Costly coverage

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Health insurance premiums paid by employers and their employees increased again this year, outpacing wages and inflation, the Kaiser Family Foundation reported yesterday.

The 2007 premium increase was 6.1 percent on employer-sponsored health care. Last year's increase was 7.7 percent.

Drew Altman, president of the Kaiser Family Foundation, a nonprofit health care research firm in California, said the survey results show health care costs are in a period of moderate growth. Premiums for family coverage in an employer health plan now average more than $12,000 a year.

Of that $12,000 premium, the typical employee pays about $3,000. The rest is covered by the company.

Since 2001, premiums for family coverage have increased 78 percent, while wages have gained 19 percent and inflation 17 percent, the survey showed. Premiums continue to rise faster than workers' wages but this year's gap, 2.4 percent, is much smaller than the nearly 11 percent difference four years ago.

"Every year health insurance becomes less affordable for families and businesses. It's just a really big number," Mr. Altman said.

The percentage of people covered by employer-based health insurance fell to 59.7 percent in 2006, down from 60.2 percent in 2005 and 64.2 percent in 2000.

The survey, which ended in May and was co-sponsored with Kaiser by the Health Research and Educational Trust, received responses from nearly 2,000 employers nationwide.

Researchers say advances in medical technology, increases in insurance company profits, which are higher than in recent years, and rising hospital costs are primary contributors to increasing premium rates. Jon Gabel, a principal investigator for the Kaiser survey, said that insurance company margins are around 6 to 7 percent, higher than the 3 percent average seen in the 1980s and 1990s.

"Increased costs can be attributed to that difference," he said.

Alissa Fox, vice president of legislative and regulatory policy at BlueCross and Blue Shield Association, disputed the notion that premium costs are being driven by health planprofits. She said increases are the result of substantial growth in underlying medical costs.

As health care costs go up, employers are seeking to cut their medical expenses by asking workers to pay higher co-payments, increased deductibles and spend more out of pocket.

Preliminary data from a large-employer survey released last week by Mercer Health & Benefits, a health care consulting firm in New York, show health benefit costs going up 6.7 percent in 2008. Those costs would be even higher, around 9 percent, if employers did not pass some of the costs to workers, the Mercer survey found.

The Kaiser survey also found that employers expect to make significant cost-saving changes to their health plans next year. Overall, 21 percent of the companies surveyed say they are "very likely" to raise workers' premiums in 2008. Other changes could include increases in office visit cost-sharing and increases in deductibles.

Small businesses are more likely than others to enact cost-saving measures. This year fewer than half of small businesses with three to nine employees offer health insurance to their workers, the Kaiser survey found. In contrast, nearly all large companies with 200 or more employees offer health benefits to workers.

"We are not falling off a cliff but we are witnessing a slow but certain erosion of the employer-based health insurance system," said Gary Claxton, vice president at Kaiser.

Widely publicized consumer-driven health plans, touted by the insurance industry as a potential solution to rising health care costs, did not make significant inroads this year, according to the Kaiser survey. The plans, which have high deductibles with a tax-preferred savings account, accounted for about 5 percent of all coverage options. The plans are described as consumer-driven because people have a greater share of the responsibility of their health care costs, providing incentive to ration medical services.

"Consumer-driven plans have established a foothold in the employer market, but they haven't grown as much as one might think, given all the attention they receive," said Mr. Claxton.

Traditional plans are standing in the way of the consumer options taking off. Preferred provider organizations continue to dominate the employer health insurance market, enrolling 57 percent of covered workers. Health maintenance organization health plans represent another 21 percent.