Costs rising for employer-sponsored health insurance; deductibles high

A survey released by the Kaiser Family Foundation and the Health Research & Education Trust says premiums for employer-sponsored health insurance cost an average of $12,680 annually, with employees paying an average of $3,354 out of their paychecks to cover their share.

The annual survey of large and small employers was published Sept. 24 in the journal Health Affairs.

The report noted that in addition to rising costs, the scope of the coverage is changing, with many more workers enrolled in high-deductible plans.

 Premiums rose 5 percent this year, and they have more than doubled since 1999, when total family premiums stood at $5,791, of which workers paid $1,543, according to the survey.  During the same nine-year period, workers’ wages increased 34 percent and general inflation rose 29 percent.

Many workers faced higher deductibles in their plans, “including a growing number with general plan deductibles of at least $1,000 – 18 percent of all covered workers in 2008, up from 12 percent last year,” the survey said. This is partly, but not entirely, driven by growth in consumer-directed plans such as those that qualify for a tax-preferred Health Savings Account.

The shift has been most dramatic for workers in small businesses with three to 199 workers, where more than one in three (35 percent) covered workers must pay at least $1,000 out of pocket before their plan generally will start to pay a share of their health-care bills – rising from 21 percent last year. For workers facing deductibles in Preferred Provider Organizations, the most common type of plan, the average deductible rose to $560 in 2008, up nearly $100 from 2007.

“With rising deductibles, more and more people face a substantial amount out of pocket for their health care before their insurance fully kicks in,” Kaiser President and CEO Drew Altman, Ph.D., said. “Health insurance is steadily becoming less comprehensive, and it’s no wonder that in today’s tough economic climate many families count health care costs as one of their top pocketbook issues.”
“Even modest growth in premiums and deductibles can result in financial challenges for many working families, particularly when coupled with high food and gas prices in 2008. But rising health care costs are also a burden on employers, particularly small businesses,” said HRET Interim President John Combes, M.D.

The annual Kaiser/HRET survey provides a detailed picture of how employer coverage is changing over time in terms of availability, cost and coverage. It was conducted between January and May of 2008 and included 2,832 randomly selected, non-federal public and private firms with three or more employees, 1,927 of whom responded to the full survey and 905 of who responded to a single question about offering coverage. The annual percentage premium increase is calculated by comparing this year’s average premium to last year’s, a change in methodology designed to be more reflective of changes across the entire market.

Preferred Provider Organizations continue to dominate the employer market, covering 58 percent of covered workers. Health Maintenance Organizations cover 20 percent of workers, with 12 percent in Point-of-Service plans, 8 percent in consumer-directed plans, and 2 percent in conventional indemnity plans.

The share in consumer-directed plans – high-deductible plans that include a tax-preferred savings option such as a Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA) – has increased to 8 percent today from 5 percent last year and 4 percent in 2006. An estimated 5.5 million covered workers are enrolled in these plans, including about 3.2 million in plans that would allow the worker to establish an HSA and 2.2 million in plans with an HRA established by the employer.

The growth in consumer-directed plans occurred mostly among workers at small firms (three to 199 workers), where 13 percent are now in this type of plan, compared with 8 percent in 2007. In firms with at least 200 employees, 5 percent of workers are enrolled in such plans – statistically unchanged from last year. By definition, these plans all have high deductibles – with the average general annual deductible for single coverage at $2,010 for HSA-qualified plans and $1,552 for HRAs.

Premiums for consumer-directed plans are generally lower than for other types of plans, though in addition to the premiums, employers may also contribute money to the savings accounts. On average, firms pay a total of $8,291 annually toward the cost of family coverage for an HSA-qualified plan, including a $1,522 contribution to the account. In comparison, firms on average contribute $9,495 toward the cost of family coverage in non-consumer-directed plans.

Among firms offering such consumer-directed plans, six in 10 say that the primary reason is cost – and more than four in 10 say that in their opinion the most successful result has been lower costs. About four in 10 employers say that communicating with and educating their workers about the change was their greatest challenge in adopting consumer-directed plans.