In 2004, premiums for job-based health insurance rose by 11.2%, exceeding both the overall rate of inflation and increases in workers’ wages by nearly nine percentage points (Exhibit 1.2). This is the fourth consecutive year of double-digit inflation. Since 2000, the cost of job-based health coverage has increased by 59%.

Premium increases were less than the 13.9% figure posted in 2003. This marked the first year since 1996 that premium increases were lower than increases in the previous year. Coupled with recent declines in medical claims expenses, it would appear that the worst of the recent round of inflation is over.

The average annual cost of family coverage for a family of four in 2004 is $9,950 and the average cost for single coverage is $3,695. There is a considerable range in average premiums across plan types: the average annual premium for family coverage in HMO plans is $9,504 compared to an average annual premium of $10,217 in PPO plans (Exhibits 1.13, 1.14, 1.15).

Premium Increases

• The cost of health insurance rose by 11.2%, down from 13.9% reported in 2003 (Exhibit 1.1).
  • All types of health plans experienced similar double digit premium increases – conventional (11.1%), HMO (12.0%), PPO (10.9%) and POS (11.3%) (Exhibit 1.1).
  • All large firms (200 or more workers) and all small firms (3-199 workers) had similar increases in premiums (11.1% vs. 11.5%) (Exhibit 1.3).
  • There was considerable variation in premium growth across employers: 24% of covered workers are employed in firms with premium increases of five percent or less, while 28% of covered workers experienced premium increases of greater than 15% (Exhibit 1.4).
  • Unlike 2003, premium equivalents for self-funded plans rose at a statistically equivalent rate as premiums for fully funded plans (11.1% vs. 11.4%) (Exhibit 1.6).

Monthly Premium Costs of Single and Family Coverage

• The average monthly cost for single coverage in 2004 is $308 and the average monthly cost for family coverage is $829 (Exhibit 1.11).
  • Covered workers in all large firms (200 or more workers) and all small firms (3-199 workers) face similar overall premiums (Exhibit 1.13). As discussed in Section 7, however, covered workers in all small firms face higher deductibles than workers in all large firms.
  • Although PPOs cover a majority of workers, HMOs remain considerably cheaper. PPO premiums for single and family coverage are $317 and $851 per month respectively, compared to HMO monthly premiums of $288 for single coverage and $792 for family coverage (Exhibit 1.11).