Slower rise in health insurance costs is an illusion

August 22, 2013
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A mild debate broke out Tuesday after new data from the Kaiser Family Foundation showed health insurance premiums rose only 4 percent for families for the second year in a row.
 
Health experts couldn’t seem to agree on whether that rise, which is small by historical standards, was good or bad.
 
So let me make it easy for you: It’s bad.
 
In fact, it’s even worse than we’ve experienced over most of the past decade. That's because the increases gobbled up an even larger chunk of worker's compensation, leaving them with fewer wages to spend on everything else.
 
The increases (4 percent for families, but 5 percent for those on single-person policies) were four times faster than average hourly wages grew over the past year, according to the latest data from the U.S. Bureau of Labor Statistics.
 
Over the past nine years, the rise in health insurance premiums has been only about three times faster than wage growth. (I only went back to 2004 because that’s when the BLS made a change in its data, making comparison further back more difficult.)
 
So what do all these percentages mean in real dollars?
 
To answer that question, let’s assume that since 2004, health insurance premiums had merely risen at the same rate as overall compensation. According to BLS data, that means health insurance would have remained as merely 7.2 percent of overall compensation, as it was in the first quarter of 2004, instead of rising to 8.6 percent of total compensation, as it did in the first quarter of 2013.
 
If health insurance premiums had merely risen in line with compensation, it would have saved employers $863 per year per full-time worker on health benefits, according to BLS data. Let's employers would have passed along that money as income to employees, minus the roughly 20 percent in income-based taxes that employers would have either paid for or withheld from each worker. That means each full-time worker would be getting $691 more pear year than they are now.
 
In addition to that, each worker who enrolls in his or her employer’s health insurance would be paying about $975 less for health insurance, assuming their contributions had merely increased at the same rate as compensation.
 
That number is based on the data released by the Kaiser Family Foundation on Tuesday. I combined the rise in contributions for both family and single coverage, assuming that workers were buying family coverage at a 2-to-1 rate versus single coverage.
 
Since only 56 percent of all eligible workers at employers actually enroll in health plans, according to Kaiser's data, I figured that the across-the-board savings would be $546 per year.
 
So all told, since 2004, each full-time worker is poorer by $1,237 per year in today's dollars (in foregone raises and additional premium increases) than he or she would have been if health insurance had risen in line with overall compensation.
 
That means that health insurance premium increases have cost every worker a raise of 2.8 percent. I'd sure take that.

And premium increases are only half the story. Workers have also become more and more exposed to medical costs. This has been a deliberate strategy of employers, for various reasons. But the average deductible on health plans has risen from $584 in 2006 to $1,135 this year.
 
That’s a 94 percent increase. And while not all workers max out their deductibles every year, these higher deductibles certainly leave them feeling poorer.

Even though Kaiser touted this year's premium increase as "modest" compared to the past, consumers are right to feel that things are getting worse, not better.

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  • NOT TRUE
    My insurance premium for BC/BS of Illinois rose 25 percent. That's close to 4 or 5 percent isn't it?
  • Above average
    I guess we are ‘excelling’ as a family in our health care contributions compared to the ‘average’ as over the last two years, our contribution has risen $940/mo. while our deductible doubled. Who can afford to absorb an increase like that? It has priced me out of the market for coverage. I am not sure where the Kaiser Foundation gets their figures as everyone I talk to has faced much steeper increases than reported.
  • Half full or half empty
    In a sense you're right but... Lower increases in health premiums are good, because higher increases would be worse. The troubling ratio you describe is mainly due to compensation policy mostly unrelated to health insurance market. Research is showing significant portion of moderation in premiums due to impact of exchanges especially in states where states are aggressively setting them up, eggs CA and NY.
    • Stop Imagining Things
      You don't make a lick o' sense with this comment, David. Quit extolling the virtues of states that are literally drowning in debt from healthcare issues, and concentrate on REALITIES. The reality is that people's premiums are skyrocketing, not rising a "modest" 4 percent. This whole Obamacare scheme is based on imagination and economic daydreams, not realism.
      • Higher premiums
        In addition to premiums going up "only" 4%, the article touched on higher deductibles, but failed to mention higher co-pays. So while my premiums actually went up 11%, our deductibles went up, and, as just one example, in the last two years, the co-pay for an office visit for a specialist went from $40 to $45 to $50. On the flip side, if I could have half the money spent on duplicate billing, wasted paper and postage on said bills, and unnecessary duplicate paperwork included with my insurance EOB's, I could pay my premium for a few months!
        • Healthcare
          So, is this the straw that breaks the camel's back? For a lot of people it will be.
        • Slowing premiums
          Well the May 2013 Issue of Health Affairs, a journal often quoted in this column, contains two articles trying to explain the slowdown in health insurance premiums nationally. JKW begins this column with the assertion that premiums have slowed, since he has noted these findings before. My comment was related to his downplaying the decrease in premiums because compensation has also dropped. Saying that lower premiums is not good because incomes have fallen too doesn't make a lick of sense to me.

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