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Thought Leaders: Implications of Increases in Employee Cost Sharing

Dudley E. Morris was featured in the September/October edition of MCOL Thoughtleadersnewsletter. The question asked was:

What are the stakeholder implications going forward arising from employee health plan cost sharing increasing at twice the rate of wages during the past decade?

Compared to the press attention paid to Medicare-For-All, the escalating cost of large employer health plan insurance for working families is something of an elephant in the room in terms of the current political discourse. There are some 150 million non-elderly people who have good coverage and generally want to keep it. Last year the average coverage for a family rose 5% to $20,576 according to the 2019 Kaiser Family Fund Survey of Employer Health Benefits. Over the past decade health costs incurred by employees and their families have increased by 18% compared to an 8% increase in inflation and 12% increase in wages. The average family in a large employer plan will now pay $5,000 in premiums and an additional $3,000 in out-of-pocket costs. On average employees of large firms contribute about 1/3 of their total cost of coverage—20% in terms of premiums and an additional 13% in terms of cost sharing. According to the KFF analysis, families now pay 67% more for their health benefits than they did a decade ago while wages have only grown 26%. But employer plans still seem like a pretty good deal if you need sick care: since 2003 employer plans have covered approximately 85% of employee costs, which explains why Medicare-For- All proposals advocating the elimination of the private insurance industry have not gained much traction.

Still, the total cost of care in terms of premiums and out-of-pocket expenses for a family covered by a large employer plan can put a dent in most family budgets. It is not surprising the UAW workers on strike against General Motors are fighting tooth-and-nail to preserve their health care benefits during current negotiations: they pay about 3% of their health care costs.

As of 2019 the recent Kaiser survey found no major changes in the market for employer-sponsored plans. But the efforts of large employers to stem rising benefits costs has grown increasingly sophisticated: The National Business Group on Health’s 2020 Large Employer Survey indicates employers recognize healthcare is delivered locally for the most part, and that change efforts are often not scalable. As a result, employers are turning to market-specific solutions, particularly in terms of managing prescription benefit costs and high cost claims. Approximately 49% of employers plan to pursue an advanced primary care strategy by 2020 with another 26% considering one for 2022. There is similarly strong interest in ACO’s and High Performing Networks with nearly a third of large employers planning to implement either or both strategies in 2020, a percentage that could double by 2022. While most employers have reservations on Medicare-For-All— thinking a public option would raise costs and reduce quality— nearly 55% would consider expansion for people 50 and older—but not those under that age. This fallback position might provide the gist of a solution to their rising healthcare costs—and would be welcome news for many older employees who want to retire early. At a minimum, it seems certain that there would be broadbased business support for government intervention in the negotiation of prices for drugs above a certain price threshold, or possibly a stop-loss program for drugs above a certain price threshold. Even if the political support for some type of public option fails to materialize, the focus of large employers on stemming their rising benefits costs is certain to continue.

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