Employers Face Rising Health Insurance Premiums
by Gregory S. Dowell
The September 27, 2011 edition of the New York Times reported that the average family premium for an employer-sponsored health care plan is up 9% this year, to more than $15,000, according to a survey of both large and small businesses by the Kaiser Family Foundation. Of the $15,073 in average premiums paid for family coverage, Kaiser found that employees paid $4,129 towards the cost, in addition to whatever out-of-pocket costs they shouldered. Reed Abelson reported on the topic in an article titled “Health Insurance Costs Rising Sharply This Year, Study Shows”. Abelson reported that “The cost of health insurance for many Americans this year climbed more sharply than in previous years, outstripping any growth in workers’ wages and adding more uncertainty about the pace of rising medical costs”.
A troubling aspect is that the large increase in premiums follows a few years of relatively moderate increases in the 5% range. Unfortunately, experts feel that more bad news may be on the way. “The open question is whether that’s a one-time spike or the start of a period of higher increases,” said Drew Altman, the chief executive of the Kaiser foundation. Needless to say, the increase in health insurance premiums and the continued uncertainty about the future come at a time when the economy continues to struggle, portfolios have been made dizzy by the gyrations of the stock market, and unemployment is around 9% (although the real unemployment rate may be much higher). The article reports that health insurance premiums are up more than 100% since 2001, when a family could expect to pay about $7,000 for health insurance coverage. As a comparison, however, from 2001 to 2010 wages have only grown by about 34%.
Some analysts speculate that the new federal health care law pushed by President Obama has contributed to the increase. Those analysts believe that insurers have raised prices in anticipation of new rules coming in 2012 that would require them to justify an increase of more than 10 percent. In addition, some of the law’s provisions that are already in effect, including coverage for adult children up to 26 years of age and preventative services like mammogram screening, have contributed to higher expenses for some employers.
Insurance companies argue that they need to get ahead of the expense curve. While actual medical expenses have been blunted by the poor economy, insurers anticipate that their expenses will rise in the future as the economy recovers and people gain confidence that they can afford medical care, at which time they will return to their doctors and maybe even have treatments that they have been putting off for the last few years. Many speculate that the demand for medical services has also been weakened due to the fact that employers have been forced to make workers pay an increasingly larger share of their medical expenses, via higher deductibles and increased co-payments. The changes in insurance coverage mean that about 75% of workers now pay at least part of the bill when they go see a doctor. Roughly one in three workers has a deductible of at least $1,000 if they have single coverage, up from just one in 10 in 2006, according to the Kaiser study.
It’s easy to feel helpless in the face of rising health insurance premiums. However, there are some steps an employer can take to try to keep costs under control:
- Work with your agent to see what modifications can be made to your policy to reduce costs. Perhaps some combination of higher deductibles, different drug plans, or allocating more of the expense to employees will temper the increase.
- Encourage wellness at the company. Some companies subsidize the cost of health club memberships; some companies take it a step further and reward employees who actually use their health clubs on a regular basis. Small things can help to set the tone as well. Changing the snacks available in the office to healthy options, encouraging exercise breaks during the day, or bringing in nutritionists for seminars can help to change people’s habits.
- Consider a health savings plan (HSA) or a health reimbursement plan (HRA). The HSA works much like a 401k plan for health care, as the employer makes annual contributions to the employee’s account. The HRA gives the employer more control by effectively self-insuring part of the insurance costs.
None of these are magic bullets, but at least employers can begin to feel like they are not completely in the control of the insurance companies. The worse thing to do is to ignore the situation; insurance companies will not offer a special award or prize for those employers who choose to do nothing to offset the cost of rising health insurance.