The Employee Health Insurance Market is Crumbling Under Rising Costs

More than 165 million Americans – about 60% of those under age 65 – get their health coverage through their job or the job of a family member. The average family employee health plan costs $26,993 per year, of which employees contribute about $6,850. However, employers mostly shift their costs to workers indirectly in lieu of higher take home pay. Economists generally agree that the employers’ ~$20,000 contribution is part of employees’ total compensation. That means workers themselves pay nearly $27,000 a year for health coverage. The vast majority of workers do not realize they are spending the equivalent of a new Honda Civic each and every year on health coverage. What do they get in return? If they’re like most people they get a few doctor visits, financing for the birth of a couple kids during their reproductive years and the security of knowing they will receive care (while still being financially devastated) in the unlikely event a major medical problem. 

Next year (2027) premiums are expected to rise by at least 10%. Some estimates put the increase at 14% to 18%. Employers increasingly find it difficult to shift the cost to workers, whose wages are stagnant and their medical bills significant. 

One firm with knowledge of the employee health insurance market is the Kaiser Family Foundation (KFF). KFF produces an annual report with detailed statistics on employee health benefits by firm size. In a podcast, Dan Weissmann (KFF Health News) and Bob Herman (STAT News) discussed the current situation about the market for employer health insurance. Bob Herman told KFF Health News:

[T]here’s all this money that employers are dumping into… health insurance premiums for their workers, and… it’s like a feeding frenzy. 

[Y]ears ago I remember going to… the JP Morgan conference… where all the big healthcare industry players… gush about how much money they’re making. And commercial insurance, the employer-based insurance is their golden goose, and they know it… 

[I]t’s a lot easier to make money when… the people who are paying into it don’t understand how much they’re paying into it 

The entire health care industry – insurers and providers alike – benefit from the secrecy. The money is either funneled to an insurance company, or it’s funneled through an insurance company straight into the pockets of health care industry. Workers do not realize they are paying nearly $27,000 a year for their family’s health care but only getting back a thousand or two in benefits. I’ve often said that our health care system is predicated on price gouging employee health plans and if workers truly understood how much they are paying they would demand control of those funds, depriving the industry of easy money. 

Dan Weissmann adds:

The fact that some of these costs are hidden — they’re bundled into employer health plans — that actually creates opportunities for price gouging, for all kinds of gaming the system. 

A lack of transparency permeates the entire health care system. There is not one price, but many different prices for the same service depending on the payer. A hospital may charge different prices to each health insurer, and potentially different prices for each employee plan managed by an insurance company third party administrator (TPA). 

KFF reports that large employers are not happy with the current system. Indeed, they’re angry but they know employee health plans are hard to get rid of because health benefits are a great recruiting and retention tool. However, employers are beginning to push back. The average deductible has about doubled in recent years, and cost-sharing has skyrocketed too. Those with employee health coverage are finding it increasingly covers less of their actual medical complaints. Employers are also trying to trim down their enrollees. For instance, The Walt Disney Company recently announced that if dependents have access to coverage elsewhere through a job, they are no longer allowed to enroll in Disney’s employee health plan dependent coverage. Purportedly one reason is GLP-1 drugs. Weight loss drugs are widely used and demand is insatiable. Other drugs cost thousands or tens of thousands. Some even cost more than $1 million. Routine care is not cheap either. I recently had a colonoscopy and upper GI. The cash price was nearly $2,500 and the procedures took the doctor only about 20 to 25 minutes. It was performed in an ambulatory surgery center but easily could have been done in a doctor’s office. That’s just one procedure among thousands. 

Employee health coverage is eroding starting with small firms. Larger firms are eroding the level of coverage. Perhaps it will come to a head once workers realize they’re paying for a new car each year and getting a couple bus tickets in return.

Read more at KFF Health News: The Meltdown in Employer-Sponsored Health Insurance