Premium hikes still outpacing wage increases

As fewer employers are able to offer health coverage, it's low-wage workers who feel the effects the most.

By Joel B. Finkelstein — Posted Oct. 3, 2005

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Washington -- There is little good news in the recent finding that U.S. employers paid, on average, 9.2% more to provide health insurance to their employees this year than they did last.

While that figure from the Kaiser Family Foundation's 2005 Annual Employer Health Benefits Survey marks the second year in a row that the rise in health insurance premiums has been slower than the year before, health insurance is still becoming an unaffordable commodity for an increasing number of America's working families. And the survey showed that patients are being faced with higher deductibles, increased premiums and more cost sharing.

"Cost and accessibility of health care significantly impact how individuals manage their own care," said Mary Pittman, PhD, president of Health Research Educational Trust, which partners with Kaiser on the annual employer survey.

Another recent survey from the Robert Wood Johnson Foundation suggests that this becomes an even bigger issue as companies pass more of the increasing cost of health insurance onto employees.

According to that survey, employers anticipating another increase in their premiums next year, intend to pass along, on average, 21% of the rise to their workers.

That could impact the care individuals and their families seek, Dr. Pittman said. She noted a report published last year in Health Services Research that showed that hospitalizations for preventable conditions increased as HMOs gave way to insurance companies that didn't pay for comprehensive preventive care.

"When out-of-pocket costs for health insurance reach a certain tipping point, it can affect how individuals and their families respond to the need for preventive or chronic [disease] management," Dr. Pittman said.

With the minimum wage increasing 360%over the past 35 years, and health insurance premiums growing 73% in just the past five years, more and more U.S. workers are approaching that tipping point, she said.

Gerry Shea, assistant to the president for government affairs at the AFL-CIO, made another comparison.

"In two weeks the United States Congress will raise its wage level for the eighth time since the last increase in the federal minimum wage, eight times. That's a statement about where our national priorities are that directly relate to health care."

According to U.S. Census Bureau data released last month, 45.8 million Americans went without health insurance in 2004. Experts said that number will continue to rise, and findings from the Kaiser survey released in September suggest erosion of employer-based coverage may be contributing to the continued slide among the insured.

"Since 2000 the percentage of firms offering coverage has fallen from 69% to 60%," said Drew Altman, PhD., Kaiser's president and CEO. "That's 266,000 fewer firms and it is of course mostly smaller firms. And it is mostly affecting lower-wage workers who are the folks who really take it on the chin."

While the recent census data suggest that Medicaid continues to act as an important safety net absorbing many of the families that have lost coverage through their jobs, employer-based insurance still forms the backbone of the health care system, Shea said. "This is basically the only route to health care for American working families."

Employers are fighting to continue offering health coverage, but these surveys show it's a losing battle, he said.

Under the current system, health benefits constitute a percentage of wages, but wages simply aren't rising in line with premiums, said Stuart Altman, PhD, professor of national health policy at Brandeis University, in Waltham, Mass.

"Eventually you are going to end up with the average premium being at $15,000 to $20,000 and the average wage at $30,000. That's an impossible situation," he said.

Seeking relief

The Bush administration and Congress will need to act before that happens, experts said. But whether that will involve preserving the employer-based system or getting rid of it altogether seems to be the question.

You've got two sides interpreting the results and both say the employer-based system won't work over the long term, Dr. Stuart Altman said.

"There is some truth to that if we don't do something," he said.

However, the two sides would take opposite approaches to replacing the current system. One side advocates for a system of subsidized individual health insurance; the other side wants a single-payer system.

"One of these would lead us to a substantial increase in the number of uninsured and the other would have the government take over our health care system," Dr. Stuart Altman said. "I'm in the third camp, which says: 'How do we make the employer-based system work better?' "

The American Medical Association would like to see the federal government pitch in to bolster the current system of private health insurance, said AMA Immediate Past President John C. Nelson, MD, MPH.

The AMA's reform proposal calls for advanceable, refundable tax credits, which Dr. Nelson said would level the playing field for small companies and individuals who are currently not eligible for the government breaks that large corporations get.

There also has to be a paradigm shift in medicine to focus more attention on behavior modifications such as exercise, diet, smoking cessation and early screening, which could significantly help shave health costs, he said.

In the absence of federal interventions, companies have increasingly resorted to cost-containment strategies, such as drug formularies, increased cost sharing and disease management programs.

While those approaches seem to have produced short-lived and relatively small price reductions, they do little to address the underlying cost drivers, such as long-term and end-of-life care, experts said.

"That's where we spend if not waste lots and lots and lots of money," said Dr. Stuart Altman. "Here we are running around like crazy trying to stop an extra MRI test, while in one day, we can spend $2 million on a very sick patient who dies anyway."

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Premiums rise; affordability falls

In a 2005 survey, employers report that the average cost of providing health coverage to their workers rose 9.2% over the past year, nearly three times as fast as wages during that period. The continued escalation in premiums makes it increasingly difficult for low-income workers to meet contribution requirements for health benefits, experts said.

Single Family
Annual total Employee contribution Annual total Employee contribution
2005 $4,020 16% $10,884 26%
2004 $3,695 16% $9,950 28%
2003 $3,383 16% $9,068 27%
2002 $3,060 14% $7,954 26%
2001 $2,652 14% $7,056 26%

Source: Kaiser Family Foundation's Annual Employer Health Benefit Survey

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