Smaller Employers Struggling To Cope With Rising Health Benefit Costs
Despite a decline in the rate of health insurance premium growth in 2005, the number of businesses offering health benefits to their employees continues to fall. Smaller companies, in particular, are turning to cost-sharing and other cost-containment strategies to keep up with increases that remain well above inflation, according to two recent studies.
The Kaiser Family Foundation's "Employer Health Benefits Survey" found that insurance premiums for employer-sponsored health plans rose at an average rate of 9.2% in 2005, down from 11.2% in 2004, and 13.9% in 2003. But even this year's single-digit increase was much higher than the overall inflation rate of 3.5% and average wage gains of 2.7% over the same period, researchers observed. In 2005, the average annual premiums for employer-sponsored health plans reached $10,880 for family coverage, and $4,024 for single coverage.
Some companies have reacted to these sharp increases by dropping health benefits altogether, the survey indicated. The percentage of all employers offering health benefits to their workers fell to 60% in 2005, from 69% in 2000. Over this five-year period, researchers noted, premiums for family coverage increased by 73%—far outpacing inflation growth of 14% and wage gains of 15%.
A growing share of employers who continue to provide health benefits are turning to consumer-directed approaches in an effort to trim costs. Of those firms with health plans, 20% now offer a high-deductible health plan (HDHP) to at least some of their employees, the survey found.
The survey also indicated that small, but growing, numbers of employees may now choose a consumer-driven plan, with 1.6 million workers now covered by an HDHP with a health reimbursement arrangement (HRA) through their employers, and 810,000 employees covered by a high-deductible plan coupled with a health savings account (HSA). Researchers found that the total annual spending by employers for HDHP/HRAs, including premiums plus contributions, was not significantly lower than for health plans generally. Employers did, however, appear to spend less on HSA qualified HDHPs.
"Consumer-driven plans are proving attractive to some, but with just a couple million people now enrolled, it's too early to know whether they'll have a meaningful effect on the health system," said Gary Claxton, a Kaiser Family Foundation vice president and co-author of the study. "The jury is still out on whether employees feel that these arrangements work for them, particularly when they get sick, and on whether employers feel that they have a real impact on costs."
Preferred provider organizations (PPOs) cover 61% of workers, but PPOs were found to be the most expensive plan type, with average annual premiums of $11,090 for family coverage in 2005. In contrast, the average annual premiums for less-popular health maintenance organizations (HMOs), which cover 21% of workers, came to $10,456 for family coverage, according to the survey.
Nearly 80% of insured employees with single coverage, and 90% with family coverage, contribute toward their health insurance premiums, results showed. On average, employees contribute $610 for single coverage, and $2,713 for family coverage. However, researchers said, employees in smaller companies tend to make significantly higher contributions toward family coverage than workers employed by larger companies.
While the percentage of premiums paid by employees has remained unchanged over the past several years at an average of 16% for single coverage and 26% for family coverage, the study revealed that employee cost sharing—in the form of deductibles, copayments, and coinsurance—is now substantial, especially for workers in small companies.
In an effort to hold down costs, the Kaiser Foundation study concluded, employers are turning to cost sharing, disease management, and, increasingly, consumer-driven approaches. But, researchers noted, with the average cost of family coverage now exceeding the full-time wages of a minimum-wage worker, smaller companies in particular are finding it increasingly difficult to offer benefits to workers.
Salary.com's "Small Business Basic Medical Coverage Survey" also concluded that the relentless rise in health insurance premiums is having a disproportionate effect on small companies. In a survey of 304 small businesses (1-200 employees), almost 90% of respondents said they were paying more to provide basic health coverage to employees in 2005 than in 2004, with half reporting year-on-year increases of 10% to 20%.
Of the small companies surveyed, 64% said they were using one or more strategies to keep health insurance costs in check, including increasing employee copayments and, to a lesser extent, the employee share of premiums. Other cost-containment strategies cited by respondents were switching plans, reducing coverage levels, changing eligibility standards, and eliminating coverage altogether. Results showed that raising the amount employees contribute to premiums is the fastest-growing cost-containment measure among small businesses, with a large percentage of the employers surveyed saying they would be likely to adopt this practice in the future.
The Salary.com survey also revealed that some small businesses (14%) are even offering employees incentives not to participate in the company's group plan, or are actively encouraging them to enroll in their spouse's plan. Among the incentives mentioned by respondents were lump-sum salary increases, cash rebates, and contributions to other benefit accounts.
