Inflation that has sent the cost of groceries and rent soaring over the past three years is now surfacing in health insurance.
The average cost for a family health insurance plan offered through an employer jumped 7% this year to $23,968 − the highest rate increase in a decade, according to the annual employer health benefits survey released Wednesday by KFF, a nonprofit health policy organization. Prices are far higher than they were a year ago, when premiums increased by 1%.
Insurance costs for individuals also rose 7% to $8,435, the survey said.
More than 150 million Americans get health insurance through the workplace. KFF tracks trends in employer health insurance through an annual survey of more than 2,100 large and small companies.
With costs rising this year, some consumers will likely see higher prices in the coming weeks when their employers start enrollment for 2024 health insurance plans. The survey said nearly 1 in 4 employers expect to share a portion of these higher costs with employees, who might see larger paycheck deductions at a time when inflation still outpaces wage growth.
“We’ve had this period of super-high inflation and now premiums are catching up,” said Matthew Rae, associate director of KFF’s healthcare marketplace project.
The insurance price increases are far less than the double-digit rate increases that were routine during the first part of the past decade. Companies pay for the vast majority of health insurance expenses and use those benefits to attract and keep employees. Many are reluctant to pass significantly higher costs to workers when unemployment is low, Rae said.
“If you’re trying to recruit people, it’s just not the time to cut benefits and pass on huge costs,” Rae said.
The insurance price increases are far less than the double-digit rate increases that were routine during the first part of the past decade. Companies pay for the vast majority of health insurance expenses and use those benefits to attract and keep employees. Many are reluctant to pass significantly higher costs to workers when unemployment is low, Rae said.
“If you’re trying to recruit people, it’s just not the time to cut benefits and pass on huge costs,” Rae said.
Company size matters for workers
Workers at smaller companies usually pay more for health insurance, according to the survey. Employees at workplaces with fewer than 200 people paid $8,334 last year for a typical family health insurance plan, or nearly $2,500 more than workers at larger companies. Nearly 1 in 4 workers at small companies paid $12,000 or more for a family health plan.
The cost of health insurance is based on how much insurance plans pay for bills from hospitals, doctors, prescription drugs and other medical services. Costs soar for smaller companies even if just a handful of employees are diagnosed with cancer or other chronic conditions and require expensive prescription drugs or lengthy hospital stays.
Anson Industries, a specialty contractor headquartered in suburban Chicago, provides health insurance for nearly 300 employees and their family members. The company hasn’t made employees pay more for health insurance during the past four years, even as it absorbed annual increases of 25% and 15% the past two years, said Anne Higginson, Anson Industries’ assistant risk manager.
The company is still finalizing health plan options and pricing for 2024.
Anson Industries provides insurance coverage for workers such as construction estimators, project managers and others. The company has struggled to retain younger employees who want to work remotely. So it “most definitely” wants to maintain affordable health insurance and profit sharing as benefits to recruit and keep workers, Higginson said.
Inflation is starting to go down. Why are health insurance rates rising?
Health insurance prices are set before people actually get health care. If unexpected costs arise from more medical claims or higher labor costs, insurance companies raise premiums the next year.
Last year, KFF’s survey found health insurance premiums for family plans increased just 1% even as prices for other everyday living expenses surged amid the nation’s highest inflation in four decades. But as overall inflation has decreased this year, health insurance prices are once again rising.
Another survey by health benefits consultant Mercer reported health insurance costs would rise 5.4% in 2024 after a decade of average annual increases of 3% to 4%.
Rae said insurance plans are paying more for prescription drugs and “are definitely facing higher costs in wages” paid to health care workers.
On Oct. 13, Kaiser Permanente reached a tentative deal with 85,000 health care workers to raise wages 21% over four years and establish a minimum hourly wage of $25 for California employees and $23 for employees elsewhere in the nation. California Gov. Gavin Newsom also signed a bill to establish a minimum hourly wage of $25 for most health care workers.
While those higher wages, ultimately, will be paid by consumers and employers and government insurance plans such as Medicare and Medicaid, the higher labor costs are just one factor that causes health care and health insurance prices to rise, said Ge Bai, a Johns Hopkins University professor of health policy and management.
Bai said hospital mergers are creating larger health care companies, and those larger companies command enough power to raise prices when negotiating with health insurers. They’re raising prices because they see an opening to do so, she said.
“Once they become bigger, they have huge market power and they can charge a higher price,” Bai said.
When health insurance and health care prices rise, it often correlates to lower wages for workers. Consumers have less to spend on housing, food and education, Bai said.
“Simply put, expensive insurance can actually harm Americans’ health.”
Insurance premiums are rising. Why are deductibles the same?
Nine in 10 people who get insurance coverage from their employers also are charged a deductible – the set amount a person must pay before insurance coverage kicks in.
The survey found employers charge an average deductible of $1,735, which is on par with last year’s average. Just like with premiums, workers at smaller companies had to pay higher deductibles than employees at large companies.
Consumers also often must shoulder co-payments for doctors or hospital visits and coinsurance that require they pay a percentage of a medical bill.
The survey suggests companies are reluctant to significantly raise deductibles because they are concerned about shifting costs to employees. More than half of companies believe their workers were very or moderately concerned about affording their plan’s cost-sharing requirements, according to the survey.
Mental health care lags amid provider shortage
The survey reported companies are concerned about a lack of access to timely mental health care for employees. About 1 in 3 larger employers did not think there were enough behavioral health providers to ensure timely mental health care appointments. Only 3 in 5 employers said there were enough options to treat substance use disorders.