NCPA - National Center for Policy Analysis

Repairing Employer-Provided Insurance

September 24, 2002

A number of surveys have found that companies that covered higher insurance costs in the past are now passing them on to employees. Insurance premiums rose an average of 12.7 percent this year. But critics argue simply requiring employees to pay more for the same types of benefits risk moving the health insurance system further away from where it needs to go: toward one in which workers are given new incentives to be price-sensitive health care consumers.

  • A survey found 78 percent of large firms plan to charge workers more for health benefits next year, up from 44 percent last year.
  • Another survey reported 40 percent of employees are paying more for company-provided health benefits than the year before.
  • During the last price spiral in late 1980s, employers turned to managed care, but the latest round of health inflation has exposed the folly of its claims to control costs, experts say.
  • Defined contribution plans -- in which employers give workers a fixed amount for insurance then let them find the level of coverage they're comfortable with -- could help, but only 15 percent of companies are even considering them.

So, most companies continue to pass on the costs of a failing system, but cost-shifting strategies aren't the answer.

  • Employees pay 16 percent of health insurance directly -- up from 11 percent in 1988 -- and most workers don't get a say in how the money is spent.
  • Higher up-front costs with higher co-pays might moderate health care use, but that doesn't necessarily turn patients into bargain hunters.
  • Companies might reduce benefits to save money, but people could stop seeking treatment altogether, while a consumer-driven system wouldn't force such all-or-nothing choices.

Consumers will probably wind up paying more, observers say, but should expect a better product in return.

Source: Editorial, "Workers Pay More for Flawed Health Plans," USA Today, September 24, 2002

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