Health Benefits
Most covered workers (79%) experienced no change in benefits (other than cost sharing) in 2004. All large (200 or more workers) and all small (3-199 workers) firms generally cover the same benefits, and there is little difference for most benefits across plan types.
Outlook for the Future
Premiums continue to grow at double digit rates in 2004, slowing slightly from prior years, but at a rate of more than five times the rate of inflation. As we saw last year, employers are somewhat skeptical that current market strategies can have a major impact on premium growth. When asked about different approaches for reducing cost growth, only small percentages of employers rate any of the following as likely to be “very effective” at controlling health insurance costs (15% for disease management, 11% for consumer-driven health plans, and nine percent each for tightly managed care networks and higher employee cost sharing), although 32% of the largest firms (more than 5,000 employees) feel that disease management is likely to be “very effective.” A majority of firms report that most of these approaches are likely to be “somewhat effective.”
Among firms offering coverage, 56% report that they shopped for a new plan in the past year. Of those firms, 31% report changing insurance carriers in the past year and 34% report changing the type of health plan offered.
| When asked about changes that they may make in the near future, about half (52%) of all large firms (200 or more workers) and 15% of all small firms (3-199 workers), say that they are “very likely” to increase employee contributions. Relatively low percentages of firms say that they are “very likely” to raise deductibles (9%), raise office visit cost sharing (5%), raise prescription drug copayments (5%), introduce a tiered network for physicians or hospitals (2%), restrict eligibility for benefits (1%), or drop coverage altogether (3%) (Exhibit H). | 
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Many individuals in the employee benefits and health policy communities have shown interest in consumer-directed health plans, particularly arrangements that combine a high-deductible health plan with a personal or health savings account option. About six percent of firms (employing about 13% of covered workers) say that they are “very likely” to offer this type of arrangement in the next two years, and another 21% of firms (employing about 26% of covered workers) report being “somewhat likely” to do so. This level of interest suggests that these plans will become more popular over the next few years.
Looking back from 2004, we see that the percentage of all small firms (3-199 workers) offering coverage has fallen from 68% to 63% since 2001, and that over the same period, the percentage of all workers who obtain coverage through their own employer has fallen from 65% to 61%, driven primarily by a decline in coverage among all small firms. Policymakers will want to watch these trends closely in coming years to determine whether these lower rates of offering and coverage represent a permanent loss to the system, or whether they are temporary changes that will improve with the economy and lower rates of cost growth.
This year’s results also raise the question of whether smaller firms will continue to support family coverage for their employees as costs continue to rise. All small firms (3-199 workers) are significantly less likely than all large firms (200 or more workers) to say that it is important for the firm to make a significant contribution towards the cost of family coverage. This sentiment is borne out by current practice: all small and all large firms make about the same contribution toward the cost of single coverage, but all small firms make a far smaller contribution than all large firms toward family coverage. The cost of family coverage today is almost $10,000 per year (roughly a year’s work at minimum wage). Small firms, who pay their workers less on average than large firms5, may have a particularly difficult time fitting family coverage into their employee compensation packages if premium growth continues at recent rates.
Next Page (Methodology)
5In the fourth quarter of 2004, the average total compensation in private establishments with fewer than 50 workers was $19.37 per hour, compared with average total compensation in private establishments of 500 or more workers of $32.54. The comparable averages in goods-producing establishments were $22.97 in private establishments with fewer than 50 workers and $37.89 in private establishments with 500 or more workers. For service-providing establishments, the comparable averages were $18.64 in private establishments with fewer than 50 workers and $31.03 in private establishments with 500 or more workers. Source: National Compensation Survey, Bureau of Labor Statistics, U.S. Department of Labor, Employer Cost of Employee Compensation, Data Extracted July 14, 2004. See www.bls.gov/ncs/home.htm.
