The Slowdown in Employer Insurance Cost Growth: Why Many Workers Still Feel the Pinch

By Sara R. Collins, David Radley, Munira Z. Gunja, Sophie Beutel
The Commonwealth Fund, October 26, 2016


Issue: Although predictions that the Affordable Care Act (ACA) would lead to reductions in employer-sponsored health coverage have not been realized, some of the law’s critics maintain the ACA is nevertheless driving higher premium and deductible costs for businesses and their workers.

Goal: To compare cost growth in employer-sponsored health insurance before and after 2010, when the ACA was enacted, and to compare changes in these costs relative to changes in workers’ incomes.

Methods: The authors analyzed federal Medical Expenditure Panel Survey data to compare cost trends over the 10-year period from 2006 to 2015.

Key findings and conclusions: Compared to the five years leading up to the ACA, premium growth for single health insurance policies offered by employers slowed both in the nation overall and in 33 states and the District of Columbia. There has been a similar slowdown in growth in the amounts employees contribute to health plan costs. Yet many families feel pinched by their health care costs: despite a recent surge, income growth has not kept pace in many areas of the U.S. Employee contributions to premiums and deductibles amounted to 10.1 percent of U.S. median income in 2015, compared to 6.5 percent in 2006. These costs are higher relative to income in many southeastern and southern states, where incomes are below the national average.

Employee Premium Contribution and Deductible as Percent of Median Household Income

2006 – 6.6%
2010 – 8.4%
2015 – 10.1%

From the Conclusion

But the findings also offer evidence as to why many insured Americans view their health care costs as unaffordable. While growth in employee premium contributions have slowed along with premiums, deductibles continue to proliferate and their annual growth rate exceeds premium growth by a wide margin. Compounding this trend, growth in median family incomes — despite a recent surge — has lagged health insurance cost growth. Middle-income families continue to see a growing share of their household budgets going to health care. Where employees have less generous health plans as well as lower median incomes, the combination is particularly toxic. People with high deductibles relative to income are far more likely to avoid getting needed care than those with more affordable out-of-pocket costs. For those who do get health care, large medical bills can quickly exceed assets.…

With all the talk this week about double-digit percentage increases in premiums for plans offered in the ACA exchanges, there is risk that this report my be lost in the background, though, for most Americans, this report is of far greater importance. For employer-sponsored health plans – where most individuals receive their health coverage – the percentage of household income used to pay premiums and deductibles has increased sharply in the last decade – from 6.6% to 10.1%.

To quickly dismiss the concern about premium increases in the ACA exchanges, although the average increase will be about 25%, of the 10.5 million enrolled only about 1.5 million in the exchanges will see the full increase since the others will be protected by premium subsidies. It may also impact the 7 million who buy individual plans outside of the exchanges. That 8.5 million combined is about 2.7% of the population, though most will have the option to shop for lower premium plans. Besides, these increases do not represent health care inflation but are rather due to intrinsic defects with the business model of competing private health plans. Healthier individuals are less inclined to enroll, making the risk pools more expensive, but it is likely that the greater factor was the insurers low-balling the initial premiums in an attempt to gain greater market share (though they will never admit this).

In contrast, about 154 million people – 57% of the U.S. population under 65 – obtain their insurance through their work – a far larger group than those who buy plans on the exchanges. But look at what is happening to them. Their share of insurance costs are consuming an ever larger percentage of their incomes. This financial burden on the typical working family is great enough to prevent them from receiving some of the essential health care services that they should have – impairing access due to lack of affordability.

Note that this is not due to the Affordable Care Act. These individuals and families do not buy their plans through the exchanges, and they receive no public subsidies (except for regressive tax expenditures unfairly benefiting primarily higher income individuals). Rather than blaming the Affordable Care Act, we need to blame legislators and the policy community who insisted that we keep this dysfunctional health care financing system in place.

While rejecting single payer, some of our political leaders are suggesting that we fix what we have – tweak the system until it works. One candidate for president suggests enacting a refundable tax credit of up to $5000 to help pay excessive out-of-pocket health costs, and that would help these individuals. But the problem is that it only pours more tax funds into our overpriced and administratively-burdened system without correcting any of the defects that have made our financing system so dysfunctional. And who pays those taxes? A bit of a shell game, I’d say.

We’ve had a lull in spending, but that was partly due to the recession. The other important factor that has slowed spending is what this report is all about. Regardless of ACA, health care costs are being shifted to plan beneficiaries strictly to protect the markets for the insurers by slowing the rate of premium increases. This has the deleterious effect of slowing spending by reducing the affordability of care and thus reducing access to the care that patients should have. Bad policy.

The solution is really simple. Fund a single universal risk pool with equitable taxes that everyone can afford, and then use that risk pool to pay for all necessary health care for everyone. Why didn’t those single payer people think of that? Oh. They did.