Employer-sponsored health insurance reaches nearly three out of every five Americans. To provide current information about the nature of employer-provided health benefits, the Kaiser Family Foundation and the Health Research and Educational Trust conduct an annual national survey of employers of all sizes.
This year's survey finds that despite a high rate of premium growth and increases in some forms of worker cost sharing, overall levels of coverage have not declined. In addition, this year we report for the first time that the vast majority of workers both pay for premiums and face substantial cost sharing for services, including office visits, prescription drugs copays and cost-sharing for hospital admissions. In the future we may see firms attempting new approaches to cost-sharing and may observe changes in coverage as firms work to rein in the rising cost of health insurance.
Health Insurance Premiums
Between spring of 2002 and spring of 2003, monthly premiums for employer-sponsored health insurance rose 13.9%, the third consecutive year of double-digit premium increases and the highest premium increase since 1990 (Exhibit B).1 Premiums increased substantially faster than overall inflation (2.2%) and wage gains for non-supervisory workers (3.1%). Average rates of increase were similar across firm sizes, and industries, but there was significant variability around the average: 20% of employees worked for firms where premiums increased by five percent or less, while 41% of employees worked for firms where premiums increased by more than 15%. Average annual premiums rose to $3,383 for single coverage and $9,068 for family coverage for employer sponsored coverage (Exhibit A).
Of all plan types, health maintenance organizations (HMOs) remain the least costly and PPO plans remain the most expensive for family coverage. Average monthly premiums for family coverage in HMO plans are $8,514 while the cost for family coverage in Preferred Provider Organizations (PPO) Plans - which cover most Americans - is $9,317. Premiums are generally highest on average in the Northeast and lowest in the West, although premiums increased faster in the West (16.3%) this year than in the rest of the country.
The high rate of premium growth in 2003 appears to have been driven by a combination of rapid inflation in the costs for health care services and insurers' efforts to emphasize profitability in their pricing. Premium equivalents for self-insured plans (a proxy estimate for medical claims expenses) grew by a lower amount (12.4%) than fully insured plans, which increased 15.6% this year. This finding may indicate that part of the rise in health care premiums is due to insurers expanding their underwriting gains.2
When employers were asked which factors contributed 'a lot' to increases in health insurance premiums, firms were most likely to point to higher spending for prescription drugs (61%) and higher spending for hospital services (55%). Prescription drug costs continue to be an important factor in high premium growth. Among employers who 'carve out' prescription drugs and provide them separately from their standard health benefits, drug costs rose an average of 17% in the last year, several percentage points faster than overall premium growth.
Rapidly increasing premiums have generated speculation that employers may move to new types of health insurance arrangements in order to help control future costs. The 2003 results show that employers are looking for alternatives to their health plans, with 62% reporting that they shopped for a different arrangement and 33% reporting that they either changed carriers or plan types. Despite this willingness to consider alternatives, however, only a small percent of employers chose to offer high deductible health plans (which we defined as a plan with a deductible of more than $1000 for single coverage), which have been touted by insurers and benefit experts as a way to reduce health spending. Five percent of firms offer employees a high deductible plan, although the interest is much higher among the largest firms (5,000 or more workers), where 17% of firms offered such a plan, though the number of firms offering these plans is too low to accurately assess the percentage of workers enrolled in high deductible plans. Of firms offering a high deductible plan, 12% (or less than one-half of one percent of all firms nationally) offered a health savings account in conjunction with the plan. A health savings account is a pre-tax account funded by an employer that gives employees a fixed amount of money with which to pay for more routine health care expenses, and allows unspent funds to roll-over from one year to the next.
[1] The premium increase in 2003 was higher than the increase in 2002 only at the p‹0.1 level.
[2] Kipp, R., et. al., “Health Insurance Underwriting Cycle Effect on Health Premiums and Profitability,” Milliman USA, April 10, 2003.
