Premiums for employer health plans continue to grow at historically low rates, yet a growing number of small firms are finding the price tag for coverage is just too big.
Annual family premiums for employer-sponsored health insurance rose an average of 3 percent to $18,764 this year, marking three consecutive years of growth rates in the low single digits, according to an annual report on premium trends released Tuesday by the California-based Kaiser Family Foundation. On average, nearly 70 percent of the premium is picked up by employers.
At companies with fewer than 50 workers, the share offering health benefits fell to 50 percent, the survey found, down from 59 percent in 2012. Among small firms that don't offer health benefits, most said costs were too high or the business was too small.
"While the rate of increase may have slowed down, the number — the cost — is just high," said Drew Altman, the foundation's chief executive, during a conference call with reporters. "And so it's a struggle for them."
The Kaiser survey doesn't report state-level data on premiums or trends, although it includes responses from Minnesota employers. Business groups here have complained for years about the growing cost of health coverage, and pointed to declines in the number of small business health plans as a worrisome trend.
Whereas 348,026 people in Minnesota were covered through what are called "small group" health plans in 2012, the number by 2016 had fallen to 273,437, according to the Minnesota Council of Health Plans, a trade group for health insurers. A lot of the drop came in 2014 when many small group plans disbanded, the trade group said, because workers could find cheaper policies in the state's individual market.
This summer, Minnesota health insurers proposed a higher range of premium increases for small business health plans in 2018 compared with this year, with the largest carrier in the market seeking average increases of 14 percent to 17 percent.
Numbers like those in the Kaiser report that chart moderate premium growth for groups overall make it particularly tough for small firms when they see higher renewal rates, said David Martin, an executive vice president with Associated Benefits and Risk Consulting. Even so, it can be tough for firms to drop coverage given the tight labor market.
"Many employees look to the existence of health insurance before they take a job," Martin said via e-mail. "With demand for labor, an industry that traditionally offers benefits (say manufacturing) has to continue, or they would be noncompetitive for hiring and retention."
The premium trends for employer groups are starkly different from the insurance "marketplaces" for individuals that were launched under the federal Affordable Care Act (ACA). Nationwide, the average benchmark premium this year on the ACA health insurance exchanges is up 20 percent, the foundation reported, with bigger jumps in some states like Minnesota.
The individual market has been turbulent since major changes kicked in during 2014 with the ACA, which prohibits insurers from denying coverage to individuals based on pre-existing conditions.
Why growth rates for premiums have been so low in the employer market is a mystery, Altman said. A possible explanation is larger deductibles and "cost sharing" rules that pass more expenses to individuals when they use care, he said, although deductible levels held fairly constant in 2017.
"The numbers are still sticker shock numbers, closing in on $19,000 a year [in premiums] ...," Altman said. "If this is the new normal, it's not a new normal that people are happy with — and they have good reason not to be happy with it."
The cost of family coverage in employer plans increased 4 percent in 2015 and 3 percent in each of the following two years, according to the survey.
The 2017 rate of increase is similar to the rise in worker wages at 2.3 percent, Kaiser reported, as well as inflation at 2 percent. Since 2012, average family premiums in employer plans have increased by 19 percent, which is a much slower rate than the cumulative increases of 30 percent between 2007 and 2012, and 51 percent between 2002 and 2007.
Employer plans are the largest source of health insurance in Minnesota, with state figures showing about 55 percent of residents here were covered by employer plans during 2014.
The Kaiser survey found that workers in 2017 are contributing on average $5,714 per year toward premiums, which is 31 percent of the total.
The survey found that workers at small firms (3 to 199) workers contribute more on average than those at large firms — $6,814 at small firms compared with $5,264 at large firms.
One reason is that small firms are three times as likely as large ones, the survey found, to contribute the same dollar amount to coverage whether or not a worker enrolls family members.
The contrast in premium trends in the employer group market, vs. Minnesota's individual market, has been particularly stark.
On Minnesota's MNsure health insurance exchange, for example, the premium for the "benchmark" silver plan increased by 23 percent in 2016 and 51 percent in 2017. People at certain income levels obtain federal tax credits via MNsure, and after factoring in those subsidies, the rate of increase in out-of-pocket premium costs grew at 9 percent in 2016 and 8 percent in 2017 — still faster than the growth rate for employer groups.
Insurers in Minnesota's individual market have proposed more modest premium increases for 2018, which primarily serves people under age 65 who are self-employed or don't have access to coverage from their employer.
The premium trends on the ACA's marketplaces for individuals have garnered a great deal of public attention in recent years, Altman said, leading to a misconception among people in employer plans that the trends somehow affect what they are paying for care.
"While the marketplaces seem to get all the attention, the much larger employer market where more than 150 million people get their coverage is very stable," Altman said in a statement.