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New USA Survey Shows Workers are Paying More and Getting Less for their Health Coverage: Kaiser Family Foundation

Largest Increase in Employer Health Insurance Premiums in 12 Years—12.7%

Number of Companies Limiting Prescription Drug Coverage and Retiree Benefits is Growing and Employers Predict Further Cut-Backs to Come

September 5, 2002, WASHINGTON, DC— Sharply rising health care costs and the downturn in the economy have resulted in higher premium contributions and cost-sharing requirements for workers, and cutbacks in the scope of health benefits offered by firms, according to a new survey. The annual survey of employer health benefit plans released today by the Kaiser Family Foundation and the Health Research and Educational Trust was conducted between January and May of this year, and surveyed 3,262 randomly selected public and private firms ranging in size from three to more than 300,000 employees. Findings appear in the September/October issue of the journal Health Affairs.

Survey findings illustrate that workers are paying more while benefits erode:

• Premiums increased 12.7%, the highest increase since 1990. Single premiums are now, on average, $3,060 for single coverage, and $7,954 for family coverage.
• The amount employees pay for coverage has risen substantially. For single coverage, employees now pay an average of $454 per year – a 27%, or $95 increase from last year. The employee share of premiums for family coverage averaged $2,084 per year – a 16%, or $283 increase from last year.
• Deductibles for PPO in-network providers rose 37% to $276 in 2002, up from $201 last year.
• The use of three-tiered cost sharing has nearly doubled since 2000, from 29% to 57% this year. The cost of drugs within these tiers is also higher – brand name drugs with generic substitutes now cost $26 per prescription, up from $20 per prescription in 2001.
• For the first time in four years, more workers experienced reduced benefits than increased benefits – 17% of covered workers are in firms report that they offered employees a lower level of health benefits than last year.
• Nine-percent of large firms (200 or more workers) eliminated retiree benefits for new hires or existing employees in the last two years

“With health costs rising rapidly and no solution on the horizon, workers can expect to pay more and get less coverage,” said Drew Altman, Ph.D., president of the Kaiser Family Foundation. “And it will be even harder to tackle health care’s big ticket problems such as providing drug coverage for seniors and covering the uninsured,” Altman added.

PREMIUM INCREASES REACH 12-YEAR HIGH; WORKERS ARE PAYING MORE

From the spring of 2001 to the spring of 2002, a 12.7% increase in monthly premiums for employersponsored health insurance drove the average annual premiums shared by employers and employees to $3,060 for single coverage and $7,954 for family coverage. This was the highest annual increase in premiums since 1990, when premiums increased 14%.

“One of the most alarming findings is the continued growth of underlying health care expenses, which indicates that we can expect double-digit inflation for the foreseeable future,” said Jon R. Gabel, vice president for Health System Studies at the Health Research and Educational Trust. “Three more years of this type of inflation could bring family coverage to nearly $11,000.”

In good economic times and a tight labor market, employers had been absorbing much of the premium increase; this year the survey found that employers – no longer feeling the pressure to compete for employees – are now passing along a portion of the increased cost of health coverage to their employees.

For single coverage, employees now pay an average of $454 per year – a $95 increase from last year. The employee share of premiums for family coverage averaged $2,084 per year – a $283 increase from last year.

This increase in the employee’s premium share was predicted by last year’s survey. In the 2001 Employer Health Benefits Survey, 44% of large firms (with 200 or more workers) said they were “very” or “somewhat” likely to increase employee premiums and this year’s survey found that 56% of large firms actually did increase those costs. When asked about whether they would increase costs next year, 78% of large firms said they were very or somewhat likely to raise the amount employee premium costs in the next year.

Employers are concerned about future costs, with 53% of all firms naming health insurance as the “greatest cost concern for the company.” These concerns appear likely to result in future cutbacks. When large firms were asked to predict the types of changes they would make in the next year, 78% said they are very or somewhat likely to increase employee premiums; 51% said they are very or somewhat likely to increase the amount employees pay for prescription drugs; and 42% said they are very or somewhat likely to increase the amount employee’s pay for deductibles.

Fewer large employers said they were likely to restrict eligibility for coverage or drop coverage completely, only 11% and 5% respectively said they were very or somewhat likely to do so.

