Health insurance costs near a breaking point


Health insurance costs near a breaking point

A recent study from the Commonwealth Fund shows what many Americans have felt acutely for years: Employer health insurance costs are eating up a greater and greater share of middle-class incomes as growth in premium contributions and deductibles outpaces growth in wages.

In 2008, average employee premium contributions and deductibles exceeded 10% of the median income in seven states. By 2018, that was the case in 42 states, including Ohio, according to the Commonwealth Fund, a nonprofit private foundation supporting independent health care research.

The state-by-state report found that the average annual growth of total potential out-of-pocket costs (employee contribution to premiums and deductibles) outpaced average annual growth in median income in every state between 2008 and 2018. For those with middle incomes, this combined cost accounted for 11.5% of median income in 2018 nationally. Ohio was just below that at 11.1%.

This, said David Radley, senior scientist for the Commonwealth Fund and co-author of the report, seems like a breaking point. It probably feels that way for many families struggling to fork over at least 10% of their income for health care. Many are already forced to skip care or forgo other important things in their lives.

Eric Krieg, president of Fairlawn-based Risk International Benefits Advisors, called the system “totally broken.”

“People are in positions where they’re being compromised financially or they’re compromising their health care,” he said.

The growth rate in Ohio for total potential out-of-pocket costs for both single and family coverage (weighted by the state distribution of single and family households) is greater than the national average. Between 2016 and 2018, the average annual change was 10.5% in the state, compared to 4.4% nationally.

In 2018 in Ohio, employees’ potential out-of-pocket costs was $7,509 — more than double what it was in 2008. The study looked at rates in 2008, 2014, 2016 and 2018, the last being the only year that potential out-of-pocket costs in Ohio were higher than the national average. But both grew between all of those years.

Nationally, one of the main culprits behind the growth is higher health care prices, given the flexibility that providers have in determining what they charge for health care services, Radley said.

“And the national trend over the last five or six years that we’ve seen is that the overall health care utilization is pretty flat,” he added. “It’s growing at a very modest rate, and some services actually we’re using less of. But overall, health care spending is growing pretty rapidly nationally, and the only explanation really is that prices are growing up.”

Employers now have to focus on what Robert Klonk, CEO of Oswald Cos., a Cleveland-based insurance brokerage, said they should have been focusing on all along: the root cause of what’s driving expenses.

The costs of pharmaceuticals, technology and facilities are all contributing to the growth in health care costs. Klonk also noted that the expansion of Medicaid and the growth of Medicare have put pressure on prices. Providers don’t make money — or sometimes even lose money — on this care, which they recoup in the private insurance marketplace, he said. The more people use those programs, the more providers have to push costs to private insurers, meaning growing costs for employers and employees.

“It’s just one piece of the puzzle,” Klonk said. “You do still have driving costs of the hospitals and facilities and technology and drugs — all of that feeds into it. But at the end of the day, it’s going to force people to start focusing on things we’ve tried to have them focus on for years: things like more narrow preferred networks, finding the providers who have the best quality and best price of care, centers of excellence around things like orthopedics, heart surgery, so on and so forth.”

Historically, when providers pass higher prices to insurers, insurers in turn pass those on to employees in the form of higher premiums. That trend, which has been ongoing for roughly the past decade, is not sustainable, Radley said.

Krieg said that it’s gotten to the point — and he believes it’s been there for a number of years — where costs are “clearly causing financial distress to employees.” Employers need to understand their workforce’s financial exposure and then challenge themselves to create an affordable health plan, he said.


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