide last year, a rise that was more than double the inflation rate of 3.5 percent and the 3.8 percent wage gain workers earned in 2006.

As a consolation, the latest hike in a long line of steep premium increases was the lowest increase since 2000 and nearly half the 13.9 percent climb that was recorded in 2003.

Those findings and many more come from the 2006 Employer Health Benefits Survey conducted by the Kaiser Family Foundation and the Health Research and Educational Trust.

"While premiums didn't rise as fast as they have in recent years, working people don't feel like they are getting any relief at all because their premiums have been rising so much faster than their paychecks," said Foundation President and CEO Drew Altman.

"To working people and business owners, a reduction in an already very high rate of increase just means you're still paying more," he added.

According to the survey, which is done annually, last year's cost increase means premiums have risen by 87 percent since 2000. A year of family-health coverage now costs $11,480, and employees now pay an average of $2,973, or 26 percent of that premium. Six years ago, a worker paid an average of $1,619 for the same policy, or 84 percent less than last year.

"We are still losing the race between premiums and workers' earnings — and if that trend persists, employer-based coverage will continue to decline as fewer employers and workers can afford the cost of coverage," said Jon Gabel, vice president of the Center for Studying Health System Change and co-author of the report.

The survey also found that enrollment in consumer-driven health plans was "modest," with 2.7 million workers choosing high-deductible policies that have a savings option such as a health savings account. Only about 4 percent of workers were enrolled in such plans last year, roughly the same number that participated during 2005. About 7 percent of employers offered such a plan last year.

In contrast, 60 percent of workers were enrolled in PPO plans, 20 percent in HMOs, 13 percent in point-of-service plans and 3 percent in conventional indemnity plans.

Despite the low participation rate, premiums for consumer-driven plans are lower and seen by some in the insurance industry as affordable coverage. Family coverage cost $9,484 a year last year; single coverage averaged $3,405.

"We don't know yet whether workers and employers ultimately will embrace consumer-driven health plans in big numbers, but it certainly hasn't been a tidal wave," said Gary Claxton, foundation vice president and director of the foundation's Health Care Marketplace Project.

"When you look at the total costs, the savings from these plans may not be enough to overcome consumer concerns about higher cost sharing," added Claxton.

And the cost for many workers is expected to go up next year. The survey found that nearly half of the 3,159 randomly selected private and public employers surveyed reported that the amount employees pay for coverage was either very likely or somewhat likely to increase. As a countermeasure, only 6 percent of those employers said they were very or somewhat likely to drop employee coverage.

The survey found that 61 percent offered health benefits to at least some of their workers last year, the same percentage in 2005. But for those companies that did offer coverage, size mattered. Nearly all businesses with at least 200 workers offered health benefits last year. But among the smallest firms — those with three to nine workers — fewer than half did.

"The burden of a fragmented system of coverage falls heaviest on the small employers and their workers," said HRET President Mary Pittman. "About two in five small businesses do not even offer health insurance, and those that do require workers, on average, to contribute significantly more to their premiums for family coverage." 


Annual Average Premiums, Worker
and Company Contributions, 2006

   PPO  

PPO

HDHP/SO

HDHP/SO

Premium Payment

Single

Family

Single

Family

Worker Contribution

$637

$2,915

$569

$2,247

Company Contribution

$3,749

$8,850

$2,836

$7,238

Total Annual Premium

   $4,385    

$11,765

     $3,405     

      $9,485     

Likelihood of Employers Making Health
Benefits Changes Next Year, 2006

Very Likely

Somewhat Likely

Not Too Likely

Not At All Likely

 Don't Know

 Increase Amount Workers Pay for Health Insurance

21%

28%

21%

28%

2%

Increase Amount Workers Pay for Prescriptions

10%

29%

28%

29%

3%

Increase Amount Workers Pay for Deductibles

12%

27%

25%

31%

5%

Increase Amount Workers Pay for Co-pays

8%

31%

25%

32%

4%

Introduce Cost Sharing for Doctor & Hospital Visits

1%

16%

32%

43%

8%

Restrict Workers Eligibility For Coverage

2%

4%

21%

73%

1%

Drop Coverage Entirely

2%

4%

7%

86%

1%

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2006      HQ

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