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Home / News & IndustryManaged Care Insight and Analysis
Updated: October 20, 2009
Value Of Employer-Sponsored Health Plans Continues To Erode, Study Finds

The 161 million Americans with employer-sponsored health insurance are shelling out more and more dollars from their own pockets to cover medical services. That’s the finding of a comprehensive study on trends in employer-sponsored insurance conducted by the National Opinion Research Center (NORC) and Watson Wyatt Worldwide, and funded by The Commonwealth Fund.

The study, recently published on the Health Affairs Web site, found rising rates of underinsurance and unaffordability, particularly among poorer and sicker people. In 2007, adults with employer coverage faced an average of $729 annually in out-of-pocket costs for medical services, including deductibles and other forms of cost sharing, such as copayments and coinsurance. That represents a 34 percent increase from 2004, when the average out-of-pocket burden was $545. Health plans covered a slightly smaller percentage of overall expenses in 2007 than 2004, but growth in overall health spending was the chief culprit behind rising out-of-pocket costs, according to the report.

"The years 2004 through 2007 were a period of economic expansion, yet rising healthcare costs still eroded the value of employer-sponsored coverage," said Lead Author Jon Gabel, a senior fellow at NORC. "Historically, employees have been asked to shoulder even more of the cost-sharing burden during difficult economic times, such as what the U.S. is now experiencing. Hence, it is imperative that healthcare reform include constraints on health spending, or else health insurance will become unaffordable for low- and middle-income Americans, and reform itself will be unsustainable."

The study by Gabel and his colleagues updates earlier studies on employer-sponsored insurance and out-of-pocket costs published in 1997, 2000 and 2004. Among the major findings of the latest study was the huge disparity in out-of-pocket spending among low-and high-cost workers. Researchers found that the average out-of-pocket expense for the 50 percent of workers with the lowest health spending was $85 in 2007, while for the highest-spending 1 percent and 10 percent of employees it was $8,703 and $3,364, respectively. Health plans paid for a greater share of spending by adults with chronic conditions, but these individuals also had relatively higher out-of-pocket costs.

Another major finding of the study was a slight decline in the actuarial value of employer-sponsored health insurance. While most of the increase in out-of-pocket costs for workers was due to the underlying growth in healthcare spending, the actuarial value of employer-sponsored insurance declined slightly from 2004 to 2007. Overall, these plans paid 81.4 percent of medical bills for all workers in 2004, and 80.1 percent in 2007. This funding decline, according to the study, resulted from increases in the percentage of plans with deductibles and increases in average deductible level, in turn reflecting the emergence of consumer-directed health plans, the decline in market share for health maintenance organizations (HMOs) and point-of-service (POS) plans, and the increased use of deductibles by preferred provider organizations (PPOs).

The researchers were surprised by the fact high-deductible health plans, coupled with employer contributions to tax-favored savings accounts, had the highest actuarial value of all plan types. Overall, these types of plans paid 91.1 percent of medical bills. Their actuarial value, however, was concentrated among the half of workers with the lowest health spending. Low-spending employees were able to save nearly all of the $878 average contribution by the employer for the savings account, but higher-spending employees paid more out-of-pocket in these plans than did high spenders in other types of plans. HMOs had the next-highest actuarial value, followed by POS plans, PPOs, and high-deductible health plans without employer contributions.

A third major finding was the growing ranks of people considered "underinsured." Gabel and coauthors deemed individuals "underinsured" if they would be expected to spend more than 5 percent of their income out-of-pocket for medical services (excluding premiums). For people with family incomes at 200 percent of the federal poverty level, about 20.3 percent with employer-sponsored health insurance exceeded this threshold in 2007, up from 16.5 percent in 2004.

"In the United States, if you are sick and earn a modest income, then you are probably underinsured –even if you have employer-based health coverage," the report stated.

To determine whether coverage was affordable, the researchers looked at whether out-of-pocket spending for both premiums and medical services would exceed 10 percent of income. Gabel and his colleagues found that affordability declined at all income levels between 2004 and 2007. For example, about 18 percent of those with family incomes at 200 percent of poverty spent more than 10 percent of their incomes out-of-pocket in 2007, up from 13 percent in 2004.

Address: National Opinion Research Center, 4350 East-West Highway, Suite 800, Bethesda, MD 20814; (301) 634-9300,

  This article was taken from:
The Executive Report on Managed Care

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