But despite the modest increase, health insurance premiums are growing at twice the rate of inflation and continue to spike faster than the increase in workers’ earnings, which was approximately 3.6 percent in 2007. The cost of health care now totals $4,479 for an individual and $12,106 for family coverage, a 72 percent increase since 2002.
The annual survey, now in its ninth year, details how employer-sponsored coverage is changing for the 158 million Americans who receive their health insurance through their employer. It noted that premiums climbed 6.1 percent in 2007, the lowest rate of increase since 1999, when premiums rose 5.3 percent.
Both employer and employee are paying the same percentage of health care costs as in the past year. Workers now pay $273 a month on average for family coverage, up from $178 five years ago. But as a percentage of the premium paid by workers, the rate stays the same at 28 percent for family coverage and 16 percent for individual coverage.
Still, the cost increases are affecting smaller employers more drastically than large companies. What is emerging, based on the survey, is a two-tiered system of employer-sponsored health care.
While nearly all large employers continue to provide health insurance, coverage by small employers is eroding at a precipitous rate. Forty-five percent of employers with three to nine employees provide health insurance, down from 58 percent five years ago, and 59 percent of employers with fewer than 200 employees offer coverage, compared with 66 percent five years ago.
“We are not falling off a cliff, but we are facing a slow and long-term erosion of our employer-based system,” says Jon Gable, one of the report’s authors and a senior fellow at the National Opinion Research Center at the University of Chicago.
Both large and small firms say disease management programs were the most effective means of reducing health care costs. Large employers are particularly effective at marshaling staffing resources to manage health care costs through disease management. Among large employers, 35 percent said disease management programs were “very effective” at reducing costs, while 50 percent said the programs were “somewhat effective.”
By contrast, consumer-driven plans, seen by some as a panacea for reducing health care costs, are considered by 17 percent of large firms and 15 percent of small firms as “very effective” means of containing costs.
That may help to explain why the number of employees covered by consumer-driven plans with high deductibles increased to 3.8 million employees from 2.7 million, which was not a significant statistical change, according report co-author Gary Claxton.
Small employers tend to use high-deductible plans to shift costs and save money since premiums for high-deductible plans tend to be cheaper. Additionally, many employees—about 40 percent—in a high-deductible plan work for a company that makes no contribution to the health savings account.
Many large employers, meanwhile, use health reimbursement accounts less to save money than to engage employees as health care consumers, Claxton says. As a result, the cost of a high-deductible plan for large employers is not necessarily lower. Such plans, especially those with HRAs, end up costing more on average than other plans. Plans with HRAs cost individuals $4,809 and families $13,292.
What the survey shows, says Drew Altman, president and CEO of the Kaiser Family Foundation, is that the rise and fall of health care costs follows a cyclical pattern and that we are likely hitting a nadir in cost increases.
“We have seen these peaks and valleys in rates of increase before,” Altman says. “I think a return to higher increases is likely. The overall trend is certainly going to be up.”
One reason for the drop in premium price increases is that the market of potential covered lives is shrinking as more employers drop coverage altogether. That means health insurance companies must increase their membership base by poaching from their competitors. They do so by slowing their premium increases.
Altman says the current trends of moderating costs combined with a growing number of uninsured puts the country at a point it faced 13 years ago when, in 1994, Hillary Rodham Clinton offered a political solution to the health care crisis that ultimately failed. Yet in terms of public and political outcry, the call today for health care reform is getting louder.
“We’re starting to see health care rank higher as a political issue,” Altman says, “the highest since the early 1990s.”