Painful Premiums

Health care premiums for families in employer-sponsored plans soared 13.9 percent in 2003, the third year of double-digit growth and the biggest spike since 1990, a new study found.

Annual family premiums increased to $9,068 this spring, according to a survey of 2,808 companies by the Kaiser Family Foundation and the Health Research and Educational Trust, each a health research organization.

Firms with three to nine workers faced the largest increase with a 16.6 percent surge in premiums. Mid-sized companies with between 200 and 999 workers had the smallest increase with a 12.4 percent growth rate.

The portion of the premium paid by an employee for family coverage grew 12.9 percent to $201 a month, or $2,412 annually, while the amount a single employee paid for a policy rose 7.6 percent to $508 a year, or a little more than $42 a month. Employers paid the remainder of the $3,383 premium for a single coverage.

Experts were not surprised by the rise because employees have shunned the restrictive policies of managed care plans, which sought to reduce costs, while they still demanded the newest, most expensive drugs and procedures.

With that unlikely to change — and no new strategies employers believe will substantially reduce costs — the trend of bigger health care spending is expected to continue.

"The key finding is not a surprise but that doesn't mean it is not important," said Drew Altman, president of the Kaiser Family Foundation. "This is more bad news for employers and working people."

On a brighter note, Altman said companies are not dropping coverage despite rising costs and a poor economy. The survey found that 66 percent of companies provide health care coverage, the same as last year.

The percentage of premiums paid by employees is substantially unchanged over the last two years, at 16 percent for single coverage and 27 percent for family coverage.

Altman doesn't view this as a victory for workers, however.

"From the point of view of a consumer the 16 percent is meaningless. They are still paying a lot," Altman said.

Employees' out-of-pocket costs are continuing to rise. For example, employees must now shell out a $29 co-payment for a prescription drug that's not on a preferred list of medicines, up from $25 last year, and $20 in 2001. A preferred prescription requires an average co-payment of $19, up from $17 last year and $15 in 2001.

Employers are shopping around for new options. The survey found that 62 percent sought a new health plan, but only 33 percent changed.

Experts say that's because employers don't want to put administrators and workers through the hassle of switching plans unless the savings are assured. And they have little confidence in their options.

Wurth Group of North America is currently shopping for a new plan for its 2,325 employees after its premiums rose 20.5 percent this year, atop a 21 percent jump in 2002.

"It is a hassle to change plans so the savings have to be material," said Gerald Rudick, vice president of human resources of the New Jersey-based maker of fasteners, bolts and screws.

"I'm not sure what the magic saving number is — is it $100,000, $1 million. We just don't know," Rudick added. He said the company spends more than $12 million a year on health care.

One option for Wurth and others is a plan to provide employees a set amount in a fund to pay for health needs ranging from glasses to drugs to elective surgery. A single person might receive anywhere from $500 to $1,000 a year, a family double that.

Once the fund is exhausted, a deductible is applied to any additional medical expenses. Above that threshold, a more traditional system, where insurance covers a large percentage of an expense — but not 100 percent — would kick in.

The survey said 54 percent of companies said such programs would be "somewhat effective" in containing costs while 21 percent said they would be "not too effective." Since such programs are about two years old and only 5 percent of companies offer them, Rudick said his firm wants to see a lengthier track record before offering one.

Another area of potential cost savings is a disease management program, which helps employees with chronic conditions to develop strategies for handling their conditions.

The survey found 44 percent of companies consider disease management programs "somewhat effective" in controlling costs, while 22 percent though they were "very effective."

The rises in premiums track an overall increase in the cost of health care and the bite it takes out of people's wallets.

According to the Bureau of Economic Analysis, the portion of personal income spent on medical care rose from 15 percent in 1999 to 15.7 percent in 2002.

Medicare, meanwhile, projected expenditures to rise from $256.8 billion in 2002 to $276.8 billion in 2003 — a leap of about 2 percent per participant.