HMOs Help Keep Golden State Insurance Costs in Line

March 3, 2003 ( - Employees in California have experienced a slowed economy as well as double-digit health insurance premium increases and a higher share of rapidly rising health care costs.

Health insurance premiums in California grew 13% in 2002, on par with national premium increases of 12.7% and six times California’s rate of inflation of 2.1%. However, even though the increase in health insurance premiums mirrored those across the nation, the overall cost of health insurance in California remains lower, according to a new survey of California-based employers by the Kaiser Family Foundation and the Health Research and Educational Trust (HRET).

In part, the lower cost of health insurance is being attributed to the higher level of enrollment in HMO plans among California workers; 54% are enrolled in HMOs compared to 26% nationally. Annual premiums in California were about 8% less than the national average: $2,845 for single coverage and $7,471 for family coverage compared to $3,060 for single and $7,954 for family coverage nationally.

The high premium increases were not limited though, as HMO plans went up 12.6% and PPO plans experienced a 13.1% hike. HMOs remain a much lower cost than PPOs. Annual HMO premiums in California were $2,362 for single coverage and $6,538 for family coverage while PPO premiums averaged $3,681 for single and $9,155 for family plans. Comparatively, California PPO premiums were higher than the cost of PPO plans nationally for both single ($3,119) and family ($8,037) coverage.

Escalating costs have done little to deter coverage, with 66% of all employers in California offering health insurance. Keeping with the national average, smaller employers in California are far less likely to offer coverage; only 59% of the employers with three to nine workers offer coverage, and 82% of firms with 10 to 49 workers do so. Conversely, virtually all firms with 50 workers or more offer insurance (94% to 99%).

Worker Cost

Worker contributions for health insurance increased significantly in 2002 and employers continued to adopt a variety of cost-containment approaches, including higher cost sharing for services and prescription drugs.   On average, workers in California contributed $342 annually for single coverage and $1,806 for family coverage in 2002, more than 30% over their contribution levels in 2001. Yet workers in California still pay less than the national average of $454 for single coverage, and $2,084 for family coverage. Sixty-one percent of large firms (200 or more workers) said they increased the amount workers pay for coverage in 2002; nearly double the percent (33%) that predicted they would do so in last year’s survey.

Approximately one-third of employers report they have increased the amount workers pay for deductibles and copays. In 2002, PPO deductibles in California averaged $266 in-plan and $447 out-of-plan. The most common HMO copay for an office visit remains $10 per visit, but the percentage of enrollees with a $5 copay fell from 34% in 2001 to 12% in 2002.

Prescription Coverage

Slightly more than half (55%) of California’s employers say they have increased the amount workers pay for prescription drugs in the past year. Additionally, the percentage of workers in tiered drug plans experienced increases in the past two years, from 11% in 2000 to 39% in 2002. In tiered drug plans workers pay one amount for generic drugs, another for preferred brand name drugs with no generic substitute and a third for non-preferred (brand name drugs with a generic substitute). Within tiered plans, the average copay for brand name drugs with a generic substitute rose 35%, from $15 in 2001 to $20 per prescription in 2002. In the coming year, half (47%) of large firms (with 200+ workers) say they are likely to increase the amount employees pay for prescription drugs.

However, the rapid increase still leaves California behind the average, as the percentage of workers in the Golden State with a three-tiered plan (39%) is lower than the 57% representing the national average.

Retiree Benefits

Remaining a bellwether in California’s employer offered coverage are the 28% of companies with 200 or more employees offering retiree coverage. Of these firms, half report they increased the retiree’s share of the premium in the past year (compared to 40% nationally) and one-third (34%) report they increased the amount retirees pay for prescription drugs (compared to 26% nationally).

Even though the number of large firms offering retiree benefits has remained level over the past few years, changes have still been in the air, as 11% of the large firms have eliminated retiree benefits for new employees or workers who have not yet retired, providing further indications that coverage for future retirees is declining.