Recession, Demographics Hasten Shift Away From Employer-Based Health Care

By Staff Report

Feb. 4, 2010

Newly released federal estimates show how the recession has quickened the decline of employer-based health care benefits.

As soon as next year, public spending on health care will outstrip spending by employers and insurers for the first time. The trend toward greater spending on health care by the government has been long in the making, growing steadily as the U.S. population ages into Medicare coverage. Last year, however, researchers predicted that shift would happen in 2016, an estimate that has now been moved up to 2011 or 2012.

Private-sector job losses the past two years have sped up the shift to government payment. Last year, the number of people who received their insurance through the private market declined by 1.2 percent, despite generous federal subsidies in the stimulus bill to help laid-off workers continue their employer-based coverage.

The report by the Centers for Medicare and Medicaid Services, published Thursday, February 4, in the journal Health Affairs, said that national health care spending grew to a new high in 2009: $2.5 trillion.

The 5.7 percent year-over-year growth, combined with a projected decline in gross domestic product, means that more than 17 cents of every dollar of economic output is consumed by the health care sector, also a new high. In 2008, by contrast, health care spending grew 4.4 percent, which was the lowest rate in nearly 50 years.

“I think the slow erosion of employer-based health insurance has been underway since 1980,” Jon Gabel, senior fellow at the National Opinion Research Center, wrote in an e-mail. “When we have an economic recession, we show more dramatic decline.”

Government health care spending, meanwhile, grew 8.7 percent last year, compared with 2 percent among private health care payers. The increase was driven by growth in Medicaid enrollment as a result of unemployment. Increased government spending is expected to continue this year as subsidies to help laid-off workers stay on their employers’ health plans expire and as unemployment remains high.

Even if the recession had not occurred, public-sector health care spending was expected to be larger than private-sector spending—a consequence of the baby boomers becoming eligible for Medicare.

“No surprise there,” said Paul Fronstin, director of health research and education at the Employee Benefit Research Institute. Of greater consequence is the growth in Medicare spending, Fronstin said.

A year ago, the Medicare Board of Trustees sped up by two years its timetable for when the Medicare trust fund would become insolvent because of a drop in tax revenue due to job losses. The health care program for retirees is expected to run out of money in 2017.

Job losses and the shrinking market for private insurance have also increased premiums for enrollees, the report by the Centers for Medicare and Medicaid Services said. An improved job market, on the other hand, is likely to increase the number of people who get health insurance through their employers.

The report did not account for proposed changes in law contemplated as part of the Democrats’ stalled health reform legislation. The authors said they would write a new analysis if and when health care laws are reformed.

—Jeremy Smerd

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