Employers Grit Their Teeth and Share Their Pain

An important annual survey finds that employers see few options beyond tearing some holes in the vaunted consumer insulation against the cost of health care.

By Richard Service, Editor

Battered yet again by double-digit inflation in health care costs, U.S. employers have not asked their workers to pay a greater percentage of insurance premiums, but workers are still seeing substantial increases in the hard-earned dollars they pay for health insurance against a background of near stagnation in real wages, according to the latest annual Employer Health Benefits Survey by the Kaiser Family Foundation and the Health Research and Educational Trust. Workers are also experiencing significantly higher deductibles and copays, and can expect more of the same in the next few years, the survey found, but there is little sign that employers intend to reduce eligibility or drop coverage in the face of long-term inflationary trends.

Trickle down health inflation

Between spring of 2002 and spring of 2003, monthly premiums for employer-sponsored health insurance rose 13.9 percent, with little variation across firm sizes and industries. This was the biggest increase since 1990 and brought premiums to $3,383 for single coverage and $9,068 for family coverage.

Rapidly inflating costs for health care services were certainly a factor in this third straight year of double-digit increases, but the survey also blames insurers' efforts to increase profitability, noting that premium equivalents for self-insured plans (a proxy for medical claims expenses) rose only 12.4 percent compared with 15.6 percent for fully insured plans.

HMOs still offer the least costly family coverage at a premium of $8,514. PPO plans remain the most expensive — and, yet, the most popular — with family coverage at $9,317.

In 2003, workers contributed on average $508 of the $3,383 annual cost of single coverage, and $2,412 of the $9,068 premium for family coverage. The percentage they paid is statistically unchanged over the last two years, at 16 percent for single and 27 percent for family coverage, but the dollar amounts have increased $148 and $793. Those are increases of 41 and 49 percent, respectively, in a period when workers' earnings rose only 3 to 4 percent a year.

Deductibles show a similar pattern at $275, an increase of $100 (57 percent) over 2001, when using a preferred provider in a PPO. (Note that this average includes plans that waive deductibles when a member stays in network.) PPO deductibles for out-of-network care reached $561, a $121 increase (65 percent) over 2001.

With three out of five employers naming prescription drugs as a big factor in health care inflation, it's no wonder that virtually all workers are in plans that have tiered cost-sharing arrangements for pharmaceutical benefits. Copayments continue to edge upward. In 2003, they average $9 for generic drugs, $19 for preferred drugs (branded products with no generic substitutes), and $29 for non-preferred drugs (brands with generic substitutes). The equivalent copays were $8, $15 and $20 in 2001, meaning the increases have ranged over 50 percent.

Patterns of coverage

Employers are thus far holding firm to their commitment as the primary source of health insurance for people under age 65. Sixty six percent of all firms offer health coverage to their workers, unchanged from 2002 but down from the pre-recession high of 69 percent in 2000. There are, of course, substantial variations by size of employer. Health benefits are offered by 55 percent of the smallest companies (three to nine workers) and 93 percent of firms with 50 or more workers. Three quarters or more of those in between offer health benefits.

Even when a firm offers health insurance, not all workers get covered. Waiting periods or minimum work-hour rules disqualify some employees, while others choose not to enroll because they can't afford their share of the premium or can get coverage through a spouse. In firms that offer coverage, 81 percent of workers are eligible, and 83 percent of those eligible opt in.

PPOs continue to be the most common plan in 2003, enrolling just over one-half of all employees with health coverage. HMO enrollment remained stable with 24 percent of covered workers. Conventional indemnity insurance has dropped to a mere 5 percent.

Five percent of all firms offer a high-deductible plan — defined as having a deductible of more than $1,000 for single coverage to at least some of their workers in 2003. Among jumbo firms with 5,000 or more workers — historically the market catalyst — 17 percent now offer such plans, and another 16 percent say they are highly likely to do so next year.

And for next year . . .

Four out of five workers experienced no change in benefits other than cost sharing in 2003, even though 62 percent of employers shopped for different arrangements, and a third of those firms changed plan types or insurance carriers. The relative stability should not be taken as a sign that employers are satisfied with the performance of the current health care system. Rather, the lack of change may well reflect ambivalence about current options.

Remember that employers quickly embraced managed care in the early 1990s, only to see its promise of better benefits at lower costs quickly erode as workers demanded greater choice. Having once been burned, they are twice shy of jumping on unproved solutions to the current round of inflation. Consumer-driven health care approaches are decidedly unproven and would require employers to substantially increase out-of-pocket costs for their employees, a move that may be even less popular than managed care.

Only 14 percent of the surveyed employers labeled consumer driven plans as potentially very effective in moderating cost trends. Disease management was the most attractive strategy, lauded by 22 percent of respondents. Other approaches investigated were increased cost sharing at 10 percent of employers and tighter managed care networks at 6 percent. While employers allow that each approach would be at least somewhat effective, none stands out.

This lack of consensus among employers suggests that 2004 may be another year in which costs and cost sharing drift upward, without dramatic changes in availability of coverage. When employers were asked what they are likely to do in 2004, their responses were similar to last years'. Significant percentages — but still less than a third — reported that they will increase contributions and cost sharing, but very few say that they will reduce eligibility or drop coverage.

Click here to view the complete study of this year's Employer Health Benefits Survey

More Business & Health Articles About This Topic:

A Closer Look at Cost Sharing (Oct. 24, 2002)

Resources:

Kaiser Family Foundation http://www.kff.org

The Health Research and Educational Trusthttp://www.hospitalconnect.com/aha/hret/

Richard Service. Employers Grit Their Teeth and Share Their Pain.

Business and Health

Oct. 15, 2003;21.