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Insurance premiums still soaring

The growth rate of health insurance premiums failed to reach double digits this year, the first time that’s happened since 2000.
/ Source: The Associated Press

The growth rate of health insurance premiums failed to reach double digits this year, the first time that’s happened since 2000.

Still, premiums rose much faster than overall inflation and wage growth, the Kaiser Family Foundation reported Wednesday.

The foundation, which specializes in health care research, said premiums increased 9.2 percent between the spring of 2004 and the spring of 2005. Such an increase could devour much, if not all, of the 2.7 percent increase that the average employee saw in wages.

“There is some good news, I suppose. The rate of growth is slightly lower than last year,” said Drew Altman, the foundation’s president and CEO. “The bad news is that’s the only good news, because premiums are still going up 3 times faster than wages.”

Each year, the foundation issues a report on health insurance coverage and premium costs based on a survey of more than 2,000 businesses. Those businesses range from the very small (three employees) to large corporations with more than 300,000 employees.

From one year to the next, it can be hard to discern particular trends. For example, the percentage of employers sponsoring health insurance dropped 3 percentage points to 60 percent this year. Five years ago, the percentage of employers sponsoring health insurance coverage stood at 69 percent.

“It’s like watching the steady erosion of a beach,” Altman said. “And, then, all of a sudden, you notice that it’s half gone.”

The drop in employer coverage has forced millions of people into the ranks of the uninsured and has prompted millions of others to seek coverage through Medicaid.

The survey shows that medium and larger firms haven’t dropped health coverage for employees. Indeed, they’re paying more than ever to provide that benefit. Premiums for a family of four now average $10,880 — or about the same amount as the yearly earnings for a minimum wage worker.

So, it’s not surprising that firms with a relatively high-percentage of low-wage workers are less likely to offer health insurance.

“A lot of what’s happening is new firms are being born all the time, and now when they’re being born, they’re not providing coverage,” Altman said.

The foundation’s survey also picked up another trend in health care — the opening of health savings accounts.

Consumers can sign up for such accounts with banks, credit unions and insurance companies. Employers may also set up a plan for employees as well. The concept behind the accounts is that consumers become wiser, more efficient purchasers of health care when they make decisions without relying on a third party or a health insurer to pick up much of the costs.

The accounts work much like a bank account. Workers deposit money into the accounts on a tax-preferred basis. The only product that must be purchased with an account is a “High Deductible Health Plan,” an inexpensive plan that will cover most expenses should they exceed the funds in the account.

Altman said he wasn’t sure how to gauge the impact of health savings accounts on slowing health care expenses.

“In our health care system, we spend the most money on a relatively small number of really sick people,” he said. “Until those people enroll in HSAs, they won’t have a great impact on overall costs.”

Business leaders were scheduled to meet on Capitol Hill late Wednesday to discuss their concerns about rising health care costs. In conjunction with that briefing, the Robert Wood Johnson Foundation released a survey that shows business leaders expect premiums to increase about 12 percent over the coming year, and about a fifth of that increase will be passed on to workers.

More than a third of the employers surveyed said it is likely that their employees will consider dropping health care coverage because of this increase in out-of-pocket costs.

The survey also showed that business leaders strongly support granting tax credits to small businesses that offer insurance coverage, and for allowing the self-employed and small businesses to band together so they can purchase insurance at lower group rates.