Slow Economy Stunts Rise in Premium Costs
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The Fiscal Times
September 12, 2012

Employer-paid health insurance premiums are increasing at a historically slow rate, but they are still much higher than wages and inflation, according to a survey released by the Kaiser Family Foundation/Health Research Education Trust Tuesday.

Family health care insurance premiums increased 4 percent to $15,745 in 2011, costing families $4,316 out-of-pocket. Meanwhile, single employees’ coverage went up by 3 percent to $5,615, with workers paying $951 a year.

Premiums rose less than half the 9 percent increase that Kaiser reported for 2010-2011. “In terms of employee insurance costs, this year's 4 percent increase qualifies as a good year,” Kaiser President and CEO Drew Altman said. “But it still takes a growing bite out of middle-class workers' wages, which have been flat or falling in real terms.”

While premiums are slowly improving, middle class families are still burdened by health care costs. Premiums for families nearly tripled workers' wages and general inflation over the past decade with premiums rising 97 percent, wages 33 percent and inflation 28 percent since 2002.

“Though 4 percent seems low, it is certainly not in line with the increase in GDP or workers’ wages,” said Alwyn Cassil, director of public affairs for the Center for Studying Health System Change. “It’s still relatively high for health care premiums.”

Analysts say the slowdown of rising premiums is due to a slowdown in health care spending from a sluggish economy. People seek less medical attention during tough economic times. “Health care use and the economy have always been closely tied, and my sense is that the recession and slow recovery are responsible for much of the recent health spending and premium trends,” Altman said. “We also know that higher out-of-pocket costs deter utilization, so it’s reasonable to assume that the growth of high-deductible plans and other forms of cost sharing has had an impact on health care use, magnifying the effect of the economy.”

The survey showed deductibles had dramatically increased across the board, among all insurance plans since 2006. “One of the ways employers keep premium’s down is to increase cost-sharing through increasing deductibles and co-payments,” Cassil said. Health maintenance organization (HMO) deductibles that were $352 in 2006 rose to $691 in 2012. Preferred provider organization (PPO) deductibles went from $443 in 2006 to $733.

“The deductibles are rising quite substantially higher than inflation, which will cause a shift toward less generous plans,” said Joseph Antos, a health care policy expert for the American Enterprise Institute.

Antos said he doesn’t expect premiums to increase as much next year. “It’s not going to be much more expensive in terms of premiums, but people will still pay substantial amounts out of pocket on co-pays and deductibles.”

Some analysts say it’s too early to consider the Affordable Care Act, popularly known as Obamacare, a factor in the premiums’slowdown. “It’s probably a stretch to say the ACA has much to do with it now,” Cassil said. “It’s certainly laying the groundwork for health care spending down the road but since most of the major provisions won’t take affect for another 15 months it’s not a factor yet.”

Under Obamacare, an estimated 2.9 million young adults from ages 19 to 26, a group most commonly uninsured, have coverage under their parents’ plan, compared to 2.3 million in 2011.

The survey included 3,326 randomly selected employees between January and May.

Washington Correspondent Brianna Ehley, based in D.C., covers Congress, government agencies and spending issues, health care, and tax and economic policy for The Fiscal Times.