Holding Down Health-Care Costs, Part I of III

Health-care expenses—particularly the growing cost of medical-insurance premiums—are among the biggest budget headaches for American employers and employees alike. The first segment of this three-part series explores offers a big-picture look at current health-care costs and where they’re headed.

By Anne Stuart

If there’s one thing that just about everybody in just about any organization can agree on, it’s this: “Our health-care costs are much too high.”

That’s likely to be the case whether you’re an executive struggling to keep your company solvent, an HR rep faced with telling workers that their out-of-pocket costs for health-care insurance are going up again or an employee trying figure out how to cover those increases. It’s an especially tricky issue in an economic environment in which pay cuts are far more common than raises.

At this writing, the ultimate fate of the Obama Administration’s massive health care-reform campaign remains very much up in the air. But no matter what happens, it’s hard to argue with one underlying assumption: Businesses and families are both feeling the pain of skyrocketing health-care costs.

At the same time, many companies—of all sizes, in a variety of industries--are already taking their own steps to reduce health-care expenses. We’ll look at some strategies and tactics for cutting costs in Parts II and III of this series.

THE BIG PICTURE

To set the scene, let the numbers tell the story:

$2.2 trillion: That was the total amount of U.S. spending for health-care products and services in 2007, according to the U.S. Department of Health and Human Services. The overall figure translates to more than $7,400 per person.

Private health insurance, out-of-pocket expenditures and other private sources accounted for about 54 percent of the total figure, while government sources (such as Medicaid and Medicare) accounted for the remaining 46 percent. The $2.2 trillion represents 16.2 percent of the nation’s entire gross domestic product (GDP) for that year (the most recent one for which those federal statistics are available.) If that rate of growth continues, one out of every four dollars in the U.S. economy will go to health care by 2025, according to projections by the Congressional Budget Office.

159 million: That’s the approximate number of non-elderly people covered by employer-sponsored health insurance, according to the Kaiser Family Foundation of Menlo Park, Calif. To put it in context, that figure includes more than half the total U.S. population of about 307 million people.

$13,375: That’s the total cost of the average annual premium for employer-sponsored family health insurance this year, according to the 2009 Employer Health Benefits Survey by the Kaiser Family Foundation and the Chicago-based Health Research & Educational Trust of Chicago, Ill. In their 11th annual survey, released in September 2009, the two nonprofit health-care research organizations surveyed 3,188 non-governmental employers nationwide. Among their conclusions:

• Family premium costs have more than doubled over the past decade, increasing by 131 percent over the average annual cost of $5,721 in 1999. Those costs have gone up far faster than workers’ wages (up 38 percent since 1999) and inflation (up by 28 percent).

• Family premiums have risen about 5 percent since 2008—even though inflation has actually fallen by about 1 percent over the past year.

• On average, employers pay $9,860 of that $13,375 annual family insurance premium, while employees pay $3,515. That’s up from $4,247 for employers and $1,543 for employees in 1999.
$24,000. That’s the amount that an average family health-insurance premium could cost by 2020 if growth continues at the current rate, according to an August 2009 report by the Commonwealth Fund, a New York City-based foundation that supports independent research on health-care issues. (For links to all those reports, see “Resources,” below.)

COSTS UP, COVERAGE DOWN

At the same time, research indicates that many employer-sponsored insurance packages now offer fewer benefits at higher cost than they did a few years ago.

“Among those firms offering benefits, 21 percent report they reduced the scope of health benefits or increased cost-sharing due to the economic downturn,” the Kaiser Family Foundation/HRET report found. “Fifteen percent report they increased the worker’s share of the premium.”

In addition, many employees are increasingly paying higher deductibles. This year, according to that survey, 22 percent of covered workers must pay at least $1,000 out of pocket before their health-care plan kicks in to start paying some of the bills. That’s up from 18 percent last year and more than double 2006’s finding of just 10 percent.

And employees are likely to continue paying more for health care. Twenty-one percent of the benefit-providing companies in the Kaiser/HRET survey responded that it was “very likely” that they’ll raise their employees’ share of their health-insurance premiums next year; 16 percent say they’re “very likely” to raise deductibles.

GLIMMERS OF GOOD NEWS

But the research shows includes some positive signs as well:

• Only 4 percent of the respondents in the Kaiser/HRET survey expected to begin restricting employees’ eligibility for coverage.

• Even fewer (just 2 percent) planned to drop their employee health benefits entirely.

• In addition, Kaiser/HRET researchers reported that “the average premium for single [as opposed to family] coverage did not significantly increase [for 2009], breaking a long-standing trend.”

• And the Commonwealth Fund report noted that slowing the annual rate of growth of health-care costs by just 1 to 1.5 percent per year could translate to big savings for both businesses and families. If premium growth were reduced by 1 percentage point nationwide, “by 2020 employers and families together would save $2,571 per premium for family coverage, compared with projected trends,” the report’s authors stated in their overview. “If growth could be slowed by 1.5 percentage points—a target recently agreed to by a major industry coalition—yearly savings would equal $3,759 in savings, compared to projected trends.”

Bottom line: The numbers surrounding employer-sponsored health insurance are sobering at best, disturbing at worst. But based on the research, there’s reason for cautious optimism for employers and employees alike. Meanwhile, there’s plenty that both parties can do to help keep health-care costs down—often without significantly affecting the amount or quality of their coverage. We’ll explore some expert recommendations and some tried-and-true initiatives in future columns.

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