Health Insurance Premiums Continue to Rise
October 1, 2006
by Employment & Labor Law / Employee Benefits Group
Stinson Morrison Hecker LLP
Copyright © 2006
"Premiums for employer-sponsored health coverage rose an average 7.7 percent in 2006, less than the 9.2 percent increase recorded in 2005 and the recent peak of 13.9 percent in 2003," but continued to increase "more than twice as fast as workers’ wages (3.8 percent) and overall inflation (3.5 percent)," according to a September 26, 2006 study by the Kaiser Family Foundation.
Percentage Increase – "Although the average premium increase for 2006 is 7.7%, many covered workers are in firms that experienced premium changes that were substantially above or below the average: 42% of covered workers work for firms where premiums increased by five percent or less, while 13% of covered workers work for firms where premiums increased by more than 15%. Premiums in fully insured plans (8.7%) grew more quickly than premium equivalents (6.8%) in self-funded plans."
Total Premium Exceeds $11,000 – "Average annual premiums for employer-sponsored coverage are $4,242 for single-coverage and $11,480 for family coverage."
Employee Contributions – "Over 75% of covered workers with single coverage and over 90% of covered workers with family coverage make a contribution toward the total premium for their coverage. Workers on average contribute $627 annually toward the cost of single coverage and $2,973 annually toward the cost of family coverage." The average percentage of premiums paid by workers continues to be 16% for single coverage and 27% for family coverage.
Deductibles – The average annual deductible for single coverage vary on the type of plan, from $352 (in HMOs), $473 (PPOs), $553 (Point of Service plans), to $1,715 (for workers enrolled in a High Deductible Health Plan with a Savings Option).
Hospital Copayment – "For hospitalizations, 25% of covered workers face a separate deductible or copayment for each hospital admission, with an average payment of $231, and 22% face separate coinsurance when they are hospitalized, with an average coinsurance rate of 17%."
Copayment for Doctor Visits – "The vast majority of covered workers face copayments when they go to the doctor. Among these covered workers, 60% are in plans with a copayment of $15 or $20, and an additional 15% are in a plan with a copayment of $25."
Prescription Drug Copayment – "The majority of covered workers are in plans that have a multi-tier cost-sharing for drugs," and the average copayments are $11 for generic drugs, $24 for preferred drugs, and $38 for nonpreferred drugs.
Out-of-Pocket Maximums – "About 80 percent of covered workers are in a plan that limits the amount of cost-sharing that plan enrollees may have to pay." There is considerable variation in out-of-pocket maximums, but over one-half are in plans with a limit for single coverage of less than $2,000 while 18% are in a plan with a limit of $3,000 or more.
Retiree Coverage – "In 2006, 35% of large firms (200 or more workers) offer retiree health coverage, virtually the same percentage as last year, but down from 66% in 1988. Among large firms offering retiree benefits, the vast majority (94%) offer benefits to early retirees, while 77% offer benefits to Medicare-age retirees."
High Deductible Health Plans – "There is some interest among employers in new consumer-directed plan designs. Among firms offering benefits but not currently offering an HSA qualified HDHP, 4% say that they are very likely and an additional 19% say that are somewhat likely to offer one in the next year."
Bottom Line – "Although growth in health insurance premiums has moderated in each of the last three years, it continues to outplace inflation and average wage growth. Since the year 2000, health insurance premiums have grown by 87%, compared with cumulative inflation of 18% and cumulative wage growth of 20%." In 2007, health care benefit cost growth is expected to slow again, "as employers continue to cut benefits and take other steps to manage costs," according to a September 11, 2006 report by Mercer Human Resources Consulting. Still, health care costs for U.S. employers are projected to rise by 6% in 2007, with an average annual cost of $4,392 for active-employee only coverage, $8,988 for employee-plus-one-dependent coverage, and $12,948 for family coverage, according to a September 26, 2006 survey by Towers Perrin. "Employers are expecting to subsidize 78% of next year’s premium costs, while employees will have to cover the remaining 22%, plus usage-based copays, deductibles and coinsurance," according to the survey
Stinson Morrison Hecker LLP is one of the country's largest law firms with more than 335 attorneys in more than 45-industry-focused areas. If you would like more information regarding this summary, please contact one of our Employment & Labor Law and Employee Benefits attorneys.
Law at Work is designed to give general information and is not intended to be a comprehensive summary or to treat exhaustively the subjects and matters covered. The information appearing herein does not constitute legal advice or opinions. Such advice and opinions are provided only upon engagement with respect to specific factual situations. Nothing contained herein shall be considered as an admission in any matter or controversy.
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