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 [email protected] 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.