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TRENDSHealth Benefits In 2006: Premium Increases Moderate, Enrollment In Consumer-Directed Health Plans Remains Modest
Based on a survey of 2,122 randomly selected public and private employers, this paper reports on the state of employer-sponsored health insurance in spring 2006, including recent changes. Premiums increased 7.7 percent from spring 2005 to spring 2006 and have risen 68 percent since 2001. About 4 percent of workers are enrolled in high-deductible health plans with savings options. The percentage of workers covered by their own employer did not statistically change from 2005 to 2006.
EMPLOYER-BASED HEALTH insurance remains the leading form of health insurance in the United States. More than 155 million nonelderly people in the United States depend on employer-sponsored insurance as their primary coverage—more than any other source of coverage.1 This paper reports detailed findings from the eighth annual Henry J. Kaiser Family Foundation/Health Research and Educational Trust (Kaiser/HRET) Survey of Employer-sponsored Health Benefits. The 2006 survey has several major findings. Premiums are still increasing, but at the lowest rate in seven years. Despite the moderation in premium growth, it remains higher than employee wage increases and inflation. Also, the highly anticipated growth in consumer-directed health plans has not yet materialized. Enrollment in these plans remains modest, and a relatively low percentage of employers report that they are "very likely" to offer them next year.
Data. The annual Kaiser/HRET employer health benefits survey draws its sample from a listing of U.S. firms compiled by Dun and Bradstreet. Employers range in size from three to hundreds of thousands of workers and include public and private firms. The sample is stratified by size and industry. In 2006 our overall response rate was 48 percent, which includes firms that do and do not offer health benefits. Among firms that offer health benefits, the survey’s response rate was 50 percent. Using computer-assisted telephone interviewing, National Research LLC interviewed employee benefit managers from January through May 2006. The 2006 sample consists of 2,122 firms that completed the entire survey, 67 percent of which also participated in the survey in either 2004 or 2005 or both. Prior surveys indicate that firms not offering benefits are less inclined to participate in the survey than those that do offer benefits. Therefore, we asked one question of firms that declined to participate in the full survey: "Does your company offer or contribute to a health insurance program as a benefit to your employees?" A total of 1,037 additional firms answered this question. The response rate for this one question was 72 percent. Methods. Sampling weights were determined by calculating the basic firm weight (that is, the firm’s chance of being selected for the sample). We then adjusted the basic weight for nonresponse bias, followed by the trimming of overly influential weight values. Finally, we applied a poststratification adjustment based on the Statistics of U.S. Businesses compiled by the U.S. Census Bureau.2 All data presented in the paper use either a firm weight, a worker weight, or a covered-worker weight. Estimates shown by plan type are weighted based on the number of workers covered in those plan types. We used the statistical software package SUDAAN (Release 9.0.1) when calculating standard errors, to adjust for the design effects of the survey. All analyses used weighted data, and all differences discussed in the text are significant at the .05 level unless otherwise noted. Survey questions. Elements of the questionnaire used in the Kaiser/HRET survey are similar to questions asked in previous surveys conducted at the Health Insurance Association of America (HIAA) during 1987–1990 and KPMG Consulting (now Bearing Point) during 1991–1998. Thus, for several key questions, there are nineteen years of data available for making statistical estimates and comparisons. These survey elements include data on the firm’s largest conventional, health maintenance organization (HMO), preferred provider organization (PPO), and point-of-service (POS) plans. In 2006 the survey team began asking employers if they had a health plan that was an exclusive provider organization (EPO). We treat EPOs and HMOs together as one plan type and report the information under the banner of "HMO"; if employers sponsor both an HMO and an EPO, they are asked about the attributes of the plan with the larger enrollment. Starting this year, we have included a new plan type, which is a high-deductible health plan with a savings option (HDHP/SO). This option includes health plans with high deductibles (at least $1,000 for single coverage and $2,000 for family coverage) that (1) are offered with a health reimbursement arrangement (HRA) or (2) are eligible to be offered with a health savings account (HSA).3 We reported some attributes of these plans in both the 2004 and 2005 survey results; beginning this year, we report information on HDHP/SOs on the same basis as PPO, HMO, and POS plans. Because of falling market share, this year we also greatly reduced the amount of information collected and reported about conventional plans (that is, health plans with no networks).
