Slower rise in health insurance costs is an illusion

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.