Shift, Not Switch: Employer Response to Health-Care Costs

May 27, 2004 ( - Not so long ago, employers were concerned that economic conditions would drive them to rein in rapidly rising health insurance premiums by radically reducing benefits, yet few have made dramatic benefit changes.

Rather, plan sponsors areaddressing the issue by transferring costs to workers,according to findings from the Center for Studying Health System Change’s (HSC) Issue Brief Number 83, aptly titled, Employers Shift Rising Health Care Costs to Workers: No Long-term Solution in Sight. The study found that companies were hit with three consecutive years of double-digit increases, culminating in 2003 with a 13.9% increase.

However, those price increases passed through to employees were moderate, HSC found. Generically, the major employer strategies included passing on a larger share of premiums to workers or increasing the percentage of the participant’s cost through higher copayments, deductibles and coinsurance. Such a move “essentially reduced the level of benefits in exchange for lower premiums,” the HSC report said. Citing nationally figures, the report showed employers are estimated to have reduced health benefits to “buy down” their insurance premiums by 2% to 3% in 2002 and by roughly an additional 3% in 2003.

Comparing different size plan models, HSC found employers that traditionally paid full employee health-care premiums, such aslarge, public employers and those with a unionized workforce, began requiring employees for the first time to contribute toward their health insurance, with an example provided in the report of a situation where an employee might be required to contribute 10% of the premium in the current environment. By comparison, the typical employer already required workers to contribute 20% to 40% toward their health insurance premiums, and these employers did not change the contribution percentage.

Further, HSC found companies with “modest” patient copayments increased them. For example, employers with office visit copayments of $10 doubled them to $20, and introduced new copayments for particular services such as specialist care, urgent care and outpatient surgery. For those companies that already had higher copayments, such arrangements were replaced with coinsurance.

The HSC report said most employers do not see any viable alternatives on the horizon, unlike a similar price crunch experience in the early 1990s. Additionally, employers expressed concern that labor markets will remain relatively tight in the near future, which makes employers even more apprehensive about adopting possible changes. Thus, “under the continued pressure of rising premiums, employers will likely further increase workers’ share of health care costs, even as the economy recovers,” HSC concluded.

A copy of Employers Shift Rising Health Care Costs to Workers: No Long-term Solution in Sight is available