Health Premiums Hit Highest Increase Since 1992; More Employees Choose PPOs Instead of HMOs, KFF/Health Research and Educational Trust Survey Says

Premiums for employer-sponsored health plans increased 11% between the spring of 2000 and the spring of 2001, and participation in HMOs fell six percentage points to the lowest level since 1993, according to the third annual survey on employer-sponsored health insurance by the Kaiser Family Foundation and the Health Research and Educational Trust. The survey includes responses from 1,907 public and private employers, as well as information from KPMG Peat Marwick surveys between 1991 and 1998 and the Health Insurance Association of America-sponsored survey of employers conducted from 1987 to 1991. The study, published in the September/October issue of Health Affairs, reveals the following:

• Premiums: Overall, health plan premiums experienced the largest rise since 1992. At 11.7%, PPO plans had the highest increase; HMOs had a 11.3% increase, indemnity plans had a 10.1% increase and POS plans had a 9.4% increase. Of firms participating in the survey, smaller companies (between three and 199 employees) had larger increases, 12.5%, than did large firms (200 or more workers), with 10.2%.
• Coverage costs: Average single coverage costs for employee and employer combined rose to $221 per month and family coverage costs rose to $558 per month. Overall, indemnity plans remain most expensive, at $238 per month for a single plan and $640 per month for family coverage. HMO plans cost the least, $200 per month for single coverage and $545 per month for family coverage.
• Costs for employees: Compared with figures over the past decade, employees do not "bear a statistically significant increase in the percentage of the premium they must pay for single or family coverage." Employees contribute about 15% of the cost of a single plan and 27% of the cost of a family plan.
• Benefits covered: Employers surveyed said that for 80% of their employees, benefits have remained the same.
• Plan enrollment: PPOs now cover the highest percentage (48%) of employees; HMOs cover 23% of employees and "indemnity enrollment has fallen sharply."
• Coverage extent: Although the percentage of employers offering workers health insurance had been rising since 1998, 65% of small firms in 2001 offered health insurance to their employees, a decrease from 67% in 2000.
• Coverage for retirees: The availability of employer-sponsored coverage for retirees "continues to fall"; in 2001, 34% of all large firms offer retirees coverage, compared with 66% in 1988. For small firms, only 3% offered coverage in 2001, compared with 9% in 2000.
• "Defined contribution" plans: Employers have only "modest enthusiasm" for such plans, under which employers would give employees a set amount of money to purchase their own health care. Twenty-four percent of small firms and 13% of large companies say they are "very or somewhat likely" to switch to such plans within the next five years.

Market Context
Although employers historically have been "willing to endure" increasing health costs and continue to offer their employees health coverage in a tight labor market, it "remains to be seen how they will respond in a lagging economy," the survey says. The survey continues, "Our results this year have not indicated much reduction in the health insurance offer rate, or a dramatic shift toward increased employee cost sharing or a reduction in plan choice, but history suggests that change may be imminent" (Gabel et al., "Job-Based Health Insurance In 2001: Inflation Hits Double Digits, Managed Care Retreats," Health Affairs, September/October 2001). Jon Gabel, vice president of Health System Studies for the Health Research and Educational Trust, added, "With managed care in retreat, and premiums and claims expenses accelerating, the situation today is the polar opposite of five years ago. For employers and employees, this means more bad news is just around the corner" (KFF release, 9/6). The survey is available online. Also, an archived HealthCast of a briefing held on the morning of Sept. 6 to release the results will be available online after 1 p.m. EST.