Rising Cost of Health Coverage Not in Stride with Paychecks
Health care premiums are expected to rise 4 to 6% for employer plans for 2017, (according to two new surveys of large employers – Mercer6 and the National Business Group on Health1.) What is alarming about that? The expected 3% salary increase reported for next year falls short.1
Average annual premium expenses in 2016 were $6,435 for single coverage and $18,142 for family coverage. Aside from premiums, more than half of employees with single coverage have health plans whose deductible (out-of-pocket expense before insurance pays) is $1,000 or more.5 The average employee-only share for co-insurance is 38% of the cost of the care health care for in-network primary care visits.3 What’s going on?
The economy is simply not growing as quickly as current insurance rates, for one. Deductibles for single coverage have grown by 63% since 2011, while salaries have only increased by 11%. This year, the average deductible for single coverage is $1,478.5 The cost for an employer’s share has increased by almost $500 per covered employee in the last three years.3 "This is well above the cost-of-living increase," said Julie Stone, health care practice leader at Willis Towers Watson.1 The cost per employee is expected to rise by an average of 4% next year.6
Complex and chronic diseases are now more treatable with certain specialty drugs. Some cite specialty drugs as a cause of rising health costs. Insurance companies are now paying for expenses previously not commonplace. According to an NBGH survey, one-third of responders named specialty drugs as the main factor causing higher health care costs.1
Specialty drugs include a class of drug called biologics, compounds made from living cells. These drugs have made great strides to help patients with chronic conditions including cancers, hepatitis C, multiple sclerosis, and rheumatoid arthritis. Any reprieve from the suffering caused by these conditions is a welcome change.
Specialty drugs also happen to be exorbitantly priced, running up a bill of $10,000 - $100,000 per patient in some cases.1 Why are they so expensive? Newer technologies and scientific research has allowed the development of these drugs, which required large amounts of time and funding.
Pricing decisions made by these drug manufacturers naturally cater to their principal buyers —private insurances and the government, who both have a bit more purchasing muscle to flex.
The insurance industry itself may contribute to this pricey dilemma. “The variation has more to do with volatility in how insurance companies price their plans than with big differences in underlying costs,” remarked Larry Levitt of Kaiser Family Foundation.1
What are some solutions?
Employers are getting creative in their approach to curb the costs by offering telehealth options and steering patients to health facilities able to provide lower costs and better results. 61% of employers have added programs to ensure appropriate use of high-cost drugs per the Willis Towers Watson survey.4
Health Savings Accounts, (HSAs), utilized with High Deductible Health Plans, (HDHPs), are one way to combat rising premiums. 48% of organizations currently offer them3, while 84% of employers plan to offer HSAs next year.1 The prominence of HDHPs has shown a decline in outpatient office visits. It is difficult to tell whether the savings came from avoiding unnecessary medical tests and procedures, or from skipping important medical treatment.5 The decrease in office visits was twice as large for those who have incomes less than $50,000 per year, (compared to households with incomes of at least $100,000/year.)3
For employees, educating oneself is key to curbing health care costs. Employees can make smart decisions by understanding the features of the health plan provided by reading plan literature and asking questions! HR departments are helpful information sources.
Employees can also curb their costs by utilizing tax-advantaged plans such as FSAs (BESTflexSM Plan), HRAs (EBC HRASM), and HSAs (SimplyHSA). Employees can sign up for these plans during the employer’s open enrollment period. Read more about how these plans work: BESTflexSM , EBC HRASM, and SimplyHSA.
Is there a silver lining? Maybe. One survey reports that employers project stable cost growth next year, holding steady at an average increase of a 4.0% — Not bad in comparison with a 6% increase for the last several years. “This is an impressive achievement during a time when the ACA demanded so much attention, but with health benefit cost increases still double or triple inflation, we can’t declare the problem solved,” said Tracy Watts of Mercer.6
1. Hancock, J. (2016, August 10). Hikes in Employee’s Health Premiums to Outpace Raises Again. Retrieved from http://www.npr.org/sections/health-shots/2016/08/10/489338056/hikes-in-employees-health-premiums-to-outpace-raises-again
2. Islam, I. (2015, August 31). Rising Cost of Drugs: Where Do We Go From Here. Retrieved from http://healthaffairs.org/blog/2015/08/31/rising-cost-of-drugs-where-do-we-go-from-here/
3. Miller, S. (2016, September 2 ). Health Benefits Take Bigger Bite Out of Paychecks. Retrieved from https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/health-benefit-costs.aspx
4. U.S. employers expect health care costs to increase 5.0% in both 2016 and 2017 (2016, August 8). Retrieved from https://www.willistowerswatson.com/en/press/2016/08/us-employers-expect-health-care-costs-to-increase-5-percent
5. Luthra, S., Hancock, J. (2016, September 14). Studies: Employer Costs Slow As Consumers Use Less Care, Deductibles Soar. Retrieved from http://khn.org/news/studies-employer-costs-slow-as-consumers-use-less-care-deductibles-soar/
6. Lee, B. (2016, September 13). With Cost Growth Stable at 4% Employers Shift Focus Away from Health Plan Cost Cutting in 2017. Retrieved from http://www.mercer.com/newsroom/with-cost-growth-stable-at-4-percent-employers-shift-focus-away-from-health-plan-cost-cutting-in-2017-mercer-survey.html