Medical premiums keep rising far more than inflation, study says

The cost of health insurance premiums paid by employers and workers rose 6.1 percent over last year, making coverage increasingly unaffordable for American families and businesses, a study released Tuesday by the Kaiser Family Foundation shows.

That increase for employer-sponsored coverage well outpaces the 2.6 percent rise in inflation and 3.7 percent growth in workers' earnings, the survey found.

Last year, the report found premiums increased 7.7 percent.

While this year's increase is the lowest since 1999, annual premium costs for the average family in 2007 still topped $12,100, or the equivalent of a new economy car, compared with $11,480 last year, according to the survey of about 3,000 randomly selected private and public employers.

Employers have reacted to years of rising health costs by cutting benefits and requiring workers to pay more of their health care expenses through higher co-payments and monthly contributions. The percentage of companies offering coverage to workers has held steady for the past couple of years at 60 percent, but that is down from 69 percent in 2000.

"We are not falling off of a cliff, but we are witnessing a slow but certain long-term erosion of our employer-based system," said Jon Gabel, senior fellow at the National Opinion Research Center and co-author of the study.

Businesses trying to hold on to health benefits as a way to attract and retain reliable workers are finding it increasingly difficult to keep their grip.

Biagi Bros., a Napa trucking and warehousing company, is among a shrinking number of firms that cover all their basic premiums for employees, plus 75 percent of the cost of one dependent.
But the 18-year-old firm, which participated in this year's Kaiser survey, has had to be creative to continue to maintain coverage. Betty de Kat, the company's benefits administrator, said the firm routinely changes insurance carriers.

After receiving a 2008 increase of nearly 17 percent for coverage offered by Health Net, the company switched to UnitedHealth Group, which offered a 5.46 percent increase. Kaiser, the firm's other option, increased its rate by 5.2 percent.

"All of the carriers do it. They'll hold (premiums) low for a couple of years, and then they'll need to recoup what they think they need to make up," de Kat said.

Owners have few options
The owners don't believe dropping or reducing benefits is an option, she said. "We use these benefits to attract and keep our truck drivers, and it seems to work well," de Kat said. "We have to stay with the same level of benefits, so that's why we have to keep shopping around."

The survey comes at a time when California and some other states have proposed reforms to expand health coverage to more residents. San Francisco has become the first city in the country to roll out a plan to provide health services to uninsured residents.

Health insurance and medical costs consistently rank among Americans' top domestic concerns in national polls, and revamping the system has become a major theme in the upcoming presidential election. U.S. Census Bureau figures released last month show the number of uninsured Americans increased to 15.8 percent last year from 15.3 percent a year earlier.

Despite heightened awareness, the outlook for health reform remains troubling.

Major health reform proposals in California face uphill battles. Gov. Arnold Schwarzenegger said Monday that he plans to veto a bill by Democratic leaders, which was approved the same day by the Legislature, over concern that it places too great a financial burden on employers.

The Republican governor on Tuesday announced plans to hold a special session to try to reach a compromise, but observers say he may run out of time and support. The governor's own proposal, which he introduced in January, has yet to be put into bill form, but it requires employers to provide coverage and individuals to obtain it.

One plan postponed
In another reform effort, Sen. Sheila Kuehl, D-Santa Monica, indicated Monday that she would hold back her bill that would replace private insurers with a state-run single-payer system until next year because she expects it to face a gubernatorial veto.

Short of a major state or national overhaul, most non-elderly Americans - 158 million people - will continue to rely on employer-sponsored insurance.

While this year's survey showed some moderation in premium prices, the report's authors warned that year-to-year changes tell only part of the story.

"We've seen these peaks and valleys and rates of increases before," said Drew Altman, president and chief executive officer of the Kaiser Family Foundation, a health research organization based in Menlo Park. "If we take a bird's-eye view ... the overall trend is certainly going to be up."

Since 2001, the study found, premiums have jumped 78 percent, while wages have gone up 19 percent and inflation has risen 17 percent. Meanwhile, the portion families and single workers pay for their premiums has more than doubled.

Of this year's average family premium of $12,106, workers pay an average of $3,281, or 28 percent, out of their pockets. Single workers paid $694 out of their annual health tab of $4,479, or 16 percent. That share has remained steady in recent years.

Small firms vulnerable
Altman said current moderation in premiums is more likely caused by transient business pressures on health insurers than by any reduction in the primary drivers of health expenses, such as the increasing cost of new medical technologies. He suggested premiums have remained in the mid-single digits for the past couple of years due to insurers competing for new business and keeping the amount of money stocked away in reserves below legally mandated thresholds.

People working for smaller companies are far more vulnerable to premium cost pressures than those with large firms, the survey said. Small businesses are more likely than larger companies to drop health benefits, with 45 percent of those with fewer than 10 employees offering coverage in 2007, compared with 57 percent in 2000.

New plans that come with high deductibles and savings accounts have been touted by insurers and the Bush administration as the next big thing to control costs. But these "consumer-driven" health plans have largely flopped with consumers and employers, despite being the most affordable health plans available. The survey found such plans only cover about 5 percent of all workers, and the report's authors said that figure is California is closer to 1 percent.

Online resources
The foundation's 2007 Employer Health Benefits Survey
www.kff.org

What's happening in California
The increase in premiums comes at a time when California is struggling to reform health care. Here are highlights of plans proposed by Gov. Arnold Schwarzenegger and Assembly Speaker Fabian Núñez, D-Los Angeles (AB8):

Who is covered

• Governor's plan: All 6.8 million uninsured Californians.

• AB8: An estimated 3 million to 4 million people.

Employers' contribution

• Governor's plan: At least 4 percent of payroll for all but the smallest employers.

• AB8: At least 7.5 percent of payroll for all but the companies.

Mandates on coverage

• Governor's plan: Requires all Californians to have minimum coverage, with out-of-pocket maximums of $7,500 a year per person.

• AB8: Requires workers whose employers offer coverage to enroll.

Government programs

• Both proposals would expand existing government programs to cover the unemployed and poor.

Regulations on insurers

• Both proposals would require health insurers to spend 85 percent of revenue from premiums on health care.

Online resources

• To read the text of AB8 or review votes or other information, go to links.sfgate.com/ZTC.

Source: San Francisco Chronicle
September 12, 2007

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