Cost Of Health Insurance Skyrockets

Premiums for employer-sponsored health insurance plans rose 11 percent this year — the biggest jump since 1992 — pushing companies to consider making workers pay more out of their own pockets.

From spring 2000 to spring 2001, annual premiums for employer-sponsored plans grew to $2,650 for single coverage and to $7,053 for family coverage, according to a study of 2,734 companies released Thursday by the Henry J. Kaiser Family Foundation and the Health Research & Educational Trust.

The smallest businesses are seeing the largest increases, reports CBS News Correspondent Jim Axelrod: 16.5 percent on average.

"There's no good news in this study," said Larry Levitt, vice president of the Kaiser Foundation. "It's pretty much bad news...and worse news."

The previous year, premiums increased an average of 8.3 percent, while in 1999, they rose 4.8 percent.

The news came amid dimming prospects for passage of prescription drug benefits for seniors, said key lawmakers in Congress, who are looking at money-saving measures.

And prescriptions are where insurers are getting hit hard.

"Drug costs are the fastest rising part of the health care system," said Levitt, "going up at almost 20 percent a year."

This year's cost increase has employers thinking about shifting more of the cost to employees — a prospect more palatable since the job market has cooled, making it more difficult for workers to quit should they be upset by changes in benefits.

According to the study, 44 percent of companies were either "very likely" or "somewhat likely" to increase employee premium costs in the next year. Workers pay an average of $30 a month for single coverage and $150 a month for family coverage.

"It is interesting to see how quickly you can see the effect of rising premiums in a slowing economy," study co-author Levitt said. "The time of increases in health care costs being offset by employers has come to a screeching halt."

That's unlikely to change unless the economy drastically improves. Other organizations that track health care costs are forecasting double digit increases for 2002. Management consulting firm Towers Perrin predicts health care costs will rise nearly 11 percent next year.

Meanwhile, the rising costs are causing fewer companies to offer health benefits. From 1998 to 2000, the percentage of companies offering the benefits grew from 55 percent to 67 percent, but this year it dropped to 65 percent, according to the Kaiser study.

Levitt said once companies start offering insurance, they rarely drop it. Yet, he fears that as small businesses that offer health insurance shut down because the economic slowdown, they will be replaced by other small companies that don't offer the benefits.

"There are just no new ideas for controlling costs. I think we are going to see a lot more bad news," Levitt said.

The trend of shifting the cost of health care to the worker has already taken root in some companie.

The average deductible for an employee choosing a doctor outside the network in a Preferred Provider Organization grew from $361 last year to $407 this year. Co-payments for prescription drugs increased to $20 this year from $16 last year.

Still, from 1996 to 2001, the percentage of the premium a single employee paid dropped to 14 percent in 2000 from 21 percent in 1996. It increased to 15 percent this year. However, the percentage paid for family coverage has been constant at 27 percent or 28 percent for the last five years.

Employee costs have increased slightly even as the percentage of the premium they pay has remained constant. This year, single coverage rose $2 to $30 a month; family coverage rose $12 to $150.

Shifting the costs to workers may not be enough for some companies.

"If it keeps on going up, we could end up inevitably maybe shutting our doors," said Teri Price of D.L. Miller and Sons in Columbus, Ohio, which builds gas stations. "The cost of insurance will drive us out of business."

Employers primarily blame the premium hikes on prescription drug costs. Sixty-four percent of employers say drug spending contributed "a lot" to overall costs. Other factors included higher spending on hospital and physician care, insurance company profits and better medical technology.

The Kaiser Family Foundation and the Health Research Educational Trust are nonprofit think tanks that focus on health care.

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