Health Insurance Costs Charging Ahead of Inflation

Here's the good news: medical insurance premiums increased in 2007 by the lowest rate since 1999. The cost of health care coverage premiums went up by only 6.1%. The bad news is that the increase was more than twice the rate of annual inflation (2.4%).

Rising Medical Insurance Costs Hurt Workers & Employers

According to a Kaiser Family Foundation survey of more than 2,000 employers in 2007, the cost of purchasing a family medical insurance plan for an employee was more than $12,000 and individual health care coverage cost around $4,479. Even though the study found that workers weren't paying a considerably larger portion of their wages towards those premiums, their actual health insurance premium costs increased by $308 for families and $67 for individuals.

Most medical insurance plans do not just charge premiums either. Often the plans include deductibles which are out-of-pocket expenses that must be paid by insured person before their coverage kicks in to pay anything. Deductibles for workers can be as low as $400 for individuals enrolled in Health Maintenance Organizations (HMOs) to up to more than $1,700 for families who have opted for high deductible medical plans.

Employers Explore Health Care Coverage Options

In fact, employees may be paying higher deductibles in coming years as employers use them as a way to keep their own costs manageable. One company switched from an HMO to a medical plan with a $1,000 deductible but agreed to cover all but $250 of that amount. Even with that arrangement, the company saved $6,000 on its premiums.

More employers are looking at Health Savings Accounts (HSAs) as a way of offering affordable health care coverage to their employees. These accounts include two parts: a high-deductible health insurance plan and a tax-free interest-accruing account. Workers set aside a portion of their wages in the account; some employers also provide account funds. The money continues to build interest while it is in the account, but the employee does not have to pay taxes on the money. When the time comes for the employee to visit the doctor or have a medical procedure done, he or she can withdraw money from the account with no penalty to cover the deductible and other health care costs.

The Bush Administration promoted HSAs as the solution to the health care problem in the United States and an increasing number of employers are jumping on board. However, employees have been less than receptive. Less than 5% of workers who receive employer coverage are enrolled in an HSA plan. The biggest reason for the relatively low acceptance rate is the cost. Even with the wage deductions, many employees just fear they will not be able to cover the deductible, co-payment, and other out-of-pocket expenses associated with the medical insurance.

With health care costs rising faster than both inflation and wages, workers are looking at an increasingly difficult situation. Employers who have offered health care coverage as a major part of their benefits packages for decades will have to rethink their plans or find innovative ways to lower their costs.

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