The Association of U S West Retirees



Health-Care Premiums Rise 7.7%, Outpacing Wages and Inflation
By Vanessa Fuhrmans
The Wall Street Journal
Tuesday, September 26, 2006

The health-care premiums of employers and their workers have climbed twice as fast as wages and inflation in 2006 -- to nearly double their cost in 2000 -- and look to rise at a similar clip next year, two nationwide surveys show.

The average family premium rose 7.7% in 2006, marking the third year employer health-care cost increases have slowed since soaring nearly 14% in 2003, according to a 2,122-employer survey by the Kaiser Family Foundation and Health Research and Educational Trust.

After several years of steady steep rises, the cost for family coverage under an employer health plan is now $11,480, well over the annual wage of a full-time minimum wage worker and beyond what many companies, mostly smaller businesses, and their workers can afford.  While 98% of firms with more than 200 workers still provide some sort of employee health benefits, only 60% of smaller companies do.  That's little changed from last year but down from 68% in 2000.  

"A modest reduction in an already high rate of increase hardly looks like salvation for employers and workers who've been getting hammered by high health-care costs year after year," said Drew Altman, president of the Kaiser Family Foundation, a nonprofit health-policy research group based in Menlo Park, Calif.

Even when employers do offer health insurance, not all workers get it or can afford it.  On average, only 78% of employees are eligible at these companies, either because they don't work full-time or fail to meet other eligibility requirements.  And given that employers require workers to pay and average 27% of the total premium -- or $2,973 for family coverage -- many employees can't afford to accept the coverage.  Indeed, the share of workers covered by health insurance through their own employer has fallen to 59%, down from 60% last year and 63% in 2000, according to the Kaiser survey.

One small employer, the Pinellas Federal Credit Union of Largo, Fla., says that's why, despite another 27% increase in premiums last year, its aim is to keep paying the full share of its employees' premiums -- $300 a month --though it requires them to pay the full coverage for additional family members.  "We have a lot of single moms and people who don't earn at the highest income level," says Linda Reynolds, president and chief executive of the 28-staff credit union.  "Requiring them to pay means more or less they're uninsured."

Three years ago, when the premium increase was so high that the firm had to temporarily have employees pay $50 out of each biweekly paycheck, one employee dropped coverage.  Ms. Reynolds says she's since had to raise copayments instead to keep the premiums at a level the credit union can afford on its own.  In the next weeks, she said, she'll learn what her health insurer wants to charge for 2007.  "If something doesn't happen and things continue to rise like this, I don't think any small company will be able to sustain that expense," she says.

Most people falling out of the employer-sponsored health insurance system are lower-income workers but they tend to be healthier workers more willing risk going without coverage -- which raises the costs for the remaining, sicker pool of employees. And ultimately employers pay more as uninsured employees forgo preventive care and wind up in emergency rooms when they do get sick, says David Guilmette, managing director of Towers Perrin's health benefit benefits group.

The employee benefits consultancy's own survey of 167 companies finds that larger employers expect their health-care costs to slow again in 2007 to 6%, from the 7% increase they reported last year.  A large-employer survey published by Mercer Health & Benefits LLC, a rival firm, projected similar increases next year, but added that more moderate increase will come from increasing employees' deductible and other cost-sharing measures.  

More of the larger firms also say they're adding "consumer directed" plans, which combine deductibles of typically more than $1,000 and some sort of tax-saving account to make employees have a more financial stake in their health-care spending.  Overall, however, relatively few companies plan to enroll in these plans next year, the Kaiser study says.  Only 2.7 million people are enrolled in one through an employer, about 4% of covered workers.  

Though, for the average employer, health-care cost increase are moderating, authors of Kaiser and Towers Perrin studies say the actual costs or premiums that companies are reporting vary greatly, with many still facing double-digit increases.  Companies who buy their health-care coverage from insurers, typically smaller ones, continue to see bigger premium increases 8.7% -- an larger employers who finance their own health plans.  But even among larger firms, the spread between employers in annual health-care spending is as much as $3,000 per employee, Towers Perrin said. 

Write to Vanessa Fuhrmans at