Rising Premiums Threaten Job-Based Health Coverage

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Health Insurance Costs Exceed Annual Minimum-Wage Earnings

Los Angeles Times

The average cost of health insurance for a family of four has soared past $10,800 — exceeding the annual income of a minimum-wage earner, according to a survey released Wednesday.

For some, this year’s survey by the Kaiser Family Foundation and the Health Research Educational Trust was the latest sign that a relentless rise in premiums threatens to collapse the central pillar of America’s health insurance system: job-based health coverage. Since 2000, premiums have gone up 73%, while wages have grown 15%, Kaiser researchers concluded.

Rising costs are forcing many businesses, especially smaller companies, to stop offering coverage and are causing some employees who can no longer afford insurance at work to buy it on their own — or go without.

“What we are seeing is an unraveling of the way we finance healthcare in the United States,” said William Custer, director for the Center for Health Services Research at Georgia State University in Atlanta. “It is coming apart at the edges, and those edges are small business and low-wage workers. The levees are breaking.”

Drew E. Altman, president of the Kaiser Family Foundation, said the cumulative effect of rising costs was that “we are seeing a slow deterioration of our employment-based health insurance system, which is the backbone of healthcare in this country.”

As the Kaiser report was being released Wednesday, Starbucks Corp. Chairman Howard Schultz said his company would spend more on health insurance for its employees this year than on raw materials needed to brew its coffee — a sign, he said, that American businesses face a healthcare crisis.

“It’s completely nonsustainable,” he said, even for companies such as his that “want to do the right thing.”

The Kaiser Foundation survey, published each fall before workers choose policies in open-enrollment periods, is considered the definitive measure of what coverage will cost workers and employers.

This year researchers, who collected data from 2,995 randomly selected U.S. employers, estimated that premiums for family coverage grew 9.2% from last year to $10,880, including company contributions — more than the $10,712 a worker earns before taxes at the federal minimum wage.

The average worker’s share of premiums for family health coverage was $2,713 in 2005, or about a quarter of the total cost. The average employee contribution has increased by more than $1,000 in three years.

The premium increase is less than the Kaiser survey has found in recent years — the jump was 11.2% in 2004 and 13.9% in 2003 — but it continues a trend that is hard on employers and families alike.

Employers, equally hard-pressed by the rising costs, increasingly are dropping health coverage as an employee benefit or offering high-deductible plans that shift more cost — and more risk — to employees. Just 60% of businesses offered health insurance this year, down from 69% in 2000, the study found.

The employer-sponsored system of healthcare in the U.S. is relatively recent, tracing its roots to wage and price controls implemented by the government during World War II. To attract workers, some companies began offering health benefits as a perk, said John R. Graham, director of healthcare studies at the Pacific Research Institute in San Francisco.

But “employers don’t have a competitive advantage to providing you health insurance any more than they have in buying you a house or a pair of running shoes,” Graham said.

Small companies are most likely to drop coverage because of cost concerns, according to Menlo Park, Calif.-based Kaiser Family Foundation, which is not affiliated with healthcare provider Kaiser Permanente.

“When we consider that it is small business that drives the economy — to have that engine resting on the backs of millions of uninsured workers is a bad proposition for the U.S. economy,” said Peter Lee, president of the San Francisco-based Pacific Business Group on Health, an alliance of employers that buys insurance for big companies. “This has to be seen as a wake-up call to policymakers and healthcare providers as it puts an increasing burden on an already frayed safety net.”

Insurers blame doctors, hospitals and consumer demand for new medical technology for escalating rates.

“Prices are going up, especially for hospitalization,” said Chris Ohman, president of the California Assn. of Insurers, a trade group.

But consumer advocates question why premium increases are needed as insurance industry profits rise.

“What the HMOs can’t explain is why premiums are increasing twice as fast as hospital and physician costs,” said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights, a Santa Monica nonprofit.

Although Congress has passed some limited healthcare measures, such as a new
Medicare prescription-drug benefit, efforts to revamp the system have failed. Meanwhile, the number of Americans without health insurance continues to grow,
with the Census Bureau reporting last year that the number of Americans without
coverage grew to a record 45 million.

Among workers who are taking action on their own is Christie Apostolo, 29. She and her husband decided this spring that they had to stop spending $800 a month through her employer to cover the couple and their two young children if they ever were going to save enough for a house with their combined annual income of $82,000.

Through an online insurance brokerage firm, she found a $498-a-month plan with Woodland Hills-based Health Net Inc. Her new plan has a $30 co-pay to see a doctor four times a year, vision and dental coverage, and a $500 deductible — far less than the $2,500 deductible in her old plan.

“It’s a couple hundred dollars a month we saved, but that’s groceries for the week,” said Apostolo, who lives in Pacific Grove, Calif.

As more Americans like Apostolo become responsible for their own healthcare choices and costs — much as workers have become responsible for their retirement with the shift from company pensions to 401(k) plans — businesses that cater to them are profiting.

Among them is Encino-based Answer Financial Inc., an online broker that sells all kinds of insurance. Healthcare is one of the company’s fastest-growing lines of business.

Answer Financial’s clients include the self-employed, the unemployed, part-timers and even full-time workers who aren’t eligible for their employer-sponsored plans. Their customers increasingly include people who are employed but either can’t afford the premiums of their employer-offered policies or are healthy enough to think they can get a better deal somewhere else.

In the last year, the company has doubled the number of agents who sell health insurance to 40 and plans to quadruple that number next year, Chief Executive Alan Snyder said.

Extending the comparison to trends in retirement plans, Snyder envisions a time when most employers will give defined contributions instead of defined benefits — putting responsibility for finding insurance on the workers. He believes that healthcare plans will eventually be similar to self-directed 401(k) plans that workers control and take with them when they leave.

The trend “is very exciting for us,” Snyder said. “Employers are going to be saying, ‘Here’s so much money, you go pick the plan that is best for you.’ “
Associated Press was used in compiling this report.

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