Premiums Rise 7.7%, Outpacing Wages and Inflation
By Vanessa Fuhrmans
The Wall Street Journal
Tuesday, September 26, 2006
The health-care premiums of employers and their workers have
climbed twice as fast as wages and inflation in 2006 -- to
nearly double their cost in 2000 -- and look to rise at a
similar clip next year, two nationwide surveys show.
The average family premium rose 7.7% in 2006, marking the third
year employer health-care cost increases have slowed since
soaring nearly 14% in 2003, according to a 2,122-employer survey
by the Kaiser Family Foundation and Health Research and
After several years of steady steep rises, the cost for family
coverage under an employer health plan is now $11,480, well over
the annual wage of a full-time minimum wage worker and beyond
what many companies, mostly smaller businesses, and their
workers can afford. While 98% of firms with more than 200
workers still provide some sort of employee health benefits,
only 60% of smaller companies do. That's little changed from
last year but down from 68% in 2000.
"A modest reduction in an already high rate of increase hardly
looks like salvation for employers and workers who've been
getting hammered by high health-care costs year after year,"
said Drew Altman, president of the Kaiser Family Foundation, a
nonprofit health-policy research group based in Menlo Park,
Even when employers do offer health insurance, not all workers
get it or can afford it. On average, only 78% of employees are
eligible at these companies, either because they don't work
full-time or fail to meet other eligibility requirements. And
given that employers require workers to pay and average 27% of
the total premium -- or $2,973 for family coverage -- many
employees can't afford to accept the coverage. Indeed, the
share of workers covered by health insurance through their own
employer has fallen to 59%, down from 60% last year and 63% in
2000, according to the Kaiser survey.
One small employer, the Pinellas Federal Credit Union of Largo,
Fla., says that's why, despite another 27% increase in premiums
last year, its aim is to keep paying the full share of its
employees' premiums -- $300 a month --though it requires them to
pay the full coverage for additional family members. "We have a
lot of single moms and people who don't earn at the highest
income level," says Linda Reynolds, president and chief
executive of the 28-staff credit union. "Requiring them to pay
means more or less they're uninsured."
Three years ago, when the premium increase was so high that the
firm had to temporarily have employees pay $50 out of each
biweekly paycheck, one employee dropped coverage. Ms. Reynolds
says she's since had to raise copayments instead to keep the
premiums at a level the credit union can afford on its own. In
the next weeks, she said, she'll learn what her health insurer
wants to charge for 2007. "If something doesn't happen and
things continue to rise like this, I don't think any small
company will be able to sustain that expense," she says.
Most people falling out of the employer-sponsored health
insurance system are lower-income workers but they tend to be
healthier workers more willing risk going without coverage --
which raises the costs for the remaining, sicker pool of
employees. And ultimately employers pay more as uninsured
employees forgo preventive care and wind up in emergency rooms
when they do get sick, says David Guilmette, managing director
of Towers Perrin's health benefit benefits group.
The employee benefits consultancy's own survey of 167 companies
finds that larger employers expect their health-care costs to
slow again in 2007 to 6%, from the 7% increase they reported
last year. A large-employer survey published by Mercer Health &
Benefits LLC, a rival firm, projected similar increases next
year, but added that more moderate increase will come from
increasing employees' deductible and other cost-sharing
More of the larger firms also say they're adding "consumer
directed" plans, which combine deductibles of typically more
than $1,000 and some sort of tax-saving account to make
employees have a more financial stake in their health-care
spending. Overall, however, relatively few companies plan to
enroll in these plans next year, the Kaiser study says. Only
2.7 million people are enrolled in one through an employer,
about 4% of covered workers.
Though, for the average employer, health-care cost increase are
moderating, authors of Kaiser and Towers Perrin studies say the
actual costs or premiums that companies are reporting vary
greatly, with many still facing double-digit increases.
Companies who buy their health-care coverage from insurers,
typically smaller ones, continue to see bigger premium increases
8.7% -- an larger employers who finance their own health plans.
But even among larger firms, the spread between employers in
annual health-care spending is as much as $3,000 per employee,
Towers Perrin said.
Write to Vanessa Fuhrmans at