September 10, 2003

Employees Pay 48% More for Company Health Plans

eople in employer-sponsored health plans are paying 48 percent more out of their own pockets for care than they did three years ago, according to an authoritative new study, and the cost will be even higher next year.

Almost two-thirds of large employers raised the amounts that employees are contributing to the cost of their health plans this year, and 79 percent say they will do so again in 2004, according to the study, by the Kaiser Family Foundation and the Health Research and Educational Trust.

Other health care experts are projecting that 2004 will be the fourth straight year of double-digit increases in health insurance premiums.

The steady climb in costs has made health care benefits a hot issue in labor negotiations this year, and it has put pressure on Congress to reach agreement on adding a drug benefit to Medicare. The sponsors of the study said yesterday that health care costs were also a significant drag on the economy.

"Workers pay substantially more, companies raise prices and they hire fewer people," said Drew Altman, president of the Kaiser Family Foundation, which specializes in health care issues.

Out-of-pocket spending for insurance premiums, deductibles and drug co-payments rose to $2,790 this year for a typical employee with family coverage, from $1,890 in 2000, Mr. Altman said.

Over all, according to the Kaiser study, health care premiums rose 13.9 percent this year, the biggest increase since 1990, outpacing the 11 percent rise in spending for hospitals and doctors, and far ahead of the 2.4 percent increase in manufacturers' prices. The increase was 15.6 percent for small employers with fewer than 300 workers.

Health care economists say that the rising costs reflect advances in drugs and health care technology and a loosening of managed care restraints during the prosperous 1990's.

Employers still pay the bulk of the costs — typically at least 75 percent. But the study found that most employers are shifting more costs to workers, in hopes of lowering the expense by discouraging heavy use of doctors, hospitals and prescription drugs.

Deductibles and co-payments for hospital care, which were uncommon only a few years ago, were required by 4 in 10 plans this year, the study found, and higher co-payments for expensive prescription drugs have been widely adopted.

"Given the state of the economy and the rapid rate of inflation, I don't think we have seen the worst of increased cost-sharing with employees," said Jon Gabel, vice president of the Health Research and Educational Trust, a nonprofit group based in Washington. The study is based on the responses of 928 employers to a survey about their health care spending.

In a typical example, state employees in Ohio will face increases in deductibles, co-payments for doctor visits and some drugs, and higher ceilings on out-of-pocket costs next year. But in a tradeoff with the state employees' unions, Ohio has postponed a 50 percent rise in the workers' share of insurance premiums to July 2005.

Benefit consultants said the health care inflation rate would slow somewhat next year — in part, they said, as workers respond to higher out-of-pocket costs by curtailing their use of some expensive drugs and avoiding some less-than-urgent hospital procedures.

"The rate of elective surgeries such as knee surgery is declining," said Kenneth Sperling, a health care consultant with Hewitt Associates.

In addition, spending on allergy drugs is declining after the switch of Claritin to nonprescription status. Employers expect a similar cost dip for ulcer and heartburn remedies when Prilosec, another widely used drug, becomes available in stores without a prescription next week. The switch to over-the-counter sales, however, usually means that the drugs are no longer covered by health plans, so consumers must pay the full price.

Still, based on early insurance contracts reported by large employers, the increases in premiums for the coming 12 months will be substantial.

"It does look bleak again, looking forward to 2004," said Joseph Martingale, a health benefits consultant with Watson Wyatt. Mr. Sperling said he expected the increase in premiums to fall below 12 percent.

The slowdown in spending for drugs and hospitals is good news for large employers, which typically pay medical bills directly, even if the paperwork is handled by an insurer.

But insurers and health plans have not passed those savings along to small businesses. Because their premiums were based on last year's health costs, "2003 was a very profitable year for the managed care industry," Mr. Sperling said.

Employers' health plans cover 175 million people, including 160 million workers and their families and 15 million retirees.

According to the new study, 65 percent of employers increased the amount that employees pay for health insurance this year, 47 percent raised employees' payments for prescription drugs, 34 percent increased deductibles and 34 percent raised co-payments for doctor visits.

Mr. Sperling, the Hewitt consultant, said many large employers added $100 deductibles for hospital visits three years ago. This year, most of the 300 companies that he monitors raised the deductible to $200, and one in four large employers is planning a further increase to $250 in 2004, he said.