Health insurance premiums up 11%

November 1, 2001

Pharmaceutical Representative

Premiums for employer-sponsored health insurance have posted the largest increase since 1992, according to an annual survey of employer health benefit plans.

Premiums for employer-sponsored health insurance have posted the largest increase since 1992, according to an annual survey of employer health benefit plans released by the Washington-based Kaiser Family Foundation. With premiums rising and the economy slowing, the percentage of employers offering health insurance to their workers has gone flat after two years of growth, and businesses say they are likely to charge employees more for insurance in the coming year.

"Health costs are rising while the economy is sputtering, and it looks like workers are going to pay the price," said Drew Altman, president of the Kaiser Family Foundation.

Premiums on the rise

From the spring of 2000 to the spring of 2001, an 11% increase in monthly premiums for employer-sponsored health insurance drove the average annual premiums shared by employers and employees to $2,650 for single coverage and $7,053 for family coverage. Last year's premium increases averaged 8.3% nationally across all regions and industries, up from 4.8% in 1999.

Smaller firms (with three to 199 workers) experienced a 12.5% increase (10.3% in 2000), compared with a 10.2% increase (7.5% in 2000) for larger firms (200 or more workers). The smallest businesses (with three to nine workers) saw the largest average increase in premiums: 16.5%.

Employers most often pointed to prescription drug spending as driving premium increases, with 64% saying it contributed "a lot." The other factors ranked by employers as contributing to the increases were higher spending for hospital care (57%) and physician care (45%), higher insurance profits (31%), better medical technology (29%), and richer benefit packages (14%). Companies that cover prescription drugs in a separate plan saw the cost of that coverage rise by an average of 15.5% this year. When asked to assess the effectiveness of various strategies for controlling drug costs, the largest number of employers (40%) said that government regulation would be "very effective." Pharmacy benefit management companies rated the lowest, with 13% of employers saying they would be "very effective" at containing prescription drug expenses.

Employee costs also increase

With the demand for workers still high early in the year, employers did not generally pass along much of the increased cost of premiums to their employees. Workers on average contributed $30 a month for single coverage ($28 in 2000), and $150 for family coverage ($138 in 2000). But as premiums rise and the economy slows, workers may be facing bigger increases in their share of premiums. Seventy-five percent of large firms and 42% of small firms (44% of firms overall) report that they are "very" or "somewhat" likely to increase employee premium costs in the next year.

Employers have already increased cost-sharing requirements in the form of higher deductibles and co-payments. For example, the average deductible for non-preferred providers in preferred provider organizations grew from $361 last year to $407 this year. Co-payments increased for prescription drugs as well – the average amount employees paid for non-preferred brand-name drugs increased to $20, from $16 last year.

"Recent growth in employer coverage helped to lower the number of uninsured Americans, but that may now be changing," said Larry Levitt, vice president of the Kaiser Family Foundation and co-author of the study. "As the economy cools off and premiums shoot up, workers should expect health insurance to be less available, less comprehensive and more expensive." PR