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Slower Growth in Health Insurance Premiums Is Found—but the Mystery Is Why

By Jane Norman, CQ HealthBeat Associate Editor

September 11, 2012 -- An annual survey of health benefits released last week found a surprisingly modest 4 percent increase in premiums for employer-sponsored family coverage compared to last year, continuing a trend of moderation in health care costs.

Why the number dipped so low is not clear to researchers, nor is whether the trend will last. And given that the increase outpaced the growth in wages and in general inflation, consumers likely won't be thrilled with the news. Premiums have shot up an astonishing 97 percent since 2002 and families now are paying $4,316 on average toward the average $15,745 cost of their employer provided coverage.

Yet for those in health policy who remember the budget-busting, double-digit yearly premium increases of just a decade ago it was a relief—and intriguing—to see a 4 percent increase. The slowing down in cost growth could lend credence to such fledgling efforts by government and employers to keep costs under control as disease management, wellness programs and coordinated care.

But why is it happening? "Is this mostly the effect of the recession or is there something in health care going on that helps to hold down costs?" asked Drew Altman, president and CEO of the Kaiser Family Foundation, which since 1999 has conducted the annual employer survey with the Health Research & Educational Trust (HRET).

The recession and a corresponding drop in people's use of health care in order to save money has to be seen as a "big factor," said Altman. But other causes could be changes in the way medical services are delivered to make them more efficient and the increase use of managed care, or a combination of those things, he said.

"The sluggish economy may have played a significant factor," said Maulik Joshi, president of HRET and senior vice president for research at the American Hospital Association.

The second big question is whether costs will creep up again and "there's a hint" in the data that premiums could be higher next year though how much higher is unclear, Altman said in a briefing with reporters. He said there is a leveling off in the number of people enrolled in high-deductible plans combined with health savings accounts or health reimbursement arrangements, and those plans contribute to holding down costs. About 19 percent of workers are enrolled in such plans.

There's also a difference compared to last year in cost growth. In its 2011 survey, Kaiser found a 9 percent increase in health care costs compared to 2010. Altman said that number could have been an aberration—or at the time employers could have assumed that the economy would cover more quickly than it has, which would have prompted people to use more health care services and cost to increase. When the recovery stalled in 2011, so did utilization.

Another interesting finding in this edition of the survey was that the percentage of people enrolled in a plan considered as grandfathered under the health care law (PL 111-148, PL 111-152) fell in 2012 compared to 2011. The survey found 48 percent of workers in a grandfathered plan this year compared to 56 percent in 2011. This is significant because grandfathered plans are exempt from many provisions of the health care law such as no-cost preventive care. Grandfathered plans are those in which no significant changes have been made.

The Kaiser/HRET survey also found that about 2.9 million adult children have gotten health insurance coverage through their parents' plans due to the provision in the overhaul law that permits adult children to be covered up to the age of 26.

Rate Hike Politics

With the presidential campaign in full swing, the study immediately became political fodder, with Republicans asserting that it showed the Obama administration has failed to keep health care costs under control. Sen. Michael B. Enzi of Wyoming, top Republican on the Senate Finance Committee, pointed out the 4 percent increase was twice the rate of inflation.

The Department of Health and Human Services, heading off criticism, released its own report asserting that the mechanism of rate review included in the health care law has saved consumers $1 billion by reining in unreasonable premium increases "The Health Care Law is Saving Americans Money," an HHS blog post was headlined.

Researchers said that there's not much to tie the new law with the findings of the survey because much of the law has not yet gone into effect, and the provisions that have begun don't have much impact on most employer-sponsored coverage.

Yet another element to the health costs puzzle emerged with preliminary findings from another recent study, this one by the consulting firm Mercer. It presented a less rosy scenario for cost growth. Mercer said that its survey so far predicted that the overall average per-employee cost of health care will rise by 6.5 percent in 2013, slightly higher than the 5.7 percent increase it expects in 2012. But employers also indicated in the survey they intend to shift more costs to workers, driving up per-employee costs to an 8 percent increase, said Mercer. The results were based on a survey of 2,000 employers through Sept. 4.

The Kaiser/HRET survey was conducted from January through May among 3,326 employers, not including the federal government. Firms with three or more workers were surveyed.

Among other findings in the Kaiser study:

  • Workers who are single had a small premium increase of 3 percent in 2012 compared to 2011. They are now paying $951 each toward their coverage on average. Total premiums for worker-only policies rose to $5,615 annually. In 1999, it was $2,196 annually.
  • Workers at companies with a lot of low-wage workers—at least 35 percent of the workers earn $24,000 or less a year—face a real squeeze. The survey found they are paying $1,000 more a year for their family coverage than workers at bigger companies and are more likely to face high deductibles. This happens even though the firms with the lower-wage workers are paying less overall in total premiums, the study found. "Firms with a lot of lower wage workers charge a lot for family coverage," said Gary Claxton, the lead author of the study and a Kaiser vice president.
  • About 60 percent of companies surveyed said they offer health benefits to their employees, although the size of the company matters. Just half of businesses with three to nine workers offer coverage compared to almost every employer with 1,000 or more workers.

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