Higher employee cost-sharing could undermine job-based coverage system
Most non-elderly Americans—about 156 million of us—get health insurance through our jobs, or that of a spouse or parent. Even after the Affordable Care Act is fully implemented, employer-sponsored insurance will continue to be the largest source of coverage by far.
But job-based insurance is a two-sided coin: It represents both a major benefit for American workers and a major expense for their employers. Thus, how companies distribute the costs for that insurance affects the welfare of families and businesses alike.
In recent years, employees have found themselves on the hook for more of those expenses. Between 2003 and 2010, they went from paying 17% of premiums to 21%. This cost-shifting occurred at the same time that employer-sponsored plans were evolving to be less protective. During this time period, the percentage of plans including a deductible grew from 52% to 78%, and the average deductible nearly doubled —from $1,079 to $1,975—for a typical family plan.
This was also an era of rapid healthcare- cost escalation, with overall insurance premiums growing on average 5.1% a year. But after 2010, a different pattern emerged. Employer- sponsored plan premiums grew by only 4.1% a year between 2010 and 2013, reflecting a slowdown in underlying healthcare costs. Other factors may include provisions of the ACA, which has limited the amount that insurance companies can keep for administrative expenses and profits. In 2014, premiums grew by only 3%.
Good news for workers? Not yet. Even as the rate of growth in overall costs has declined, employees have continued to face disproportionate growth in health costs. Between 2010 and 2013, the employee share of overall health costs grew by 9%, while employers’ contributions grew only by 5.9%. The result has been a continuation of the cost transfer from employers to employees.
There are two ways that employers could—if they wanted to—share the benefits of slowing health-cost growth with workers: by reducing the rate of increase in employees’ share of health costs; or by increasing wages. Neither has happened so far. Real wage growth remains weak and hasn’t topped 1% for several years.
The question is why employers are not passing on these savings to their employees. One possibility is that, at a time of comparatively high unemployment in many sectors, companies are able to offer lower total compensation to workers. It’s a matter of supply and demand, and workers remember all too well how hard things were during the Great Recession. Meanwhile, the retreat of trade unions may have made it difficult for workers to claw back employers’ declining health expenses at the bargaining table.
A second possibility is that the cultural norms supporting the job-based insurance system are eroding. Employers may have come to feel that ever higher cost-sharing by employees is now standard in the marketplace, and that they owe it to investors to follow this new “best practice.” Workers may now expect their health plans to come with relatively high deductibles and copayments, and these lowered expectations of plan benefits could be allaying employers’ qualms about piling on even more costs.
Regardless of the causes, these trends bear close examination. As the Commonwealth Fund has recently reported, rates of underinsurance have risen over the past decade. Adults who are underinsured are less likely to receive needed healthcare—including cost-effective preventive services and chronic care that avoids costly hospitalizations.
The underinsured are also more likely to find themselves facing bills they cannot pay, or even declaring bankruptcy because of their medical debt. In many ways, their experience more closely resembles that of the uninsured than those with good, protective insurance.
Stagnant wages make the burden of higher cost-sharing only harder to bear.
This raises another possibility: If employer-sponsored insurance becomes insurance in name only, it could fundamentally undermine an institution that has been a foundation of the American healthcare system for 70 years.
For their part, employers must ask themselves whether increasing underinsurance among their employees will adversely affect the morale and productivity of their workforce.
Even as the rate of growth in overall costs has declined, employees have continued to face disproportionate growth in health costs.
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Dr. David Blumenthal is president of the Commonwealth Fund, a private foundation supporting independent research on health policy reform and a highperformance health system.