Employers are sharing more of their healthcare costs with their workers

SUMMARY: Faced with rising premiums, U.S. employers are sharing more of their costs with their workers, particularly through higher deductibles, copayments, and coinsurance. Recent research indicates that employer plan premium contributions and out-of-pocket costs, like those for prescription drugs, are eating up an increasing portion of household budgets

Nearly 24 million Americans enrolled in employer health plans spent a large share of their income on health care.

Spending on premium contributions and out-of-pocket costs among households covered by employer plans can range widely. Households in the midrange (median) spent $2,200 annually in health plan premium contributions in 2016–2017 (Table 1). But there are households that contribute nothing toward their employer premiums, since some firms cover 100 percent of their employees’ premiums.

At the high end of the spending range, households spent $8,000 on premiums, nearly four times the median. Households with high premium contributions, however, may have plans that require little cost-sharing — like no deductible. But others have coverage with both high premiums and high deductibles.

Collectively, private-sector employers are one of the biggest and most politically powerful stakeholder groups in the health care debate. They cover more people than any other source and account for about 20% of all health care spending — almost $700 billion in 2017.

Annual family premiums for employer-sponsored health insurance rose five percent to an average $19,616 this year, extending a seven-year run of moderate increases. The average single deductible now stands at $1,573 for those workers who have one, similar to last year’s $1,505 average. On average, workers this year are contributing $5,547 toward the cost of family coverage, with employers paying the rest.

The total cost of worker health benefits is expected to increase 5% in 2020, topping $15,000 per employee, according to the National Business Group on Health annual survey of nearly 150 of the nation’s largest employers.

Some 20% of large employers say they will switch next year from traditional pharmacy benefit contracts, which have relied on drugmaker rebates to hold down the costs of premiums. Instead, they’ll pass those pharmaceutical discounts directly to workers at the pharmacy counter. Some 60% plan to make the switch by 2022.

Three out of four employers surveyed would consider backing a plan in which the government would negotiate for pharmaceutical treatments that cost more than $1 million, and nearly half would favor national funding to underwrite part of the cost for such drugs.

In reality, Americans don’t like their private health insurance so much as blindly tolerate it. That’s because the vast majority of Americans don’t have a complex interaction with the healthcare system in any given year, and most never will. As we’ve reported before, 1% of patients account for more than one-fifth of all medical spending and 10% account for two-thirds. Fifty percent of patients account for only 3% of all spending.