Employer-sponsored health insurance provides coverage for 160 million Americans, reaching nearly three of every five of the nonelderly.¹ To provide current information about the nature of employer-sponsored health benefits, the Kaiser Family Foundation (KFF) and the Health Research and Educational Trust (HRET) conduct an annual national survey of private and public employers of three or more workers.

Health Insurance Premiums

Preferred provider organizations (PPOs) cover a majority of covered workers, but health maintenance organizations (HMOs) remain less expensive. The average annual PPO premium is $4,150 for single coverage and $11,090 for family coverage, compared to average annual HMO premiums of $3,767 for single coverage and $10,456 for family coverage.

Almost 80% of covered workers with single coverage, and over 90% of covered workers with family coverage make a contribution toward premiums in 2005 (Exhibit C). Workers on average contribute $610 of the $4,024 annual cost of single coverage and $2,713 of the $10,880 annual cost of family coverage (Exhibit B). Covered workers in small firms (3–199 workers) on average make a significantly higher contribution toward family coverage than covered workers in large firms (200 or more workers) ($3,170 vs. $2,487). The average percentage of premiums paid by workers is statistically unchanged over the last several years, at 16% for single coverage and 26% for family coverage (Exhibit D).

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Employee Cost Sharing

The vast majority of covered workers face copayments when they go to the doctor or fill a prescription. Copayments for physician office visits changed little in 2005. Forty-four percent of covered workers are in a plan with a $20 or $25 copayment. For workers covered by multi-tier drug plans, the average copayments are $10 for generic drugs, $22 for preferred drugs, and $35 for nonpreferred drugs. A small percentage of plans have added a fourth tier of prescription drug cost sharing, with an average copayment in that tier of $74.

Availability of Employer Based Coverage

While the percentage of firms offering health benefits is statistically unchanged from last year, it has declined over the last few years. Annual changes have been small, but the cumulative result is a statistically significant decline in the percentage of firms offering health benefits, from 69% in 2000 to 60% in 2005. This drop is driven largely by a significant decline in the percentage of small firms (3–199 workers) offering coverage, which has fallen from 68% to 59% over the same period.

Even when a firm offers health insurance, not all workers get covered. Some workers are not eligible to enroll as a result of waiting periods or minimum work-hour rules, and others choose not to enroll because they must pay a share of the premium or can get coverage through a spouse. Within offering firms, 80% of workers are eligible for coverage, and 83% of those eligible elect to enroll.

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Health Plan Enrollment

Enrollment in PPOs grew over the last year, while HMO enrollment declined. PPOs continue to be the most common plan in 2005, enrolling 61% of employees with health coverage, up from 55% in 2004.³ HMO enrollment fell to 21% of covered workers from 25% in 2004. POS enrollment, which has been declining in recent years, remained stable this year at 15%.

Utilization Management and Disease Management

About eight-in-ten workers (81%) with job-based coverage are in a health plan that uses case management for large claims. Prior certification for inpatient services (75% of covered workers) and outpatient surgery (55% of covered workers) also apply to most covered workers.

Over half of covered workers (56%) are in a plan with at least one disease management program. Among workers in these plans, virtually all are in a plan that provides management for diabetes, and high percentages arein plans that provide management for asthma (86%), hypertension (82%), and high cholesterol (66%).

High-Deductible Health Plans

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Retiree Coverage

The implementation of the new Medicare Part D drug benefit, combined with cutbacks in coverage by several large national firms, has put a spotlight on retiree health benefits. In 2005, 33% of large firms (200 or more workers) offer retiree health coverage, virtually the same percentage as last year, but down from 66% in 1988. Among large firms offering retiree benefits, virtually all (94%) offer benefits to early retirees, while just over 81% offer benefits to Medicare-age retirees.

