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Employer Health Insurance Costs Rise as Coverage Declines

health-ins Credit: Dreamstime

Business owners and employees can add rising insurance costs to the already growing list of challenges they face in tough economic times. According to a report by the Commonwealth Fund, a private foundation that supports independent research on health care reform,  insurance premiums have increased by 50 percent over the past eight years for employees and employers alike.

The report found that premiums for employer-sponsored family health insurance plans increased by 50 percent from 2003 to 2010, finally reaching an average yearly cost of $13,871 in 2010. To help cover these rising costs, employers asked employees to pay an additional 63 percent toward their insurance costs over the past eight years.

"Whether you live in California, Montana or West Virginia, health insurance is expensive," said Cathy Schoen, Commonwealth Fund senior vice president and lead author of the report. "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. Workers are paying more for less financial protection. The steady rise in costs from 2003 through 2010 points to the urgent need for health insurance market and health care system reforms."

This increase in the cost of insurance occurred at a rate that has outpaced income growth in every state over that time span. In fact a majority of Americans, 62 percent, currently live in states where premiums represented 20 percent or more of the average salary for middle-income employees under the age of 65. Furthermore, the dream of affordable insurance seems to be disappearing; in 2010, there were no states where annual premiums equaled less than 15 percent of the median income. That number was down from 14 states that had premiums under 15 percent of median wages in 2003.

Unfortunately, employees have not gotten what they paid for. While the average employee contribution to a family plan rose to $3,721 last year, employees were hit with higher deductibles and received less coverage. Nearly three quarters, 74 percent, of workers faced a deductible in 2010 compared to 52 percent in 2003. Furthermore, per-person deductibles increased by an average of 98 percent over that time span with average deductibles exceeding $1,000 in 29 states in 2010 compared to zero states that had a deductible of more than $1,000 in 2003.

"The combination of rapidly rising costs and stagnant incomes is putting families in an untenable situation," said Karen Davis, Commonwealth Fund president. "New rules for insurers, along with new models of health care delivery, such as accountable care organizations and new ways of paying doctors and hospitals, can help control health care costs and provide families and business owners with the relief they need."

The information used in the Commonwealth Fund report, called "State Trends in Premiums and Deductibles 2003-2010: The Need for Action to Address Rising Costs," was taken from the Medical Expenditure Panel Survey of employers and the United States Census.