Health insurance premiums up 6.1%, fast outpacing inflation and wages

Washington -- The rising cost of health insurance continues to drive a slow but steady decline in employer-sponsored coverage and an increase in the number of uninsured people, according to the authors of an annual employer survey.

Premiums increased 6.1% on average in 2007 -- the slowest rate since 1999, according to the "Survey of Employer Benefits 2007" by the Kaiser Family Foundation and the Health Research & Educational Trust. But that figure is more than twice the 2.6% rise in inflation and outstrips the 3.7% boost in workers' earnings.

"We are not falling off a cliff," said Gary Claxton, a co-author of the report and a vice president and director of the Health Care Marketplace Project at the Kaiser Family Foundation. "But we are witnessing a slow but certain long-term erosion of our employer-based system."

While 99% of businesses with more than 200 employees offer health benefits, only 59% of firms with fewer than 200 workers do so -- down from 68% in 2001, according to the report, which surveyed 1,997 employers.

There's no scientific point at which health insurance becomes unaffordable, said Drew Altman, PhD, president and CEO of the Kaiser Family Foundation. "But it does seem like we've crossed a threshold where health insurance is just unaffordable for more employers, particularly medium-sized employers and especially smaller employers and for average people each year."

Low-wage workers and many small-business employees feel the most pain from health insurance costs, Claxton said. For example, 37% of workers in firms with three to 199 employees pay more than half the cost of family plan premiums. That decreases to 5% for workers in businesses with more than 200 employees. "This tells you how much you might have to struggle to try and keep up with the average cost of family coverage at a small firm," Claxton said.

This is part of the reason health care is a priority for voters from both major parties for the first time since the early 1990s, Dr. Altman said. When voters were asked in a bimonthly Kaiser poll which two issues they'd most like to hear the presidential candidates talk about, health care and Iraq were tied at the top among Democratic voters, with 42% of respondents each. Among Republican voters, health care, at 21%, ranked second only to Iraq (32%).

Higher premium increases to return?

While 2007 represents the fourth straight year of slower premium growth, Dr. Altman expects to see higher increases return. "We've done little as a nation to deal with the underlying drivers behind these increases we're seeing in health care costs."

Mercer Health & Benefits, a financial consultant, predicts a 6.7% increase in health benefit costs in 2008 based on preliminary results from its annual survey of 1,557 employer health plan sponsors. That prediction factors in businesses that said they expect to reduce costs by offering consumer-directed health plans, changing health insurers, asking employees to contribute more and continuing to offer wellness incentives.

Increased health spending has provided substantial clinical, economic and quality-of-life benefits for Americans, said AMA President Ron Davis, MD. To keep costs in check, however, systemic problems must be addressed.

"While physicians play a key role in efforts to contain costs, problems like obesity, tobacco use, alcohol, and substance abuse and violence will require action by stakeholders from inside and outside the health care system to drive major societal change," Dr. Davis said.

The AMA, as part of the Health Coverage Coalition for the Uninsured, supports offering tax credits for buying health insurance and improving enrollment both in Medicaid and the State Children's Health Insurance Program.

Consumer plans growing

Insurance companies have been promoting consumer-driven health plans as a way to reduce costs, but their growth has been hampered by employees' confusion about the plans and their fear of the plans' large deductibles, said Claxton and co-author Jon Gabel, a senior fellow with the National Opinion Research Center, a nonpartisan research organization.

"People who don't have any money in the bank are very much intimidated by a $2,000 deductible," Gabel said.

Enrollment in high-deductible plans with health savings or reimbursement arrangement options grew to 3.8 million in 2007 -- a 1.1 million increase from 2006, according to the report. Claxton said that was almost a statistically significant change, but the small survey sample prevented him from saying so definitively.