Outlook For The Future

Although growth in health insurance premiums has moderated in each of the last two years, it continues to outpace inflation and average wage growth by wide margins. Over the last five years (since 2000), health insurance premiums have grown by 73%, compared with cumulative inflation of around 14% and cumulative wage growth of 15%.

This rapid growth of health care premiums relative to the rest of the economy appears to be placing significant strains on the employer-sponsored health insurance system. Over the past five years, the percentage of employers offering health benefits has fallen from 69% to 60%, with the decline occurring predominantly among small firms (3-199 workers). This decline has helped drive a reduction in the percentage of workers covered by health insurance offered through their own employer, which has fallen from 63% of workers in 2000 to 60% in 2005.

To address cost issues, employers are broadly making use of disease management and utilization management, but continue to move away from HMOs, whose premiums are generally below more prevalent PPOs. Employers also have looked to higher cost sharing over the past few years, first through increases in deductibles and copayments, and more recently in the form of new plan types. While cost sharing grew little on average over the past year, we do see an increase in the offering of HDHPs and the emergence of new consumer-driven plans. We expect the prevalence of these consumer-driven approaches to grow, despite the fact that only 16% of employers say that they believe that these plans will be “very effective” in controlling health care costs.

Health insurance premiums for a family of four now average almost $11,000 a year, about equal to the full time earnings for a minimum wage worker.⁷ It is not surprising then that firms with a relatively high percentage of lower-wage workers are less likely to offer health insurance—given the cost of coverage relative to what their workers earn; nor is it surprising that smaller firms, who on average pay their workers less than larger firms, are having an increasingly hard time offering health benefits to their workers. Unless cost increases moderate substantially, or new ways are found to finance health care for lower income workers, we may well see the downward trends in offer rates and coverage continue.

⁷ Gross earnings for someone earning the federal minimum wage in 2005 and working 2,080 hours are $10,712.

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Methodology

The Kaiser Family Foundation/Health Research and Educational Trust 2005 Annual Employer Health Benefits Survey (Kaiser/HRET) reports findings from a telephone survey of 2,013 randomly selected public and private employers. Firms range in size from small enterprises with a minimum of three workers to corporations with more than 300,000 employees. The Kaiser/HRET Employer Health Benefits Survey is based on previous surveys sponsored by the Health Insurance Association of America from 1986–1991 and Bearing Point (KPMG at the time of the surveys) from 1991–1998. Findings in this report draw on the 1999–2005 Kaiser/HRET Survey of Employer-Sponsored Health Benefits, the 1993, 1996, and 1998 KPMG Surveys of Employer Sponsored Health Benefits, and the 1988, 1989 and 1990 studies conducted by HIAA. Researchers at Health Research and Educational Trust and the Kaiser Family Foundation designed and analyzed the survey. National Research LLC conducted the fieldwork between January and May 2005. In 2005 our overall response rate is 48%, which includes firms that offer and do not offer health benefits. Among firms that offer health benefits, the survey’s response rate is 51%.

From previous years’ experience, we have learned that firms that decline to participate in the study are more likely not to offer health coverage. Therefore, we asked one question to all firms in the study with which we made phone contact where the firm declined to participate. The question was, “Does your company offer or contribute to a health insurance program as a benefit to your employees?” A total of 2,995 firms responded to this question (including 2,013 who responded to the full survey and 982 who responded to this one question). Their responses are included in our estimates of the percentage of firms offering health coverage.

For more methodology information, please visit our Survey Design and Methods Section.

Sponsors

The Kaiser Family Foundation, based in Menlo Park, California, is a nonprofit, private operating foundation dedicated to providing information and analysis on health care issues to policymakers, the media, the health care community, and the general public. The Foundation is not associated with Kaiser Permanente or Kaiser Industries.

The Health Research and Educational Trust is a private, not-for-profit organization involved in research, education, and demonstration programs addressing health management and policy issues. Founded in 1944, HRET collaborates with health care, government, academic, business, and community organizations across the United States to conduct research and disseminate findings that help shape the future of health care.