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Health Insurance Cost

By 2006 the average family health insurance premium will exceed $14,500; premium costs will have increased by more than $5,000 in just three years.

Increasing at a rate that is five times the inflation rate, health care spending in 2003 continues to rise at the fastest rate in our history.

In 2002, health insurance premiums rose at a rate eight times faster than general inflation; experiencing the largest one-year surge in premiums in more than a decade. In the absence of comprehensive reform, the average annual premium for employer-sponsored family health insurance could reach $14,545.

Many experts agree that our health care system is riddled with inefficiencies, excessive expenses, inflated prices, poor management, inappropriate care, waste and fraud. These problems significantly increase the cost of medical care and the cost of health insurance for employers and consumers.

Facts on the Cost of Health Care

Americans are paying more for health care.

• In 2001, health care spending in the United States was $1.4 trillion, up 8.7 percent from 2000. (“Highlights from Health Tables and Chartbook,” Health, United States 2003, National Center for Health Statistics, Centers for Disease Control, http://www.cdc.gov/nchs/products/pubs/pubd/hus/highlits.pdf )

• The United States spends a greater percent of gross domestic product on health care than any other major industrialized nation. In 2001, the United States spent 14.1 percent of the GDP on health care. (“Highlights from Health Tables and Chartbook,” Ibid.)

• The United States spends more on health care than other industrialized countries; as a percentage of 2001 GDP, the United States spent 13.9%, Germany spent 10.7%, Canada spent 9.7%, France spent 9.5%, and Sweden spent 8.7% on total health care spending. (David Walker, “Health Care System Crisis: Growing Challenges Point to Need for Fundamental Reform,” presentation to the General Accounting Office Health Care Forum, 13 January 2004).

• Although the United States spends more money than many countries, it does not always offer more health care resources than other countries. In 2000, Canada, Germany, Sweden, and the United Kingdom all had more nurses per 1,000 residents than the United States; Germany, Sweden and France had more physicians; and Canada, Germany, the United Kingdom and France had more beds for acute care patients. (Walker, Ibid).

• Despite its higher levels of health care spending, the United States has a higher infant mortality rate that the United Kingdom, Canada, France, Germany, Sweden, and Japan. (Walker, Ibid).

• Americans’ average annual out-of-pocket expenses for health care rose 26% between 1995 and 2001, to $2,182. (Bureau of Labor Statistics)

• Thirty-four percent of Americans said they were very worried that “the amount you pay for health care or insurance will increase.” That was more than twice the proportion of people who were worried about not being able to pay their rent or mortgage, losing money in the stock market, being a victim of a terrorist attack or losing their job. (“Health Care Worries in Context with Other Worries,” Kaiser Health Poll Report, Kaiser Family Foundation, July/August 2003 Edition.)

Americans are paying more for prescription drugs.

• “All together, Americans – more than 280 million of them – consume about 3 billion prescriptions a year…. On average, seniors spend about $2,300 a year on legal drugs.” (David R. Francis, “Medicare reform carries a huge fiscal toll,” Christian Science Monitor, 17 October 2003).

• “Since 1995 the average annual rate of increase for prescription drug expenditures (on average 15 percent per year between 1995 and 2001) was higher than for any other type of health expenditure.” (“Highlights from Health Tables and Chartbook,” Ibid.)

• Co-payments for brand-name drugs that have generic equivalents jumped 62% to $26 last year from $16 in 2000, while generics rose to an average of $9 from $8. (The Kaiser Family Foundation)

• “Drug spending in Canada and the United States rose 11 percent last year to $230 billion, accounting for nearly half of all worldwide sales.” (Ceci Connolly, “Drug Spending Up Despite Pressure to Cut Costs,” Washington Post, 16 March 2004).

• Doubling of copayments for prescription drugs results in a 10% to 12% reduction in use of medications for chronic disease conditions such as diabetes and hypertension. (RAND).

Individuals and employers are paying more for health insurance coverage

• Health insurance premiums will rise to an average of more than $14,500 for family coverage in 2006 (“Charting the Cost of Inaction,” National Coalition on Health Care, May 2003.)

• Workers’ average monthly contribution to premiums for family coverage have more than quadrupled, rising from $52 in 1988 to $222 in 2004. (“Average Monthly Worker Contribution for Single and Family Premiums, 1988-2003,” Employer Health Benefits: 2004 Annual Survey, The Kaiser Family Foundation, 2004.)

• “Today’s average premium for a family insurance policy -- $9,086 a year – already represents 21% of the national median household income of $42, 409.” (Julie Appleby, “Health Insurance premiums crash down on middle class, $9,086 average cost out of reach for many families, USA Today, 17 March 2004).

• The premiums charged for job-based health insurance rose by 11.2% in 2003, exceeding previous rates of growth. All types of health plans – including HMOs, PPOs, and POSs – demonstrated double-digit increases in cost. (“Cost of Health Insurance,” Employer Health Benefits: 2004 Annual Survey, Ibid.)

• In a study conducted at the end of last year by the Washington Business Group on Health, which represents nearly 200 major employers from across the country, 80% of the employers said they planned to increase co-payments or cost sharing in 2003, compared with 65% who answered that way in 2001. In a more recent study, the group found that 57% of employers plan to increase cost sharing for 2004. (Martinez, “As Health Costs Increase, Workers Must Pay More,” Wall Street Journal, 6/16/03)

• “After corporate income taxes, employee benefits are the second largest structural cost for American manufacturers, adding 5.8 percent to costs.” (Daniel Gross, “Whose Problem is Health Care,” The New York Times, 8 February 2004.)

• More than 80% of companies with 200 or more workers are very or somewhat likely to increase the amount paid directly by their employees for health care. (“Employer Attitudes and Opinions,” Employer Health Benefits: 2004 Annual Survey, Ibid.)

Senior citizens have been hit particularly hard by increases in health care costs

• “In 2003, seniors in Medicare managed-care plans will pay an estimated $1,964 in average out-of-pocket expenses for health care, 10 percent more than last year and twice as much as four years ago.” (Marsha Gold and Lori Achman, “Average Out-Of-Poket Health Care Costs for Medicare+Choice Enrollees Increase 10 Percent in 2003”, The Commonwealth Fund, August 2003).

• Costs are expected to grow because scientists are continually discovering medicines to treat diseases of aging and people are living longer. The elderly population, now 36 million, is expected to reach 70 million by 2030. (Robert Pear, “Prescription Drugs Now, Day of Reckoning Later,” New York Times, 19 August 2003).

Rising health care costs are affecting Americans’ health care coverage.

• Economists have found that rising health care costs correlate to drops in health insurance coverage. (Michael Chernew et al, “Rising Health Care Costs and the Decline in Insurance Coverage,” Economic Research Initiative on the Uninsured, ERIU Working Paper 8, September 2002).

Policymakers disagree on the best ways to address these serious problems. Some favor price controls and imposing strict budgets on health care spending. Others believe free market competition is the best way to solve the problems. Other experts believe that we can “innovate” our way to a less costly system through medical breakthroughs that cure or reduce the incidence of major diseases. Public health advocates believe that if all Americans adopted healthy lifestyles, health care costs would plummet as people required less medical care.

There appears to be no single solution to medical care’s high price tag. Most of the means mentioned above – and others – may have to be used in the years ahead to control costs. If they are not, the impact on consumers, employers and the government will be severe and the number of people without health insurance will continue to grow.

© 2004 National Coalition on Health Care. All rights reserved