The cost of coverage. Premium increases. The average premium for family coverage rose 7.7 percent from spring 2005 to spring 2006 (Exhibit 1  ). This is the third consecutive year in which the rate of premium growth declined when compared with the previous year.4 It represents the lowest rate of premium increase since 2000.5 Nonetheless, the 7.7 percent premium increase outpaced both overall inflation and increases in workers’ wages by about four percentage points.6 Since 2001, health insurance premiums have risen 68 percent.
Looking across plan types, premiums for covered workers in HDHP/SOs increased 4.8 percent, which is significantly lower than the premium increases for HMOs (8.6 percent) and POS plans (8.4 percent). The average premium increase for HDHP/SOs is not statistically different from that for PPOs (7.3 percent), the most common plan type. Premiums for covered workers in plans underwritten by an insurer rose faster than premium equivalents for covered workers in self-funded plans (8.7 percent versus 6.8 percent); this is the first statistically significant difference in the rate of growth between self-funded and fully insured plans since 2003.
The average annual cost for single and family coverage, including employer and employee contributions, was $4,242 and $11,480, respectively (Exhibit 2
Employee premium contributions and cost sharing. Employees annually contribute, on average, $627 for single coverage and $2,973 for family coverage (Exhibit 2  ). Employee contributions represent 16 percent of the premium for single coverage and 27 percent of the premium for family coverage; these percentages have not changed substantially in recent years. However, there is much variation around these average contribution percentages (Exhibit 3). For example, 9 percent of covered workers are enrolled in a plan for which they are not required to pay any of the premium for family coverage (the firm pays 100 percent), while 12 percent of covered workers are enrolled in a plan for which they are required to contribute more than half of the premium for family coverage. Compared with those in large firms (200 or more workers), covered workers in smaller firms are more likely to make no contribution for either single or family coverage, but they are also are more likely to contribute more than half of the cost of family coverage.
Contribution levels also vary with the distribution of wages within firms. Covered workers in firms with a high proportion of low-wage workers (that is, 35 percent or more of workers earn $20,000 or less per year) on average contribute a larger share of the total premium than workers in firms with a lower proportion of low-wage workers (18 percent versus 15 percent contribution for single coverage; 35 percent versus 26 percent contribution for family coverage).
Workers also see much variation in deductibles, both within and across plan types (Exhibit 4
Although changes in enrollees’ out-of-pocket responsibilities were modest during the past year, cumulative changes since 2001 are more substantial. Exhibit 5 summarizes some of these changes for workers covered by PPOs, the largest plan type. Over the period, enrollees’ premium contributions for covered workers in PPOs have increased 81 percent for single coverage and 59 percent for family coverage, while the average deductible amount for covered workers with single coverage has increased 60 percent, and the most common copayment level for office visits has doubled.8 Copayments for brand-name prescription drugs have also risen significantly in PPO plans.
Plan enrollment. The 2006 survey is the first year in which enrollment for HDHP/SOs is reported along with traditional plans such as HMOs and PPOs (see Methods above). HDHP/SOs have a market share of 4 percent, similar to the enrollment of 3 percent for conventional plans (Exhibit 6 ). PPOs continue to hold the largest market share at 60 percent. One-fifth of covered workers are enrolled in an HMO plan, and 13 percent are enrolled in a POS plan.
Although there were no large movements in plan enrollment over the past year, during the past ten years, PPO enrollment has grown dramatically, at the expense of each of the other traditional plan types (Exhibit 6 ).9 Conventional plans have almost disappeared. The percentage of workers in self-funded plans also has risen in recent years, from 44 percent in 1999 to 55 percent in 2006 (data not shown).
Availability of coverage.
