Human Capital & Careers

Rate of Health Costs Slows Down

The cost of employer-sponsored premiums has increased 6.1 percent, the lowest rate in nearly 10 years, according to a new study.
Stephen TaubSeptember 11, 2007

Premiums for employer-sponsored health insurance rose an average of 6.1 percent in 2007, marking the lowest increase in nearly a decade.

Indeed, the latest calculation is less than last year’s 7.7 percent increase and the smallest increase since 1999, when premiums rose 5.3 percent, according to the 2007 Employer Health Benefits Survey, released by the Kaiser Family Foundation and Health Research and Educational Trust. The study queried 3,078 non-federal public and private firms with at least three employees.

To be sure, while the rate of premium increases has decreased, the 6.1 percent increase reflects a higher pace than the rate of inflation (2.6 percent) and workers’ wages (3.7 percent). Since 2001, premiums for family coverage have increased 78 percent, the report notes. On average, workers annually pay $3,281 out of their paychecks to cover their share of the cost of a family policy, which on average costs $12,016 per year.

The Kaiser/HRET survey also broke out the different increases depending on the type of plan offered and the size of the firm. The average premium increase for HMOs was 8.3 percent and 7.3 percent for conventional plans. On the other hand, the rate increase for point-of-service plans was 5.7 percent and just 5.3 percent for PPOs (preferred provider organizations). Small firms — those with three to 199 workers — reported a 5.5 percent increase, and firms with 200 or more workers reported a 6.4 percent increase. Firms with between 50 and 199 workers showed just a 3.9 percent hike.

Not all employers, however, have seen just single-digit increases in their premiums. According to the study, 10 percent firms experienced premium increases of greater than 15 percent. Nearly 50 percent reported having premium increases less than or equal to 5 percent.

The amount that companies are asking their employees to pay to cover the premiums has remained relatively stable over the past year. Covered workers, on average, pay 16 percent of the overall premiums for single coverage and 28 percent for family coverage, according to the report. However, these numbers fluctuate for depending on the size of the company. Workers in small companies pay significantly more on average toward the cost of family coverage ($4,236 annually) compared to larger firms ($2,831 annually). For single coverage, the opposite is true, with workers at small firms annually contributing less on average than workers at large businesses ($561 versus $759).

The survey also noted that despite of the attention paid to consumer-driven health plans, such as health saving accounts and health reimbursement arrangements, these offerings have made only a small inroad in popularity. Such plans cover about 5 percent of all covered workers, up from 4 percent share recorded in 2006. This year, 10 percent of firms offered a consumer-driven plan to their workers, up from 7 percent in 2006. These plans feature a high-deductible plan and a tax-preferred savings option from which employees can pay for their out-of-pocket medical expenses.

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