EROSION OF COVERAGE

Changes in Cost-Sharing

Employees in PPO plans, the predominant type of plan, paid an average annual deductible of $276 for “in-plan” care this year, up 37% from the $201 deductible in 2001. Like much of the public, employers are concerned about their exposure to high drug costs. An increasing number of firms are moving to three-tiered cost-sharing benefits to keep prescription drug costs under control. A three-tiered benefit uses different copayments for generic drugs, brand name drugs with no generic substitutes (“preferred drugs”) and brand name drugs with generic substitutes (“non-preferred drugs”). In 2002, 57% of covered workers had a three-tiered prescription drug benefit, a jump from 36% of covered workers under such plans in 2001. An additional 28% of workers were under a two-tiered plan in 2002 (one payment for generics and another for brand name drugs), resulting in 85% of workers with drug coverage that differentiates between brand and generic drugs in cost-sharing requirements. Employees also continue to pay more out-of-pocket for prescriptions: for the third year average copays for generic and brand name drugs increased. In 2002, copays for generic drugs increased to $9 from $8 in the previous two years. Copays for “preferred drugs” increased to $17 from $15 in 2001 and $14 in 2000 while copays for “non-preferred drugs” increased to $26 from $20 in 2001 and $16 in 2000.

Retiree Benefits Continue to Erode

While Congress continues to struggle over how to structure a prescription drug benefit under Medicare, retiree benefits remain the main source of drug coverage for many seniors, but these benefits continue to erode. Overall, 34% of large companies offer retiree benefits, compared to 66% in 1988, but about the same as last year. This year’s survey found that 9% of large firms (200 or more workers) eliminated retiree benefits for new hires or existing employees in the last two years. Forty percent of large firms increased retiree share of the premium, 30% introduced three-tiered cost-sharing for drugs, 26% increased the amount retirees pay for prescription drugs.

Coverage May be Declining While Benefits Drop

The days of using health benefits to attract and keep workers appear to be over for now. Sixty-two percent of all firms offer health benefits. While virtually all large firms (200 workers or more) offer health benefits (99% in 2002), firms with fewer than 200 workers (small firms) continue to struggle with increasing health care costs. Only 61% of small firms (3-199 workers) offered health benefits in 2002, compared to 67% in 2000, an early indicator of possible erosion in the number of small firms offering coverage.

Methodology

The Kaiser Family Foundation/Health Research and Educational Trust (HRET) 2002 Annual Employer Benefits Survey includes 3,262 randomly selected public and private employers (2,014 responded to the full survey and 1,248 indicated only whether or not they provide health coverage). Firms surveyed range in size from small enterprises with as few as three workers to corporations with more than 300,000 employees. The survey is based on previous surveys sponsored by the Health Insurance Association of America from 1987-1991 and KPMG from 1992-1998. Researchers at HRET and the Kaiser Family Foundation designed and analyzed the survey and National Research LLC conducted the fieldwork between January and May 2002. The overall response rate was 50%. Some findings are reported at the 95% confidence level, others at the 90% level.

A webcast of the press briefing announcing these results will be available at http://www.kaisernetwork.org/healthcast/kff/05sep02 . Individual copies of the survey report and the summary of findings are available on the web at www.kff.org or by calling the Foundation's publications request line at 800-656-4533 and requesting publication # 3251 (report) or # 3252 (summary). Multiple copies may be obtained from HRET by calling 800-242-2626 (order #097508).

To obtain a copy of the September/October 2002 issue of Health Affairs, contact Jon Gardner at 301-656- 7401 or press@healthaffairs.org. This article and selected others are available free on the journal’s web site, www.healthaffairs.org.

The Henry J. Kaiser Family Foundation is a non-profit, independent national health care philanthropy dedicated to providing information and analysis on health issues to policymakers, the media and the general public. The Foundation is not associated with Kaiser Permanente or Kaiser Industries. Health Research and Educational Trust is a private, not-for-profit organization involved in research, education, and demonstration programs addressing health management and policy issues. Founded in 1944, HRET collaborates with health care, government, academic, business, and community organizations across the United States to conduct research and disseminate findings that help shape the future of health care.