The Cutting Edge — October 2003

Public Policy

By John Satagaj, WMMA Legislative Counsel (email@jsatlaw.com)

One of the reliable barometers of health care costs that we track is the Kaiser Foundation's annual report. The new report is out, and I would venture to guess your reaction will be "no surprise here."

Private health insurance premiums increased 13.9 percent in 2003, a larger increase than last year and the third consecutive year of double-digit increases, according to the 2003 Annual Employer Health Benefits Survey released by the Kaiser Family Foundation and Health Research and Educational Trust (HRET). This was also the largest increase since 1990.

Over the past three years, the amount of the premium employees pay for family coverage has increased almost 50 percent, from $1,619 to $2,412. The typical family health insurance policy now costs $9,068, with employers on average paying 73 percent and employees paying 27 percent.

Premiums increased 13.9 percent over the past year, the seventh straight year of increases and the third consecutive year of double digit increases. For the second consecutive year, premium increases have exceeded the rate of inflation by more than 10 percentage points. Premiums average $3,383 for single coverage and $9,068 for family coverage. Worker contributions for single coverage were stable but contributions for family coverage rose 13 percent; workers now pay on average $508 per year toward the premium for single coverage and $2,412 per year toward the premium for family coverage. A new question on this year's survey finds that more than two in five workers face a separate deductible, co-payment or coinsurance for each hospital admission. Deductibles and co-payments average about $200 per admission.

Sixty-two percent of the employers report that they shopped for a different arrangement and a third (33 percent) of these employers report that they either changed carriers or plan types. The survey finds that employers, particularly larger firms, are interested in high-deductible plans (a plan with a deductible of at least $1,000 for single coverage). Seventeen percent of very large firms (5,000 or more workers) offered such a plan this year, and another 16 percent say they are highly likely to add such a plan next year. When asked which factors contributed "a lot" to increases in health insurance premiums, employers were most likely to point to higher prescription drug spending (61 percent). Employers also identified higher spending for hospital services (55 percent) as a factor in driving up premiums.

Nearly four in five workers face a deductible before health care expenses are covered under their plan. For Preferred Provider Organizations (PPOs) – the most common type of plan – in-network deductibles average $275 for single coverage (up $100 from three years ago). Those working for smaller firms have even higher deductibles, averaging $419. PPO deductibles for out-of-network services average $561, up 20 percent from last year. More than two in five, or 44 percent, of workers also face a separate deductible, co-payment or coinsurance for hospital stays (averaging $200 per admission). Virtually all (96 percent) workers face a co-payment or coinsurance for physician office visits, and 86 percent were in a tiered (two-and three-tiered) prescription drug plan. Sixty-three percent are in a three-tiered plan, up from 55 percent of workers who were in such a plan last year, and 41 percent who were in 2001. Almost one-half of workers in Health Maintenance Organizations (HMOs) now face a co-payment for outpatient physician services of $15 or more, up from 37 percent last year. In addition, 15 percent of workers were in plans that increased their out-of-pocket liability by excluding spending for certain services from the calculation of the plans' annual out-of-pocket maximum.

The most commonly identified approach to reining in costs by employers was disease management, yet fewer than a quarter of firms believe it to be a very effective approach in addressing cost increases. Consumer driven health plans were considered very effective by 14 percent of employers, higher cost-sharing by 10 percent of employers and tighter managed care networks were considered very effective in containing costs by six percent of employers. Seventeen percent of very large firms (5,000 or more workers) are now offering a high deductible plan—a plan with $1,000 or more annual deductible for single coverage), and another 16 percent of such firms say they are highly likely to add a high deductible plan next year. Looking across large and small firms, nine percent of the nation's employees now work for a firm offering a high deductible plan with another 11 percent working for a firm that will likely add one next year, although the plans may not be offered to all workers.

I don't want to end on a depressing note, so let me suggest that if you have not done so already you might want to look at some pre-tax medical expense funding arrangements for your employees that are allowed by the IRS. They are known as Health Reimbursement Arrangements (HRAs) and Flexible Spending Accounts (FSAs). The IRS recently made the programs even more attractive as it has announced that employees would be allowed to pay for most over the counter drugs through their accounts. At the moment, your tax advisor is probably the best source of information on these tax advantaged opportunities to control costs. It is not the ultimate solution but every little bit helps.

For last month’s issue, click here.