Cost of Health Benefits Outpaces Inflation in Ongoing, 7-Year Trend

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PREMIUMS FOR EMPLOYER-SPONSORED health insurance rose 6.1% this year, as reported in the Employer Health Benefits Survey released by the Kaiser Family Foundation and Health Research and Educational Trust.

The 6.1% increase was mixed news for the nation’s employers. The number was less than the 7.7% increase posted in 2006. But it is much higher than both the increase in workers’ wages (3.7%) and the overall inflation rate (2.6%).

The 2007 health benefit cost report indicates that employers in the United States are still coping with unsustainable rates of increase in their health benefits programs. These substantial year-to-year increases in the costs of health benefits are eroding the ability of American companies to compete in the global marketplace.

Other figures in the Kaiser report demonstrate the problem for employers. Since 2001, premiums for family coverage have increased 78%, but wages have risen only 19% and inflation has gone up by just 17%.

Unsustainable Increases

That means the cost of providing health benefits has just about doubled since 2000, while inflation has increased by only about 20%. Because this trend was sus- tained in 2007, THE DARK REPORT predicts employers will take direct action to control this situation, using a combination of strategies.

The primary strategy is that employers are likely to expand their efforts to move employees into high deductible health plans (HDHPs). This would be expected to have two benefits. First, employees would bear a great portion of their annual health premiums. Second, by requiring employees to pay more out of pocket each year to meet deductibles, co-pays, and out-of-pocket requirements, employers are motivating these beneficiaries to spend their healthcare dollars more wisely.

However, the HDHP strategy is coun- tered by another development in the American health system. In 2007, the average annual family health premium was $12,106. On average, workers now pay $3,281 per year out of their paychecks for a family policy. This means that employers will be bumping against the high end of their employees’ ability to pay more for health coverage.

Researchers at Kaiser reported that about 5% of all covered workers were enrolled in consumer-driven health plans (CDHPs). Overall, an estimated 3.8 mil- lion workers are enrolled in consumer-driven plans, and they are equally divided between high-deductible plans that qual- ify as health savings accounts (HSAs) and those that are characterized as health reimbursement arrangements (HRAs). These plans feature high-deductible coverage and a tax-preferred savings option, from which employees can pay for their out-of-pocket medical expenses.

THE DARK REPORT believes that employers will use another major strategy to curb year-to-year increases in the cost of health benefits. Employers will push providers, including hospitals, physicians, and laboratories, to provide a higher quality of care. Pay-for-performance incentives are one way to encourage this outcome.


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