September 2004

Health insurance premiums rise faster than inflation;
medical technology a leading factor

Premiums for employer-sponsored health insurance rose at about five times the rate of inflation (2.3 percent) and workers' earnings (2.2 percent) for an average increase of 11.2 percent in 2004. This was less than last year’s 13.9 percent increase, but still the fourth consecutive year of double-digit growth, according to the 2004 Annual Employer Health Benefits Survey released by the Kaiser Family Foundation and Health Research and Educational Trust (HRET).

In 2004, premiums reached an average of $9,950 annually for family coverage ($829 per month) and $3,695 ($308 per month) for single coverage, according to the new survey. Family premiums for PPOs, which cover most workers, rose to $10,217 annually ($851 per month) in 2004, up significantly from $9,317 annually ($776 per month) in 2003. Since 2001, premiums for family coverage have risen 59 percent.

Blue Cross/Blue Shield offered justification for the rising insurance costs through a series of research studies, available online at www.bcbs.com/coststudies/index.html. According to BCBS:

• More than half of the increase in private insurance spending is driven by hospital costs, especially for outpatient care;

• Medical technology — especially diagnostic imaging — is a significant driver of both hospital inpatient and outpatient costs;

• The largest capital purchases for hospitals for the next five years will be technology-related; and

• Prescription drug costs — driven by more utilization, price inflation and more expensive drugs — represent about 20 percent of the increase in healthcare costs.

The Kaiser survey found that the percentage of all workers receiving health coverage from their employer in 2004 is 61 percent, about the same as in 2003 (62 percent) but down significantly from the recent peak of 65 percent in 2001.

As a consequence, there are at least 5 million fewer jobs providing health insurance in 2004 than 2001. A likely contributing factor is a decline in the percentage of small employers (three to 199 workers) offering health insurance over this period. In 2004, 63 percent of all small firms offer health benefits to their workers, down from 68 percent in 2001.

"The cost of family health insurance is rapidly approaching the gross earnings of a full-time minimum wage worker," said Drew Altman, President and CEO of the Kaiser Family Foundation. "If these trends continue, workers and employers will find it increasingly difficult to pay for family health coverage and every year the share of Americans who have employer-sponsored health coverage will fall."

"Since 2001, the cost of health insurance has risen 59 percent. Over that period, employee contributions increased 57 percent for single coverage and 49 percent for family coverage, while workers wages have increased only 12 percent. This is why fewer small employers are offering coverage, and why fewer workers are taking-up coverage," said Jon Gabel, vice president for Health Systems Studies at the Health Research and Educational Trust.

The Kaiser survey was conducted between January and May of 2004 and included 3,017 randomly selected public and private firms with three or more employees (1,925 of which responded to the full survey and 1,092 of which responded to an additional question about offering coverage). This is the sixth year the joint survey was conducted by Kaiser and HRET, and the 17th year this survey has been conducted overall. Findings appear in the September/October issue of the journal Health Affairs.

Individual copies of the survey report and the summary of findings are available on the web at http://www.kff.org/insurance/7148.

Sources: Kaiser Family Foundation and Health Research and Educational Trust, www.kff.org; Blue Cross Blue Shield, http://www.bcbs.com

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