Health-Care Premiums Up 11% in 2004

September 9, 2004 ( - Even if the increase was still by double-digits, employees paid less in health insurance premiums in 2004 than they did in 2003.

Employer-sponsored health insurance premiums increased an average of 11.2% in 2004, down from 2003’s increase of 13.9%. Even though the increase was less than the previous year, it still marked the four consecutive year of double-digit health insurance premium increases, and was about five times the rate of both inflation (2.3%) and workers’ earnings (2.2%), according to the 2004 Annual Employer Health Benefits Survey released by the Kaiser Family Foundation and Health Research and Educational Trust (HRET).

Looking out over the long-term, the health-care premium increases have been astounding. Since 2001, premiums for family coverage have increased by 59%, compared with composite inflation growth of 9.7% and wage growth of 12.3%.

Despite the continued increase, the number of workers receiving health-care coverage remained relatively stable. In 2004, 61% of all workers receive health coverage from their employer, which is about the same as in 2003 (62%).

Yet, even though the dip in coverage was slight, it is down significantly from the recent peak of 65% in 2001. The survey said that as a consequence of this dip, there are at least 5 million fewer jobs providing health insurance in 2004 than 2001. Specifically, the decline in the percentage of small employers – those with 3 to 199 employees – offering health insurance over this period is a likely contributing factor. In 2004, 63% of all small firms offer health benefits to their workers, down from 68% in 2001.

Dollar Costs

This year, premiums reached an average of $9,950 annually for family coverage ($829 per month) and $3,695 ($308 per month) for single coverage. The growth was relatively uniform, as 24% of employees work for firms where premiums increased by 5% or less and 28% of workers saw their health-plan premiums go up by more than 15%.

In 2004, family premiums for PPOs, which cover most workers, rose to $10,217 annually ($851 per month), up from $9,317 annually ($776 per month) in 2003. Comparatively, HMO premiums for families rose to $9,504 annually. Of this, the employee picks up $2,674 of the cost (28%), leaving the rest to the employer. The percentage of employee contribution has remained relatively stable since 1988, when employees chipped in 29% of the cost of family coverage. By comparison, singles pitched in 16% ($552) of the annual costs for HMO coverage, up from 11% in 1988.

Corporate Actions

Among firms offering coverage, 56% report that they shopped for a new plan in the past year. Of those firms, 31% report changing insurance carriers in the past year and 34% report changing the type of health plan offered.

When asked about changes that they may make in the near future, about half (52%) of all large firms (200 or more workers) and 15% of all small firms (3-199 workers), say that they are “very likely” to increase employee contributions. Other changes included raising deductibles (9%), raising office visit cost sharing (5%), raising prescription drug copayments (5%), introducing a tiered network for physicians or hospitals (2%), restricting eligibility for benefits (1%), or dropping coverage altogether (3%).

The 2004 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). The full 164-page survey is available for download at ,