In 2006, 61 percent of firms offer health benefits (Exhibit 7
High-deductible health plans with savings option. HDHP/SOs have received a lot of attention in the press and in the health policy community, but the number of employers offering these plans and the number of workers covered by them remain small. About 7 percent of employers offering health benefits offer HDHP/SOs in 2006. We estimate that 2.7 million workers are enrolled in HDHP/SOs in 2006, with 1.4 million workers in HSA-qualified HDHPs and 1.3 million workers in HDHP/HRAs. The enrollment estimate for HSA-qualified HDHPs is higher than the 0.8 million workers we reported last year; HDHP/HRA enrollment is essentially unchanged from our estimate of 1.6 million in 2005.10
Exhibit 8
Workers’ average premium contributions for family coverage in HSA-qualified HDHPs are lower than workers’ contributions for PPO, HMO, and POS plans (see Exhibit 2 ). In most other cases, workers’ average contributions in HSA-qualified HDHPs and HDHP/HRAs are not statistically different from contributions in other plan types.11 Employers’ contributions to HRAs and HSAs for covered workers in 2006 are similar to 2005 contribution levels. Thirty-seven percent of firms offering HSA-qualified HDHPs do not offer to make contributions to HSAs established by their workers, a similar percentage as in 2005.12
The average deductible amounts for covered workers with single coverage ($1,442 for HDHP/HRAs and $2,011 for HSA-qualified HDHPs) are similar to the averages we reported for covered workers in such plans in 2005 (Exhibit 8 Although deductibles in HDHP/SOs are substantial, many covered workers are in plans that do not apply preventive benefits to the deductible. Seventy-four percent of workers enrolled in HDHP/HRAs and 82 percent of workers enrolled in HSA-qualified HDHPs are in a plan that carves out preventive benefits. Forty percent of workers enrolled in HDHP/HRAs are in a plan that does not apply prescription drug costs to the deductible. Employers’ attitudes and views about the future. Each year we ask employers about their views on the effectiveness of various forms of cost containment. These views have changed very little over the past several years. Among firms that offer and do not offer health benefits, few employers say that any of the suggested approaches are likely to be "very effective" at controlling health care costs (16 percent for consumer-directed health plans, 17 percent for disease management, 15 percent for higher employee cost sharing, and 9 percent for tightly managed care networks). Large percentages of employers (35–44 percent) continue to believe that each of these approaches is "somewhat effective" in controlling costs. Employers with 200 or more workers are much more likely (28 percent) than smaller employers (17 percent) to view disease management as a "very effective" cost containment approach. Larger employers also are much more likely (55 percent) to have disease management as a component of their largest health plan (compared with 25 percent for firms with 3–199 workers). A relatively low percentage of employers report that they are "very likely" to increase employee cost sharing next year (12 percent "very likely" to increase deductibles; 8 percent "very likely" to increase copayments or coinsurance for office visits; 10 percent "very likely" to increase cost sharing for prescription drugs; and 21 percent "very likely" to increase the amount employees pay for premiums). Relatively small percentages of employers not currently offering an HDHP/SO plan say that they are "very likely" to do so next year; 6 percent of employers not offering an HDHP/HRA say that they are "very likely" to do so next year, and only 4 percent of employers not offering an HSA-qualified HDHP say that they are "very likely" to do so next year.
Premium growth in 2006 was several percentage points lower than we have seen in recent years, providing a partial reprieve for employers and employees from the growing affordability problems that the Kaiser/HRET surveys have documented over the past several years. Premium increases are still outstripping inflation and wage growth, but the 7.7 percent growth rate is the lowest seen since 2000. How long this downward trend in premium increases will last, however, is uncertain—we have seen in the past that periods of moderating premium trends are soon followed by periods of escalating rates of increase. One factor that could extend the downward trend would be the widespread adoption of higher-deductible health plans, which generally have lower premium levels than other coverage options. Consumer-directed health plans continue to receive substantial attention in policy and political circles, but they remain a very small part of plan enrollment. It remains to be seen whether they will attract sizable employer and employee participation.
Gary Claxton (gclaxton{at}kff.org) is a vice president at the Henry J. Kaiser Family Foundation (KFF) in Washington, D.C. Jon Gabel is a vice president at the Center for Studying Health System Change (HSC) in Washington. Isadora Gil is a KFF policy analyst. Jeremy Pickreign is an HSC statistician (in Rensselaer, New York). Heidi Whitmore is a researcher at HSC. Benjamin Finder is a KFF research assistant. Bianca DiJulio is a KFF policy analyst. Samantha Hawkins is a research manager at the Health Research and Educational Trust (HRET), also in Washington.
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