Kaiser Survey Shows Consumer Plans Instigate Premium Slowdown

The Kaiser Family Foundation’s much ballyhooed annual health care cost survey may be flawed, but it might prove that new products in the health care market, specifically consumer-driven plans, are forcing health insurers to lower their premiums.

October 9, 2007
The Kaiser Family Foundation last month released its annual survey of employer-sponsored benefit programs. Being a telephone survey, it has many limitations. This is especially true because the information it is asking is extremely complex and detailed, and getting more complex and more detailed every year.

For instance, when asking about HDHP-SO (high-deductible health plans with a savings option), the interviewers now ask respondents to distinguish between aggregate and per-person family deductibles. This is only one of 400 questions interviewers ask of the respondents.

This implies a need for a level of knowledge and verbal expression that very few people possess. Perhaps the senior vice president of corporate benefits at a Fortune 500 company would be equipped to answer, but the owner of a 15-worker print shop is unlikely to have the time or the knowledge to respond accurately.

The headline coming out of the survey is that the rate of premium increases has dropped for the fourth consecutive year and is now approaching the annual growth rate of workers’ cash wages and of general inflation. Premium growth is slowing on a par with the slowing of premium growth in the early 1990s, when managed care was taking over the market.

It is still premature to attribute this change to consumer-driven health care, but there is little else in the market that could account for it. A survey recently conducted by United Benefits Advisors found that the cost increase for consumer directed health plans was 2.7 percent, versus an increase of 7.2 percent for all plans. The UBA study, which surveyed 10,000 employers, also did a much better job of capturing the experience of companies with fewer than 200 workers. This reduction in trend was one of the predicted effects of consumer-driven health care, and it seems to be borne out here.

Some might respond that CDHPs don’t have enough market penetration to warrant such an industrywide change, yet history has shown that it doesn’t take enormous penetration to cause beneficial effects. PPOs and HMOs combined had only one-third of the market in 1990. It seems that when there is a "new kid on the block," other forms of coverage try to lower their costs to block the new competition.

The Kaiser survey reports that 3.8 million workers were covered by a CDHP in early 2007, up from 2.7 million a year earlier. Keep in mind that this statistic accounts for workers only and does not include family members. It also does not include enrollment in the non-group market.

On that basis alone, total enrollment should equal some 11 million individuals. Plus, while Kaiser reports that only 10 percent of firms with fewer that 200 employees offer consumer-driven plans, compared with 18 percent of firms with more than 1,000 employees, the UBA survey found pretty much the opposite—that firms with fewer than 100 employees are far more likely to offer CDHPs than are firms with 1,000 or more employees.

Kaiser also defined HDHP-SO pretty narrowly by including only those plans with a deductible of at least $1,000 for a single and $2,000 for a family. But in fact, the universe of consumer-driven plans is considerably larger than that and may include employers who take a defined-contribution approach to benefits programs, or who offer an HRA account to supplement other forms of out-of-pocket spending.

It’s likely, then, that the impact consumerism is having on the market is much greater. The authors of the Kaiser survey find significant savings, especially with health savings accounts, over other types of plans. The total annual premium for non-HDHP plans is $12,183 for families and $4,514 for singles, compared with $9,666 and $3,826 for HSAs. Even when the employer contribution to the HSA account is considered, the total HSA cost is $10,380 and $4,254.

The story is not so dramatic for health reimbursement arrangements. The premium cost is $11,492 for families and $3,894 for singles. Once the employer contribution to the HRA is added, the total cost ($13,292 and $4,809) exceeds the cost of traditional plans. But the HRA contribution is not a cash outlay and will only be honored once a qualified expense in incurred.

The Kaiser report also finds that "traditional" coverage usually includes a great deal of out-of-pocket costs that are often overlooked in policy circles. A PPO may have an annual deductible of $461 for a single employee, plus additional deductibles or co-payments for hospital admissions, outpatient surgery, emergency care, physician office visits and prescription drugs. The report says that people in a consumer-driven plan are more likely to be in a plan where there is no cost-sharing after the deductible is met.

Though still small, the role of consumerism will continue to grow, especially as one looks at the most important lesson from the survey: the continued erosion of employer-sponsored health insurance. It finds that in 2007, only 45 percent of very small employers (three to nine employees) offer any coverage at all, down from 57 percent in 2000.

And while larger firms are more likely to offer coverage, only 65 percent of their workers take it when it’s offered. These trends are especially true for companies with a large proportion of low-wage workers. Firms where less than 35 percent of employees earn less than $21,000 a year are almost twice as likely to offer coverage as firms where more than 35 percent earn less than $21,000 (67 percent versus 36 percent).

Large, wealthy companies will always be likely to provide excellent benefits. But everyone else had better be looking for an alternative.