Kaiser Family Foundation Report: Average annual premiums up 9 percent in 2011

Annual premiums for employer-sponsored family health coverage in 2011 increased to $15,073, a 9 percent hike from 2010, according to the Kaiser Family Foundation/Health Research & Educational Trust 2011 Employer Health Benefits Survey.
Employees now pay an average of $4,129 while employers pay an average of $10,944 for those annual premiums. Premiums increases are growing quicker than workers’ wages at 2.1 percent and inflation at 3.2 percent. In fact, family premiums have jumped 113 percent since 2001, compared to 34 percent for workers’ wages and 27 percent for inflation.

“This year’s 9 percent increase in premiums is especially painful for workers and employers struggling through a weak recovery,” says Kaiser President and CEO Drew Altman, Ph.D.

The survey also estimates that employers added 2.3 million young adults to their parents’ family health insurance policies, which is because of the health reform provision that allows young adults up to age 26 to be covered as dependents. Typically, young adults are more likely to lack insurance than any other age segment.

“The law is helping millions of young adults to obtain health coverage,” says study lead author Gary Claxton, a Kaiser vice president and co-executive director of the Kaiser Initiative on Health Reform and Private Insurance. “In the past, many of these young adults would have lost coverage when they left home or graduated college.”

High-deductible health plans are especially gaining popularity among employers, the survey reveals, as covered workers enrolled in this type of plan have increased from 8 percent in 2009 to 17 percent in 2011. Of those participating in HDHP, 31 percent of covered workers have at least $1,000 deductibles for single coverage. Another 12 percent have deductibles of at least $2,000.

High deductibles are more common in smaller firms, where half of workers have at least a $1,000 deductible, and 28 percent have at least $2,000 deductible or more. HDHP premiums, however, are lower than other plan types when paired with a health
savings account, though the annual deductibles must be at minimum $1,200 for an individual and $2,400 for a family this year.

Grandfathered plans are also a significant coverage option, the survey finds, with 56 percent of covered workers falling into these plans, which are exempted from certain health reform requirements. Some of the exemptions include covering preventive benefits with no cost sharing and providing an external appeals process. To qualify, no significant plan changes can be made that reduce benefits or increase employee cost.

Twenty-three percent of covered workers are enrolled in plans that adjusted cost-sharing requirements for preventive services because of the health reform law that states non-grandfathered plans must provide certain preventive benefits without cost sharing. Another 31 percent of covered workers participate in plans that modified their preventive services because of health reform.

September 27, 2011, Amanda McGrory, staff writer for BenefitsPro.com.

^back to
top

DDI Reading Room:

The Company That Solved Health Care,
by John Torinus Jr.

This book is a must read for large and small employers who are serious about reducing their health care costs.  Mr. Torinus, Chairman of Wisconsin-based Serigraph Inc, a manufacturing firm that employs about 450 employees, challenges employers to re-think how they deal with health care expenses. An exerpt follows:

“The escalating cost of health care pounds away day after day, year after year, at businesses across the country.  Employers, who are footing much of America’s $2 trillion annual health care bill, are struggling to rein in medical expenditures that take up larger and larger chunks of their budgets.  For some companies, not taming the health care cost beast could mean operating in the red. Gaining control over cost is a matter of survival.

The recent reforms out of Washington have done little to address the expensive price tag on a broken system.  Congress has emphasized who will pay for out-of-control health care costs, with only lip service paid to controlling them.  But spiraling costs are the reason more and more Americans were priced out of health care coverage in the first place.  More
individuals will be covered under the latest bill, but businesses will suffer the same problem they’ve had for four decades:  how to pay
for double-digit yearly increases.

Employers don’t have to take the assault lying down.  They can wield power because of the golden rule – he who has the gold rules.

The Company That Solved Health Care guides employers in stepping up and taking charge of the “non-system” of health care so they can get their budgets back on track.

Serigraph, an award-winning manufacturing company based in West Bend, Wisconsin, decided to take matters into its own hands with a multifaceted and novel approach.  Rather than apply band-aids to the problem like rationing care (only one Viagra pill per week for example) and getting new bids each year – Serigraph actively engaged its employees.  In 2004, the company boldly invested $2 million upfront on the bet that consumerism and empowerment would save that much and more during the upcoming year. The bet paid off.”

We highly recommend reading this book if you are ready to get creative with controlling your health care costs.

^back to
top

Four reasons why employers won’t drop health insurance in 2014

Researchers at the Urban Institute argue health reform was designed to build on, not replace, employer-sponsored health insurance

With funding from the Robert Wood Johnson Foundation, researchers released a report Friday explaining why declines in employer-sponsored health insurance will have nothing to do with the Affordable Care Act.

The report is a response to a recent survey from McKinsey & Co. that found 30 percent of employers will definitely or probably stop offering employer-sponsored insurance after 2014, because that’s the starting year for state-run health insurance exchanges.

McKinsey’s analysis points to health reform for inciting a possible benefits-reduction trend, and notes at least 30 percent of employers would gain economically from dropping coverage.

The survey soon fueled health reform criticism and aroused speculation from pundits like Wisconsin Sen. Ron Johnson and former CBO Director Douglas Holtz-Eakin, who wrote in a Washington Post op-ed that employers would “happily get out of the practice of health insurance, if they could do it without hurting their workers. Obamacare will encourage them to do so.”

