Cost of Health Benefits Still Accelerating Faster Than Inflation

Health insurance premiums continued to rise faster than inflation last year, though at relatively moderate levels, with employers shifting more costs to workers through higher deductibles, according to an annual survey.

In their 11th annual survey on health benefits, the Kaiser Family Foundation and the Health Research & Educational Trust jointly reported Tuesday, September 15, that premiums for employer-sponsored health insurance rose to $13,375 for family coverage, up 5 percent from last year.

Health care premiums have risen 131 percent in the past 10 years; workers’ contributions to premiums have risen 128 percent—about 10 times faster than inflation, the survey notes. Last year, workers paid 17 percent of the premium for individual coverage and 27 percent for family coverage.

The result has been that health care costs consume a greater percentage of workers’ total compensation, researchers said. Wages, meanwhile, have stagnated. The economic impact of health care costs on families has made health care reform as much about restoring people’s economic health as it is about improving access to health services.

“It is health care as an economic issue that has fueled the health reform debate,” said Drew Altman, president and CEO of the Kaiser Family Foundation in Washington.

The 5 percent increase in family premiums, though much lower than the double-digit growth earlier this decade, has nonetheless been felt by workers who have dealt with layoffs, pay cuts, dwindling savings, home foreclosures and other acute financial pressures that have defined the current recession. In a poll conducted by the group, 19 percent of consumers said the recession has made it more difficult to pay for health care and health insurance.

“Rising health care costs are always much more painful in a bad economy,” Altman says. “The irony is it’s tougher to pay for health reform in a bad economy.”

The rise in health care costs also ran counter to general inflation, which actually dropped 0.7 percent in the past year. In 2008, the rise in the cost of premiums, at 5 percent, was more closely aligned with the overall inflation rate of 3.9 percent.

Altman said the “moderate” increase in family premiums—at 5 percent—is likely due to wariness among insurers to raise premiums during a recession and a tendency to resist major rate increases during times when Congress is considering health reform. Health insurance cost increases have remained steady between 5 and 7 percent for the past few years, but researchers maintain that insurance is likely to grow at higher rates unless significant changes are made to the health care system.

“I’m confident we’ll return to more typical rates of increase that we’ve seen in the past,” Altman said. “There’s no reason to believe we’ve done anything meaningful to deal with the fundamental drivers we see in the rates of increase.”

The survey of more than 2,000 non-federal private and public employers tracks the cost of health benefits of the previous year and was conducted earlier this year, when the recession was more pronounced.

The percentage of all firms offering health benefits shrank last year to 60 percent. Though not statistically different from the previous year, when 63 percent of firms offered health benefits, it is significantly less than the 69 percent of firms that offered benefits in 2000.

Not surprisingly, the percentage of firms offering insurance to employees was lower for small employers with three to nine workers—46 percent offered health benefits.

Health reform proposals would generally offer subsidies for small firms to purchase health insurance. New laws would also prohibit insurers from charging small firms higher premiums based exclusively on the health of their employees.

The recession has only hastened the speed at which employers have shifted health care costs to workers as a means to spread the economic pain.

As a result of the economic downturn, 15 percent of surveyed employers have increased workers’ premiums. Twenty-one percent of all employers have reduced the scope of benefits or shifted more costs to employees, for example, by increasing deductibles.
 
The survey showed that in 2009, 22 percent of workers with individual plans paid at least $1,000 out of pocket annually before their plan paid a share of their health care bills, up from 18 percent last year and 12 percent in 2007.

Small employers have been quicker to shift costs to workers, with 40 percent of workers at small firms (three to 199 employees) facing deductibles of at least $1,000—including 16 percent with deductibles of $2,000 or more.

The survey also shows that larger firms are increasingly turning to deductibles of $1,000 or more to keep down their own costs, though workers were not necessarily enrolling in high-deductible health plans with health savings accounts.

Preferred provider organizations, or PPO plans, remain the most popular health plan. Sixty percent of covered workers enroll in them despite having to pay higher out-of-pocket costs.

The percentage of workers enrolled in high-deductible health plans did not change at 8 percent. The lack of growth in high-deductible plan enrollment is likely related to the moderate increase in overall health care costs, said Gary Claxton, vice president of the Kaiser Family Foundation.
 
Wellness benefits are becoming staples of benefits packages. According to the survey, 58 percent of all employers that provide health benefits—and 98 percent of all large firms—offered at least one type of wellness benefit in 2009, such as gym membership discounts, weight-loss programs, on-site exercise facilities, smoking-cessation programs, personal health coaching, classes in nutrition or healthy living, Web-based resources for healthy living or a wellness newsletter.

On-site health clinics, once used to treat work-related injuries, are seeing a comeback as centers for primary care. Among firms with 1,000 or more employees, 20 percent have on-site clinics, of which 79 percent provide treatment for nonwork-related illnesses.

If costs continue to rise at the rate of 6.1 percent—an estimate considered conservative—a family plan will cost $24,180 in 10 years.

—Jeremy Smerd

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