Skyrocketing Employer Health-Insurance Premiums


The Business Roundtable bolsters its argument for health-care reform with a study that predicts rapidly accelerating costs for businesses—and employees

The Business Roundtable, which represents CEOs from the largest U.S. companies, warned in a report released Sept. 15 that annual health-care costs for businesses will rise 166% over the next decade, to nearly $29,000 per employee, if Congress does not enact significant coverage and cost reforms. That's even worse than the prior decade, according to a second report, which was released the same day. An annual survey by the nonprofit Kaiser Family Foundation reported that employer-sponsored health insurance premiums rose 5% this year, bringing the total increase over the past decade to 131%—more than four times the rate of overall inflation.

Next year will only get worse for employees, the Kaiser survey found: When asked about their plans for the future, 21% of firms now offering coverage said they are very likely to raise worker premium contributions in 2010, and 16% are very likely to raise deductibles. Four percent are very likely to restrict eligibility for coverage, and 2% are very likely to drop coverage altogether.

The Business Roundtable report, prepared by the consultants Hewitt Associates (HEW), highlighted how critical an overhaul of the current health-care system is to the nation's businesses, even while recent polls show waning public enthusiasm for an overhaul. "Maintaining the status quo is simply not an option," Eastman Kodak (EK) CEO Antonio Perez said in presenting the report. "The costs are unsustainable and would put millions of workers at risk."

By examining current research and using econometric models, the Hewitt researchers project that, based on current trends, employment-based health costs will increase from $10,743 per employee this year to $28,530 in 2019. Business Roundtable members worry that a public plan wouldn't do much to ease the pain, however, if it reimbursed at the same level as Medicare, which reimburses doctors at rates about 20% lower than private insurance. Without substantial changes in the way medical providers are reimbursed, companies fear a public plan will do little to lower private insurance—and thus their own—costs. Private insurers subsidize a large part of the annual cost of treating the uninsured because hospitals build the cost of uncompensated care into their fees. If there is no reform, more people will become uninsured and costs to cover the uninsured will rise.

In a nod to the heated debate over reform that roiled Washington all summer and lowered the odds that any action will be taken, Perez added that "it's not too late to act."

Senate Finance Committee Chairman Max Baucus (D-Mont.) has said he would release his panel's version of health-care reform this week, for a vote by the full committee next week. Baucus and five other committee members have been trying since June to formulate a bipartisan bill, but two of the three Republican senators on that team, Michael Enzi of Wyoming and Charles Grassley of Iowa, said on Monday they want significant changes to the current proposal, raising doubts Baucus will meet his self-imposed deadline.

Public Option vs. Insurance Exchanges

Employers currently provide coverage to about 60%, or about 175 million, of the insured in the U.S., and the influential Business Roundtable member companies cover about 35 million people. The Roundtable is not keen on several of the proposals coming out of Washington, and in a press briefing its members made it clear they are not willing to support the creation of a government-financed insurer, i.e., the so-called "public plan," as contained in a House bill. They fear a public plan would reimburse doctors and hospital at a low rate, and these medical providers would then turn around and charge private employers even more than they are charging now to make up the lost income.

Rather than a public option, Business Roundtable endorses state regulatory reforms that would allow insurers to offer policies on a nationwide rather than state basis. It also wants insurance exchanges that would allow the uninsured to easily compare and buy coverage from a number of different providers.

The Kaiser survey, of 3,188 companies, found that of the 60% of U.S. firms that currently offer insurance coverage, 21% reduced the scope of those benefits over the past year while 15% increased the worker's share of premiums. High-deductible plans also increased in popularity among employers, with 22% of covered workers now paying at least $1,000 out of pocket for medical expenses, up from 18% last year and 10% in 2006.

Arnst is a senior writer for BusinessWeek based in New York.

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