Employers Use High Deductibles to Hold Down Health Insurance Premiums
Policy + Politics

Employers Use High Deductibles to Hold Down Health Insurance Premiums


Consumers typically obsess on the premiums when evaluating health insurance choices offered by their employers or private insurers and are highly sensitive to any changes in the rates. As another Obamacare enrollment season rolls around, some analysts are estimating that premiums could rise between 10 percent and 24 percent in 2017 on average.

But a new study by the Kaiser Family Foundation and Health Research and Educational Trust concludes that consumers would be wiser to focus on the deductibles and other out-of-pocket costs associated with their plans – especially the 150 million Americans who obtain their health care insurance through their employers.

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Despite concerns about rising premium costs, annual family and individual premiums for employer-sponsored health insurance rose an average of three percent this year to $18,142, a modest increase reflecting slow growth more broadly in workers’ wages and inflation. On average, workers are contributing $5,277 annually toward their family’s premiums.

At the same time, however, deductibles that rarely get much attention rose significantly – substantially adding to a family’s overall annual health care bill. For the first time, roughly half of all workers who received coverage through their employers were hit with a deductible of at least $1,000 a year for individual coverage, according to the report.

By contrast, just one in ten workers were obliged to pay a deductible of at least $1,000 in 2006, according to the report. In companies with fewer than 200 employees, the average deductible for an individual with employer-provided coverage was $2,069.

While the Affordable Care Act imposes a cap on out of pocket costs to the roughly 20 million Americans who purchase their coverage through the government-subsidized insurance exchanges, there is no similar restriction on insurance offered by companies to their employees.

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According to the report released Wednesday, employers have been able to keep premiums relatively low by promoting insurance policies with high deductibles and other out-of- pocket costs.

“We’re seeing premiums rising at historically slow rates, which helps workers and employers alike, but it’s made possible in part by the rapid rise in the deductibles workers must pay,” Kaiser Family Foundation President and CEO Drew Altman said in a statement. “I think it’s the biggest change in health care in America that we are not really debating.”

Many employers and health care experts defend the use of deductibles and co-pays in the overall health insurance mix as a matter of equity and as a way of forcing people to think more carefully about health care costs as a way to reduce unnecessary medical expenditures. With consumers highly sensitive to changes in premiums, employers are finding it easier to shift the cost to employees through higher deductibles.

“Clearly what they’re really finding here is that employers are shifting more towards plans where in order to keep the premiums from rising at a level that would cause real problems with their workforces, they are moving towards higher cost sharing,” said Joseph Antos, a health care expert with the American Enterprise Institute. “If you can’t control costs any other way, then increasing cost-sharing, including deductibles, makes sense.”

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However, many consumers who have been clobbered with high out of pocket costs for health care and prescription drugs complain that employers and insurers are unfairly saddling them with excessive costs that sometimes discourage them and other family members from getting necessary medical attention.

Erin Trish, a University of Southern California health policy adviser, told Modern Healthcare that “We’ve seen the trend over the last decade of increasing the out-of-pocket burden on insured people.” She said this change was taking place in the employer-provided market even before the advent of Obamacare.

That trend can be explained in part by an increase in the number of people moving into high-deductible plans that are compatible with Health Savings Accounts (HSAs) or tied to Health Reimbursement Arrangements (HRAs), according to the KFF survey of employers. These plans tend to have lower average premiums than other types of plans and offer a number of income tax write-off advantages. Trish noted that many of these high-deductible employer plans often benefit wealthy people over middle and lower income Americans.

“There’s evidence that high-income people are holding these health savings accounts and are benefiting from this tax shelter,” she told Modern Healthcare.

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This year, 29 percent of all workers were in such plans, up from 20 percent in 2014. At the same time, the share of people enrolled in Preferred Provider Organization (PP) plans, which have higher than average premiums, declined from 58 percent in 2014 to 48 percent in 2016. These shifts “effectively reduced the average premium increase by half a percentage point in each of the past two years,” according to the report.

The 18th annual Kaiser/HRET survey of more than 1,900 small and large employers provides a detailed look at the status and trends in employer-sponsored health insurance, costs, and coverage.