Health Plans: At the Tipping Point?

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Cost shifts spark dilemmas for employers and workers.

As businesses balance rising health costs and declining profits on the backs of individuals, employee contributions to their healthcare are inching closer to 50% of healthcare costs. Many businesses, particularly small employers, face a dilemma: Raise employee health costs or cut benefits and lay off employees.

By choosing cost-shifting, employers are actually passing a different dilemma on to workers: Do they pay more for healthcare or drop out of insurance?

The fifth annual Milliman Medical Index reported that workers will spend nearly 15% more in employee payroll deductions for healthcare this year compared to 2008—and that doesn't even include the 5% more they are paying in out-of-pocket costs. Employers are contributing 59% of healthcare costs this year, compared to 24% being spent through employee contributions, and 17% from employee out-of-pocket costs. Though employers are still picking up the majority of costs, this year's MMI was the largest cost shift to employees since the index began five years ago.

The Centers for Disease Control and Prevention also reported in July that the percentage of nonelderly Americans with private health insurance sank to a 50-year low. Only 65% had private insurance in 2008, a two percentage point drop from 2007. Compare that to the 1980s when 80% of nonelderly Americans were covered by private insurers.

But the question is: Have we reached a point at which the insured will drop coverage in great numbers because they simply can't afford it or find it's not worth the costs? Experts disagree whether we have reached that tipping point.

Janet Trautwein, executive vice president and CEO at National Association of Health Underwriters in Washington, DC, says employers are trying to limit the cost-shifting, but they often don't have a choice, she says.

"I think a lot of employers are trying not to pass it on. They are trying to look for other ways to help employees fill the gap, but I don't think it's at a crisis point based on what I am hearing," says Trautwein.

Likewise, Bruce McPherson, president and CEO of Alliance for Advancing Nonprofit Health Care in Washington, DC, doesn't believe we have reached a tipping point yet, but he also doesn't think the public really understands how much they are paying for healthcare.

McPherson suggests that one way to educate individuals about healthcare costs and help them become better healthcare consumers is through an insurance exchange that would allow people to research health insurance plans on a single Web site. "I think as things like exchanges are formed and you can go to a Web page and see what the options are, what the premium costs are, as well as different types of benefit coverage, that they will become a lot more educated," says McPherson.

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