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Study shows decline in employer-offered insurance coverage

By J. Lyn Carl,

Austin, TX –

The number of businesses and companies across the country that offer health care benefits for their employees has declined significantly in the past year, according to a survey conducted by the Kaiser Family Foundation and the Health Research Education Trust (HRET).

The survey indicates that three in five employers in America, or 60 percent, offered health insurance coverage to their employees in 2005, down from 66 percent in 2000 and 66 percent in 2003.

"The good news is the rate of increase is lower this year, the bad news is that is the only good news," said Drew Altman, president and CEO of the Kaiser Family Foundation, at a briefing today. Altman added that premiums are going up faster than wages and faster than the rate of inflation.

The survey documents the change over the past year in health insurance premiums, benefits and employer cost-sharing mechanisms. This year, the survey also captures a detailed look at high deductible health plans (HDHPs) and consumer-driven arrangements like health reimbursement accounts (HRAs) and health savings accounts (HSAs).

John Gabel, survey co-author, said the survey - based on a random sample of 2,013 public and private firms with three or more employees - showed premiums increased 9.2 percent, marking the first year since 2000 that there has been a single digit increase in the cost of health insurance. It also marked the second consecutive year that the rate of increase declined. The bad news, he said, is that the increase is more than 6 percentage points greater than the overall rate of inflation and 7 percentage points greater than the increase in worker's wages. Since 2000, costs for insurance premiums increased 73 percent.

Altman said the annual survey shows a "snapshot" regarding health care costs, but added that to fully understand the impact of rising health care costs on individuals, one must look at the cumulative effects over the years. He said there was a period in the mid-1990s when health cares costs were "in check," but shortly after that costs began to increase. That increase, said Altman, is three times the growth in individual wages. Since 2000, he said, the average health insurance premium has increased $4,400 and the average earnings are up by the same amount. The amount workers pay for their premiums, however, is up $1,100, he said, "eating up a quarter of the increase in workers' earnings."

The 9 percent drop in the number of firms offering health insurance coverage represents some 266,000 mostly smaller firms that affect mostly lower-wage workers. "What we see is health insurance becoming increasing unaffordable," said Altman, describing it as a "slow but perceptible fraying of employer-based insurance."

Mary Pittman, president of HRET, said the study is about decisions that individuals make as a result of the different types of health insurance systems - how they're designed and the impact on the costs for the individuals. When out-of-pocket costs reach a certain point, she said, it affects how individuals react. While the minimum wage from 1970-2005 increased from $1.45 to $5.15 per hour, health insurance premiums in the last five years alone have increased by 73 percent.

Pittman pointed out that employers' level of confidence in cost containment strategies varies, but that more than 50 percent of employers have confidence that chronic disease management is a cost control measure. She said half of covered workers enrolled in plan with at least one disease management program such as for diabetes or hypertension.

Gary Claxton, survey co-author, said firms with three to nine employees are much less likely to offer health benefits than larger firms. Only 47 percent of small firms offer employee health benefits, according to the survey, and the percentage of firms that offer high deductible plans continue to increase.

Although the survey recognizes that four consecutive years of double digit increases in health care costs, Kate Sullivan Hare, Executive Director of Health Care Policy for the U.S. Chamber of Commerce, said, "The big headline that comes out of this is that what was once a conventional plan is quite unconventional these days." She said deductibles with the conventional plans are now the "high deductible" plans. Employers are not turning to cost-shifting strategies they have used in last several years, said Hare. They are keeping up with their share of the premiums, but the cost of that premium continues to rise. They also are turning to less tangible aspects that involve disease management - and case management for their major claims.

As premiums go up, the number of people who choose not to participate in company-offered health plans increases and thus the number of uninsured increases, said Hare. She also said in many cases, those who turn down the offer to participate do so because company-based insurance premiums can't compete with the low cost of having their children enrolled in public plans such as the States' Children's Health Insurance Program (SCHIP). Thus, she said it is "no surprise" that workers turn down the offer of coverage by their employers.

Gerry Shea, Assistant to the President for Government Affairs of the AFL-CIO, said the survey documents the "steady erosion" of employer-based health insurance because of high costs. "We rely on private group insurance to structure the health system that we have," he said.

Another real problem regarding health insurance benefits is "international competition," said Shea, calling it a "cost problem." He said health issues are directly related to economic issues, so health care is provided by employers in different situations than it was some years ago. He said the nation is seeing whole industries where providing health coverage is now a major reason why jobs in the United States are going overseas. He said overseas, there is not a similar wage or similar benefit jobs. "That's global competition - it's the toughest part of this," said Shea.

There are "no solutions" to the problems in health care, given the high costs of medical technology and demographics, said Shea, and efforts must instead be focused on redesigning the way health care is delivered.

For more coverage of the health care crisis in Texas, visit KERA's Life in the Balance page.