Trends in Employer-Based Health Insurance Jon Gabel Senior Fellow, NORC

2 Objectives To report on the state of job-based insurance To document trends over the past year and past 19 years To examine trends in underlying health care costs To assess employer’s attitudes about offering health benefits To report about the state of consumer-driven health care To examine different strategies for controlling health care costs

3 KFF/HRET Health Benefits Survey Telephone survey of 2,122 randomly selected public and private employers Interviews with employee benefit managers from Jan to May Response rate of 48 percent in 2006 Survey conducted by HIAA and KPMG Use of statistical weights Employer-based statistics Employee-based statistics

4 Most Workers and Covered Workers Are Employed by Large Firms.

5 Increases in Health Insurance Premiums Compared to Other Indicators, Source: KFF/HRET Survey of Employer-Sponsored Health Benefits: 1999, 2000, 2001, 2002, 2003, 2004; KPMG Survey of Employer-Sponsored Health Benefits:1993, 1996; The Health Insurance Association of America (HIAA): 1988, 1989, 1990; Bureau of Labor Statistics, Consumer Price Index (U.S. City Average of Annual Inflation (April to April), ; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, *Estimate is statistically different from the previous year shown at p<0.05 ^ Estimate is statistically different from the previous year shown at p<0.1. Note: Data on premium increases reflect the cost of health insurance premiums for a family of four.

6 Source: KFF/HRET Survey of Employer-Sponsored Health Benefits, ; Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), ; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April), Cumulative Changes in Health Insurance Premiums, Overall Inflation, and Workers’ Earnings

7 HDHP/SO HMO PPO POS All Plans * Estimate of total premium is statistically different from All Plans by coverage type at p<.05. Note: Family coverage is defined as health coverage for a family of four. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, $4,242 $11,480 $4,049* $11,278 $4,385* $11,765 $4,168 $11,107 $3,405* $9,484* Average Annual Premiums for Covered Workers, by Plan Type, 2006

8 Percentage Increase in Underlying Health Care Spending, , for All Services Source: Ginsburg, Strunk, Banker, and Cookson

9 Trends in Provider Revenues from Non-Medicare Patients, 1991 – 2004, (Annual Percent Change Per Capita)

10 Health Plan Enrollment for Covered Workers, by Plan Type, * Distribution is statistically different from the previous year shown: , , , , , , Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits: 1999, 2000, 2001, 2002, 2003, 2004; KPMG Survey of Employer-Sponsored Health Benefits: 1988, 1993, 1996.

11 Average Monthly Worker Contribution, * Estimate is statistically different from the previous year shown at p<.05. No statistical tests were conducted for years prior to Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, ; KPMG Survey of Employer-Sponsored Health Benefits, 1996; Health Insurance Association of America (HIAA), Percentage of Premium Paid by Covered Workers, * Estimate is statistically different from the previous year show at p<.05. No statistical tests were conducted for years prior to Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, ; KPMG Survey of Employer-Sponsored Health Benefits, 1996; Health Insurance Association of America (HIAA), 1988.

12 * Estimate is statistically different from the previous year shown at p<.05. ^ Information was not obtained for HMO single coverage prior to Note: Average deductibles for PPO and POS plans are for in-network services. Averages include covered workers who do not have a deductible. If covered workers with no deductible are excluded from the calculation, the average deductibles for single coverage for 2005 are as follows: conventional - $671; HMO - $568; PPO -$445; POS - $495. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, Average Annual Deductibles for Single Coverage, by Plan Type, ^

13 Note: Distributions may not add to 100% due to rounding. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2006 Distribution of Covered Workers by In-Network Deductible Amounts For Single Coverage, by Plan Type, 2006

14 Among Covered Workers Facing Copayments for Physician Office Visits, Distribution of Co-payments, *Distribution is statistically different from previous year shown at p<.05. Note: Copayments for in-network services in PPO and POS plans were used to calculate the distribution shown. The distribution does not include covered workers who do not face a copayment for office visits (e.g., workers who face coinsurance). Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, *

