Premium Increases

• The cost of job-based health benefits rose by 13.9%, exceeding prior year rates of 12.9% in 2002⁶, 10.9% in 2001, and 8.2% in 2000 (Exhibit 1.1).
  
• • All types of health plans experienced double-digit increases in costs. HMO premiums rose by 15.2%, conventional indemnity premiums increased by 14.3%, PPO premiums grew by 13.7%, and POS premiums rose by 13.2% (Exhibit 1.1). 
  • Small firms (3-199 workers) had increases of 15.5%, and premiums for large firms (200 or more workers) rose by 13.2% (Exhibit 1.3). 
  • There was a wide range of growth in the cost of health insurance among the nation's firms (Exhibit 1.4). Twenty percent of employees worked for a firm where premiums rose by 5% or less, while 22% of employees worked for a firm where premiums rose by 15% to 20%. Nearly one in five (19%) employees worked for a firm where premiums increased by more than 20%. 
  • Small firms (3-199 workers) are more likely than large firms (200 or more workers) to have experienced a premium increase greater than 15% (Exhibit 1.4). 
  • Premiums rose by 15.6% for fully insured plans, whereas premium equivalents increased by 12.4% among self-insured plans (Exhibit 1.6). Increases in premium equivalents are a proxy measure of the growth in underlying medical claims. The difference in premium increases between self and fully insured plans may indicate that insurers are expanding their underwriting gains.

• When asked about the factors that are driving increases in health insurance premiums, employers most often identified higher spending for prescription drug expenses and hospital expenses (Exhibit 1.11).
  
• • Sixty-one percent of employers (and 81% of large employers) identified prescription drug expenses as contributing "a lot" to rising premiums. Fifty-five percent identified hospitals as contributing "a lot" to premium growth. 
  • Forty-five percent of employers also say the demographic shift towards an "aging population" contributes "a lot" to rising premiums. ⁷
  • Fewer employers point to physician expenses (38%), higher insurance company profits (32%), and improved medical technology (29%) as factors contributing to premium increases.

[6] The rate of premium increases rose significantly between 2002 and 2003 at the p<0.1 level. This indicates that the finding is less robust than others in the study, but is still a strong indication of rising premiums.

[7] In fact, the aging of the population accounts for less than one percentage point of the increase in premiums. See B. Struk, P. Ginsburg and J. Gabel, "Tracking Health Care Costs: Growth Accelerates Again in 2001," Health Affairs, Web Exclusive, September 25, 2002, W299-W310.