Health Insurance premiums surge in 2011

rising health care costs are not just a federal budget problemWe all know that health costs are high and rising steadily, but new data now shows that the cost of employee health benefits increased 114% in 10 years while wages only went up 34%. That’s according to a new report by the Kaiser Family Foundation, which forms the basis of this article. The average family health care premiums now top $15,000 a year, which is like buying a new Ford Fiesta or Chevy Aveo every year.

The cost increase this year snapped a trend toward more moderate growth, and some have blamed that on “Obamacare,” but most provisions of the Affordable Care Act don’t go into effect until 2014. Kaiser said the changes so far have only had a combined impact of 1-2 percentage points, suggesting that the sluggish economy is responsible for most of the increase this year. The two big changes this year include (1) allowing young adults up to age 26 to stay on their parent’s insurance policies and (2) requiring some plans to cover preventive services at no cost.

cumulative increases in health insurance premiums

Families have seen larger increases than individuals, as seen in the bar chart below. Their annual premiums have increased 9% since 2010 compared to 8% for individual coverage, and the trend slope is greater, as shown in the following line chart.

Average annual premum for single and family health insurance coverage   average annual worker premium contributions for single and family health insurance coverage

The next two bar charts show health coverage differences between large and small firms, with larger firms paying a slightly higher percent of premiums versus employees, and with smaller firms far more likely to offer no healthcare at all or requiring employees to pay more than half of the cost. Those employers often prefer to cut back on healthcare rather than lay off workers, but the workers who remain often must give their pay raise to the health system.

average annual worker premium contributions for health insurance by firm size

percentage of workers with no employer health insurance or paying more than 50% of premiums

The “Supercommittee” set up by Congress will likely focus more attention on cutting government health programs such as Medicare than on curbing overall health costs since the conventional wisdom is that private insurance can do a better job of controlling costs. But the opposite is true.

Medicare spending per enrollee grew at a much lower rate than private insurance, largely due to its size and bargaining power, but some say it’s because it simply underpays. Either way, companies in the health industry will likely charge more elsewhere to make up for any cuts in Medicare & Medicaid.

The Kaiser survey shows a continued increase in high-deductable insurance plans paired with tax-free health savings accounts, but the up-front and out-of-pocket costs of those plans can discourage people from getting the care they need.

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