15 Among Covered Workers Facing Prescription Drug Copayment Amounts, Average Copayments, * Estimate is statistically different from the previous year shown at p<.05. ^ Fourth-tier copayment information was not obtained prior to Note: Average copayments for generic, preferred and nonpreferred drugs are calculated by combining the weighted average copayments for those types of drugs among firms with a single copayment amount or a multi-tier cost sharing structure. The average copayment for fourth-tier drugs is calculated using information from only those plans that have a fourth-tier copayment amount. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits: ^ ^

16 Percentage of Workers Covered by Their Employer’s Health Benefits, in Firms Both Offering and Not Offering Health Benefits, by Firm Size, Source: KFF/HRET Survey of Employer-Sponsored Health Benefits: 1999, 2000, 2001, 2002, 2003, 2004 *Year to year estimates are not significantly different. However, there is a significant change between 2001 and 2004 for All Firms and All Small Firms at p<.05. Changes for All Small Firms are also significantly different at p<.05 between 2000 and 2004 and between 1999 and 2004.

17 Among Firms Offering Health Benefits, How Important Are Firms’ Health Benefits in Attracting Highly Qualified Employees?

18 “All Employers Should Share in the Cost of Health Insurance for Employees by Either Providing Health Insurance or Contributing to a Fund to Cover the Uninsured”

19 “How Likely Is Your Firm to Drop Coverage Entirely Next Year?”

20 Sample includes 205 firms offering CDHP plans  72 HRAs  133 HSAs  Full replacement sample  38 CDHP  783 PPO  178 POS  116 HMO All CDHP plans are high deductible plans with a savings account.

21 The Percentage of Employer-Based Enrollment in Full Replacement and Option Plans, by Type of Plan Percent Source: 2006 KFF/HRET Employer Health Benefits Survey * *

22 When Offered as a Choice with Other Types of Health Plans, the Percentage of Employees That Choose Various Health Plans Source: 2006 KFF/HRET Employer Health Benefits Survey ***

23 Satisfaction Rates Are Higher in Traditional Plans than CDHP or HDHP Plans Source: P. Frostin and S. Collins, “Early Experience with High Deductible and CDHP Plans: Findings from the EBRI/Commonwealth Fund Consumerism in Health Care Survey,” 2005.

24 Premiums Increase More Slowly in CDHP than Traditional Plans, in Choice Environments, but not in Full-Replacement Situations * * *

25 Distribution of Firms’ Opinions on the Effectiveness of the Following Cost Containment Strategies, 2006 Tighter Managed Care Networks Higher Employee Cost Sharing Consumer-Driven Health Plans Disease Management Programs

26 How Selected Medical Technologies Affect Spending and Life Years, 2015 and 2030 Technology Cost per additional year of Life Cancer Vaccines $18,236 Alzheimer’s Prevention $80,334 ICDs $103,395 Diabetes Prevention $147,195 LVADs $511,962 Pacemaker for Atrial Fibrillation $1,403,740

27 Strategies for Controlling Health Care Costs Government controls on supply, prices, and spending Change the tax status of employer contributions for health insurance from an open-ended deduction to a credit  Promote restrictive managed care through managed competition,  Promote high-deductible plans Promote wellness of the U.S. population. Provide financial incentives to improve the efficiency of health care delivery. Evaluate and limit the use of technologies that are not cost-effective. Foremost, alter the set of perverse incentives that rewards inefficient delivery of care, purchasing of care, and risk segmentation. Can the market work without universal coverage?

28 Employer-based insurance is slowly eroding, but it is not about to fall over a cliff. Premium increases sharply outpace inflation and workers earnings – in the best of times! Underlying costs are stable, but high. Most employers – both large and small – nonetheless, seem committed to health benefits. Expect HSAs to grow – but it is uncertain if CDHP will become a niche or mainstream product. After five years of expansion, will we see more marginal firms offering coverage? The Immediate Future – The Slow Decline Continues