2011 November 20 Sunday
2003-2010: Employer Medical Insurance Costs Up 50% In USA

An exponential that is nearing the end of its run:

New York, NY, November 17, 2011—Premiums for employer-sponsored family health insurance increased by 50 percent from 2003 to 2010, and the annual amount that employees pay toward their insurance increased by 63 percent as businesses required employees to contribute a greater share, according to a new Commonwealth Fund report that examines state trends in health insurance costs. The report finds that health insurance costs are outpacing income growth in every state in the country. At the same time, premiums are buying less protective coverage: per-person deductibles doubled for employees working for large as well as small firms over the same time period.

Obviously, the fast ramp in medical spending is not sustainable. Medical costs have become too large a fraction of US GDP.

According to the report, State Trends in Premiums and Deductibles, 2003-2010: The Need for Action to Address Rising Costs, by 2010, 62 percent of the U.S. population lived in a state where health insurance premiums equaled 20 percent or more of earnings for a middle-income individual under age 65. Today there are virtually no states where premiums are relatively low compared to income. In 2003, there were 13 states where annual premiums constituted less than 14 percent of the median (middle) income; by 2010, there were none.

With stagnant and declining wages the increasing cost of co-pays means an even sharper rate of decline in living standards.

"Whether you live in California, Montana, or West Virginia, health insurance is expensive. Out-of-pocket costs for premiums and care are consuming a larger share of people's incomes at a time when incomes are down in a majority of states," said Commonwealth Fund Senior Vice President Cathy Schoen, lead author of the report. "Workers are paying more for less financial protection. The steady rise in costs from 2003 through 2010, before enactment of the Affordable Care Act, points to the urgent need for health insurance market and health care system reforms."

We need to cut costs by automation of health care: Web-based diagnostic expert systems; Medical testing done by going to a drug store to provide samples; Wearable sensors tied to web-based diagnostics; Surgical robots; Cheaper imaging systems with built-in image analysis. Boosting productivity of the medical sector would raise living standards.

Peter Orszag, formerly Obama's director of OMB (Office of Management and Budget), says the growth rate in Medicare spending is already slowing.

Even adjusting for these shifts, though, Medicare spending is still up less than 4 percent so far this year. The 2011 numbers come on the heels of relatively slow growth in 2010 as well. Last year, Medicare spending rose just a little more than 4 percent. Compare this with an almost 12 percent average annual growth rate in Medicare spending since the early 1970s.

On the other hand, the average cost of employer-provided health plans is still going up faster than the rate of inflation.

Employers' spending on health coverage for workers spiked abruptly this year, with the average cost of a family plan rising by 9 percent, triple the growth seen in 2010.

Family plan premiums hit $15,073 on average, while coverage for single employees grew 8 percent to $5,429, according to a survey released Tuesday by the Kaiser Family Foundation and the Health Research & Educational Trust. (KHN is an editorially-independent program of the foundation.)

Workers paid an average of $921 toward the premium of single coverage and $4,129 for family plans.

The results mark a sharp departure from 2010, when the same survey found average family premiums up only 3 percent.

Health care is now over 17% of the US economy and still rising. Your buying power for other goods and services is lower because health care costs are so high. Americans can expect higher co-pays, a continued shrink in the fraction of jobs that include health insurance, higher taxes to subsidize the health care of older and poorer and government employees, and lower cash compensation due to higher employer insurance premiums.

The high cost of health care cries out for automation. Measures to make health care delivery more efficient and more automated could reverse the rise in health care costs and at least slow the decline in American living standards. Other limits will still pull down American living standards. But the decline could at least be made less steep.

Share |      By Randall Parker at 2011 November 20 09:07 AM  Economics Health


Comments
Wolf-Dog said at November 20, 2011 4:14 PM:

Given that technology is so much more advanced for producing generic drugs at a low price, and given that medical tests can be much cheaper with technology, then what is the cause of the inflation in medical care? New machines and treatments that are being added to health care too fast before they mature? Or is there a deliberate price-fixing monopoly? Are medical schools deliberately accepting a smaller number of students than the society needs? At this rate, many more Americans will go to other countries for affordable medical care, because in other countries medical care is improving significantly.

How significant is the role of lobbies working for the medical establishment?

Stephen said at November 21, 2011 3:06 AM:

Not being an American, I've always wondered - what's the history behind the employer paying worker health insurance? Surely health insurance is something that individuals would want to determine for themselves??

Brendon Carr said at November 21, 2011 5:44 AM:

Government meddling in the economy, of course! During World War II Franklin D. Roosevelt's administration imposed wage controls on private businesses to old down the cost of war production. At the same time, the increase in war production at the very same time that eleven million young, working-age American men (against a population of about 140 million) were under arms dramatically increased the competition for labor.

Since employers were forbidden by law from offering higher wages, they sweetened their offer with non-cash fringe benefits, notably including health insurance.

Stephen said at November 21, 2011 4:50 PM:

Ah, that's an interesting bit of history. I continued to be puzzled about why it lasted 70 years, but noticed that the employer contribution is - that's a huge incentive.

Humongous expensive product though. Interesting case of a network effect of rational choices leading to massive cost increases.

Randall Parker said at November 24, 2011 2:52 PM:

Stephen,

If memory serves, Henry Kaiser started the first medical insurance program to get around wage price controls of FDR. So my recollection is consistent with Brendan Carr's comments.

Once people were getting pre-tax medical insurance thru their employer it became a disincentive to leave a company. To strike out on one's own one had to get approved for medical insurance, pay for an individual policy which had higher risk and therefore higher cost, and pay in post-tax dollars. Medical insurance has continued to be a way to avoid taxes.

To compensate for this distortion pre-tax health spending accounts and health savings accounts (HSA) have been created by the US Congress to restore a sense of personal control and incentive to cut back on medical spending. I encourage friends to sign up for HSA plans when they are offered with their higher deductibles before the insurance plan kicks in. Cuts back the role of insurance companies as middle men with all the distortions that brings.

jony said at November 24, 2011 7:55 PM:

I am read this health insurance,It is best health insurance.I like this health insurance because,It is best and up to date.


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