Employer-sponsored healthcare costs keep rising, and it's 'sort of untenable'

Employer-sponsored health insurance is growing costlier in the US, according to new data.

According to the Kaiser Family Foundation (KFF)’s 25th Employer Health Benefits Survey, the average annual premium for employer-sponsored health insurance as of July 2023 was $8,435 for individual coverage and $23,968 for family coverage, marking a 7% increase for each over the last year.

Workers are contributing a greater amount to premiums too. In 1999, workers contributed $318, or 14.4%, to the average annual premium for individual coverage of $2,196. In 2023, worker contributions reached $1,401 out of $8,435 total, or 16.6% of the overall premium.

“I think it just sort of demonstrates the continued strain that employees and employers are facing when it comes to being able to afford to both offer health insurance to employees and then for employees to afford that coverage,” Andrea Ducas, vice president of health policy at the Center for American Progress, told Yahoo Finance. “It’s sort of untenable.”

What’s driving up the cost?

Healthcare affordability is still a major issue in the US overall.

An October 2023 survey from the Commonwealth Fund indicated that 38% of US adults in the past year delayed or skipped healthcare or a prescription drug because they couldn’t afford it, including 54% of those with employer-sponsored coverage.

“I think that even for working people, but particularly for low-wage workers, many of the cost-sharing provisions required by employer-sponsored health plans raise real affordability issues [for] what their ability is to actually use the plan,” Matthew Rae, associate director of the healthcare marketplace project at KFF, told Yahoo Finance.

A group of Florida residents sit with an insurance agent as they try to purchase health insurance.

A group of Florida residents sits with an insurance agent as they try to purchase health insurance on March 20, 2014, in Miami. (Joe Raedle/Getty Images) (Joe Raedle via Getty Images)

Ducas explained that health insurance companies determine the cost of premiums based on how much they expect to spend on a particular insured population. Healthcare utilization rates and the cost of that care are two major drivers, she added.

Though inflation has cooled in recent months, the Commonwealth Fund survey found that nearly two-thirds of working-age adults reported that price inflation had some type of impact on their family’s ability to afford healthcare in the past year, including 60% of those with employer-sponsored coverage. Among that 60%, those earning less than 200% of the federal poverty level reported struggling the most with inflation and healthcare costs.

Rae speculated that part of the bump in premiums could be due to an increase in utilization of healthcare services that people were put off during the pandemic, along with new treatments that cost more money.

“We have healthcare markets that are increasingly consolidated, and providers have more power to get higher prices,” he added. “That’s also contributing to higher premiums over time.”

‘The labor market really matters here’

Rae also noted the role of the tight labor market in rising premium costs as employers want to ensure they offer benefits that attract talent.

“I think that to cover lots of things, have a wide selection of providers, and have low cost-sharing, all of that contributes to higher premiums,” he said, noting that employers are becoming more selective when it comes to cutting benefits. “The labor market really matters here.”

Though the cost of premiums is still increasing, the growth in deductible costs, the amount a person pays for covered healthcare services before their insurance plan starts to pay, has slowed in recent years. The average deductible for single coverage in 2023 was $1,735, only 10% higher than five years ago (compared to 53% higher than 2013).

“This relatively low growth may reflect employer concerns about the ability of workers to afford higher out-of-pocket costs, particularly for workers with lower wages,” the KFF survey stated, adding: “Employers may also be reluctant to reduce the value and attractiveness of their coverage offerings during this low period of low unemployment and intense competition for labor.”

The KFF survey found that 90% of US workers have a deductible compared to 55% in 2006. Rae stated that this highlights the growing complexities of cost-sharing over the years.

According to the survey, 25% of employers with 50 or more employees believe their employees have a “high” level of concern about the affordability of cost-sharing, while 33% believe the employees have a “moderate” level of concern.

“It’s becoming so unaffordable for people to use their coverage, and it’s becoming harder and harder for employers to offer it,” Ducas said. “And there’s so much that needs to happen to bring down the cost of care.”

Adriana Belmonte is a reporter and editor covering politics and healthcare policy for Yahoo Finance. You can follow her on Twitter @adrianambells and reach her at adriana@yahoofinance.com.

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