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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