With millions of employers following suit to drop coverage, Johnson and Holtz-Eakin estimate that costs for the health exchanges would run as high as $800 billion.

While electing coverage through exchanges would benefit some workers, authors of the Urban Institute report say there’s no overall opportunity for employers to improve their bottom line by paying a penalty that’s less expensive than health insurance. In fact, there’s more evidence that dropping coverage would actually increase costs for many of these employers.

In the next few years as health reform policy comes into full force, the decision to continue offering health benefits will not be based on the ACA penalty, authors say, but “whether given the alternatives the law creates for coverage outside the workplace, employers will still see offering coverage as essential to attracting and retaining the workforce they want.”

With that, here are four reasons from the report for why most employers will choose to continue providing health benefits:

1. Employers will likely only drop coverage if most workers would benefit from switching to the exchange

Analysts agree only firms dominated by workers earning at or below an income of 250 percent of the federal poverty level are likely to drop coverage and substitute extra wages for lost benefits.

These firms will make their low-wage workers better off because the combination of premium and cost-sharing subsidies makes exchange coverage for these workers as good as or better than employer-sponsored insurance (ESI).

But only about one in five workers with ESI are below or at 250 percent of the federal poverty level, according to the report. Given this distribution, researchers write, “the share of workers who would benefit from dropping—based on income and subsidy calculations alone—will likely be far smaller than the share of workers who will not.”

Nondiscrimination rules don’t allow employers to decide not to offer coverage to workers who have access to subsidies in the exchange while offering it to workers who don’t. If they deny coverage to those eligible for subsidies, they’ll have to drop coverage for everyone and face a penalty ($2,000 per full-time employee after the first 30 workers in firms with 50 or more employees.)

On top of that penalty, researchers write, keeping workers as a “whole” would require employers to pay “additional wages both to cover extra unsubsidized premium and benefit costs (for workers eligible and ineligible for subsidies) and to offset the fact that any premium payments would now be paid by employees out of after-tax, not pre-tax, dollars.”

Employers won’t be able to simply pocket savings from having the government subsidize their workers’ health care, the authors argue. Instead, there would be an overall increase in the firm’s compensation costs.

“80 percent of U.S. workers overall—and the group most likely to dominate most workers’ firms—would lose out if employers drop coverage,” the authors write. “Since compensating them for the loss of benefits would increase costs to employers, and thus create a disincentive to drop, most employers will continue to provide coverage.”

2. Better-paid workers remain better off with employer-sponsored insurance

When a higher-earning worker loses employer-sponsored insurance and purchases coverage in the exchange, they lose the tax benefits that come with work-based premiums and will have to pay exchange premiums with after-tax dollars.

These workers will have to get exchange subsidies equal to or greater than the tax advantages they’ve lost.

Because subsidies decrease as income increases, and tax subsidies for employer benefits increase as income increases, better-paid workers are better off with employer coverage.

And it is the preferences of the workers that are most difficult to replace (usually higher earners) that tend to carry the most weight in employer decision-making.

3. Employers are unlikely to drop coverage due to complexities in assessing employees’ preferences

Where there’s a mix of high- and low-wage workers, assessing employee preferences will be complicated by workers’ particular circumstances—factors not taken into account by those who claim that dropping will be widespread, report authors write.

Factors that make dropping coverage unattractive to workers include:

Age – Higher income workers tend to be older. Because health reform allows insurers in the exchange to charge higher rates to older workers, these workers would be particularly averse to an employer decision to drop coverage.

Smoking – Health reform also allows insurers in the exchange to charge higher but still constrained premiums to smokers. “Smokers are disproportionately represented among low-wage workers, whose subsidies will not be increased to reflect the higher premium cost,” report authors write. “As a result, low-wage workers who smoke might actually be averse to having their employer drop coverage.”

Family status –Family circumstances might make exchange coverage unattractive. (For example, when a low-wage worker with income from an employed spouse may not be eligible for subsidies in the exchange.)

4. Employers are unlikely to make decisions to encourage some employees to drop coverage and not others

There’s an alternative strategy to accommodate low-wage workers without disrupting higher-wage workers: Continue to offer employer-sponsored coverage, but reduce the employer contribution so that the low-wage worker’s share
exceeds 9.5 percent of income—that’s when, under the ACA, employees are allowed to receive exchange subsidies.

Employers would still face penalties but potentially smaller ones – either $3,000 per worker receiving a subsidy or $2,000 per full-time worker, whichever is less.

There are a few problems with this, however. First, a competitive market will force employers to increase wages for employees going to the exchange. If they don’t, they’ll lose these workers to a competitor that will.

Second, employees aren’t saving money by having only some workers go to the exchange. They have to pay for wage adjustments to keep those workers, and this may not leave money left over for penalties.

Third, lower-paid workers likely to benefit from the exchange are also likely to be younger workers. “If they voluntarily drop ESI coverage and go into the exchange, the employer will remain responsible for the older (and, more important, sicker and costlier) workers, without the ability to spread those costs across all workers’ wages,” researchers write.

“For the employer to avoid an increase in total compensation, that means higher premium contributions and lower wages for those who stay—likely for the very workers the employer most wants to keep.”

October 21, 2011 By Jenny Ivy,  managing editor for BenefitsPro.com

^back to top

For more information on creating a customized benefits package for your employees, contact DDI Benefits at 503.206.5654, or via email to dena@ddibenefits.com