My wallet hurts just thinking about healthcare costs. A new study from the Kaiser Family Foundation and the Health Research & Educational Trust provides evidence that the amount the average American has to pay out of their own pocket for employer-sponsored health insurance is rising even further at an exceptionally fast pace.
The average American is fighting a losing battle with healthcare costs
The 2015 Employer Health Benefits Survey from the Kaiser Family Foundation/HRET interviewed nearly 3,200 non-federal public and private firms with three or more employees. The purpose of this annual study is to analyze the scope of employer-sponsored health benefits around the country. What it found should come as no shock if you obtain health insurance coverage through your employer, which is something that 48% of the nation does based on 2013 data from the Kaiser Family Foundation.
The primary finding is that over the past decade businesses are passing the costs of healthcare along to their employees at an increasing rate. Between 2005 and 2015 the average annual insurance premium for workers rose by 61% to $17,545 from $10,880. However, workers' contribution rose at an even faster clip, increasing 83% to an average of $4,955 per year from a decade prior.
And it's not as is if these premium increases have come as a surprise: they've handily outpaced the rate of inflation and worker wage growth since 2000. Between 2000 and 2005 average insurance premiums increased by 69%, whereas between 2005 and 2010, and 2010 to 2015, premiums increased by 27% in each period. By comparison, over the aforementioned three five-year periods inflation averaged 14%, 12%, and 9%, respectively, while wage growth edged up by 15%, 18%, and 10%, respectively.
But it's not just that premiums are rising at an exceptionally fast rate: the cost to obtain medical care is rising fast, too. The average (single) American worker now pays $1,318 out of their own pocket before insurers step in and begin covering eligible medical expenses. A decade ago the average deductible for American workers was just $584. As of 2006, just 10% of all respondents in KFF's survey had workers enrolled in a plan with an average deductible above $1,000. Today this figure sits at 46%, having risen in every year since 2006.
Of course, for some individuals and families the thought of a $1,000 deductible sounds dreamy. The average family with a high-deductible plan pays an average of $4,332 before contributions from the insurance company kick in. Not to mention that the number of employer-sponsored plans with a deductible of any level has risen from 55% of plans in 2005 to 81% of plans as of 2015.
This is all Obamacare's fault, right?
You might be wondering what on Earth has caused this massive surge in healthcare premiums and deductibles, and your initial reaction might be to point your finger at the Affordable Care Act, also known as Obamacare. Although Obamacare has certainly changed the face of how companies offer insurance to their employees, it's not actually led to much of a deviation from the premium inflation rates experienced in the years before Obamacare's implementation.
Where Obamacare could have its most prominent effect on employer-sponsored health insurance is between 2016 and 2018. In the upcoming year the employer mandate is set to go into full effect. This mandate is the actionable component of Obamacare requiring businesses with 50 or more full-time equivalent employees (FTEs) to offer health coverage options and provide financial assistance to employees who would pay 9.5% or more of their modified adjusted gross income out of pocket in premiums costs for a health plan. If employees fail to offer coverage to FTEs or a subsidy to lower-income employees, they could be on the line for fines of $2,000 to $3,000 per employee.
In 2018 an arguably bigger change will hit the business landscape when Obamacare's Cadillac Tax will go into full effect. The Cadillac Tax is a 40% non-deductible excise tax on employer-sponsored health plans that are in the high-deductible category (exceeding $27,500 annually for a family or $10,200 for an individual). We're still more than two years away from this tax taking shape, but it's quite possible we could see businesses shifting their approach to offering health insurance before then.
Here's what's really to blame
If you still want to point fingers for higher healthcare costs and deductibles, then you're going to need two hands.
First, it's as simple as employers wanting to pass along the rising costs for premiums onto their employees. Healthcare costs as a percentage of workers' wages have been rising at a fairly steady pace for more than a decade, and it's the primary reason why workers aren't seeing substantial wage growth beyond the rate of inflation. In other words, workers' "wages" are growing, but they're growing in an intangible fashion since you're costing your employer more in healthcare coverage with each passing year.
In an effort to stem this rising tide of costs, employers have pushed for high-deductible health plans. High-deductible plans cost less upfront, and it makes employees choosier about when to use their health insurance since they'll be responsible for a greater portion of upfront costs. This can, in turn, help keep insurers' costs and premium cost inflation down, further helping businesses.
The other finger should be pointed at drug developers, which more or less have insurers wrapped around their finger.
A number of factors have influenced the price we pay for prescription drugs, and they all point to progressively higher premium prices. For instance, drug developers need to cover their costs to develop drugs, as well as the costs of other failed programs. Developers also need to provide ample capital for future research and development as well as marketing and legal expenses. A higher standard of living in the U.S. and long patent coverage (the standard is 20 years from the date the Food and Drug Administration approves an experimental drug for clinical testing in humans) also provide protections that fuel high drug prices.
In recent years the blame could partially be turned toward the personalization of medicine. Drugs targeted at specific proteins or genes provide more effective treatments for select portions of the population, but they come with a much higher price point. In fact, a number of recent cancer drugs have debuted with six-digit annual price points.
Without some level of prescription drug inflation control or a lessening in employer-sponsored high-deductible plan usage, we're unlikely to see health premiums for the average American worker falling anytime soon.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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