Pig Stethoscop

Source: Flickr User 401kcalculator.org.

A lot of attention has focused recently on the sky-high cost of prescription medicine, but make no mistake: It's not just the pharmaceutical prices that are jumping.

According to this year's Kaiser Family Foundation annual study of employer health insurance plans, the price the average American pays for health insurance is soaring, too.

Paying more to get less
In the past year, the average health insurance premium for individual workers and their families has increased by 4% to $6,251 and $17,545, respectively. Of that amount, employees pay $1,071 for single coverage and $4,955 for family coverage.

On the surface, a 4% increase in the past year might not seem too bad, but it is when you consider that in the same period wages have increased by just 1.9% and overall inflation has actually dipped by 0.2%.

The toll of rising premiums should also be considered in the larger context of a 27% surge in health insurance premiums over the past five years, a period during which worker wages have grown by only 10%.

Even more frustrating is that despite paying more, employees are getting less: 81% of employees are enrolled in employer health insurance plans that have out-of-pocket deductibles that must be met before insurance kicks in, and on average the annual general deductible workers pay has increased to $1,318 from $917 five years ago.

Overall, 46% of workers covered by employer health insurance are covered in plans where the deductible is more than $1,000, up from just 10% of employees in those plans a decade ago, and the situation is even worse for people working at small companies because a higher percentage of workers -- some 63%, to be exact -- are covered by that type of plan.

In addition to higher deductibles, employees are also paying an average $24 co-pay for primary-care visits, a $37 co-pay for specialty-care visits, and an average 19% in co-insurance for hospitalization or outpatient surgeries.

The elephant in the room
In addition to workers who have to pay more in insurance premiums, co-pays, and co-insurance tied to healthcare services, insurers are also making workers pay more for their prescription medicine. 

Because longer-living Americans are using more medicine and technological breakthroughs, particularly in genetics, are resulting in increasingly complex and costly medicine, insurers are forking out more money on prescription medicine than ever before, and that's led them to pass along more of these expenses to patients.

According to the Memorial Sloan Kettering Cancer Center, the vast majority of cancer drugs winning FDA approval over the past two years cost $10,000, or more, per month, and medicine is becoming more expensive for other common disease indications, including hepatitis C and heart disease, too.

A number of high-cost hepatitis C drugs with 90%-plus cure rates have become available since 2013, but each costs hundreds of dollars per pill, and as a result, payers spent more than $10 billion on hepatitis C treatment in the first six months of this year alone.

A similar story is unfolding in heart disease. This past summer, the FDA approved two new cholesterol-lowering drugs that could help reduce the risk of heart disease, but both of these drugs cost more than $14,000 per year. That's far more than payers have historically paid for statins, which have been the gold standard for lowering cholesterol since the 1990s.

Growing use of expensive drugs like these suggests that spending on prescription drugs shows no signs of slowing, so insurers have responded by restructuring insurance plans to include more drug coverage "tiers." These drug tiers often prioritize less costly drugs, and typically, each higher tier requires patients to pay more toward a drug's cost. On average, workers in employer-based health insurance plans pay $11 for drugs in the first drug tier, but that cost jumps steadily to an average of $93 for drugs in the fourth tier. If something doesn't change, it's possible that even more drugs will find their way into higher-cost tiers in the future, further taxing worker wallets.

Curtailing costs
It's unlikely that any one singular solution can slow the increase in employer health insurance premiums.

Instead, it's more likely that a combination of approaches will be necessary, including increasing the level of price transparency across various healthcare providers for services, such as tests and procedures, deploying more healthcare IT solutions to increase efficiency, and requiring drugmakers to disclose the prices that healthcare payers pay for medicine in other countries, such as the EU.

Unfortunately, because benefits associated with many of these cost-saving initiatives could take years to materialize, the reality may be that health insurance costs will continue to increase and benefits will continue to shrink. If so, then employees should start preparing now for a larger percentage of their income to go to paying for their healthcare expenses. 

 

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