Employers Push Health Care Costs onto Employees

As employers face continued growth in health care costs, they are shifting more of the burden onto employees. According to the Kaiser Family Foundation, for 2022 (the latest data available) employees were paying, on average, $6,106, or 27% of the total premium, as their share of the cost of covering a typical family (in addition to the $16,347 paid on average by the employer).

The Foundation also reported that 88% of covered workers were responsible for a general deductible in 2022, up from only 47% in 2009. The average single deductible was $1,763 in 2022 (compared to $735 in 2008). This means that covered employees are facing a multi-faceted burden: 1) a very expensive personal contribution to the total annual coverage premium, 2) a high deductible that must be met before insurance kicks in, plus 3) costly co-pays (often 20% or more) for most instances of doctor visits, lab or hospital services and pharmacy prescriptions.

Employer-sponsored health plan premiums rose 4% in 2022. This adds up to a huge increase in total dollars.

An initiative in California is the California Public Employees’ Retirement System (Calpers), which set a maximum price that Calpers would pay for a number of procedures such as colonoscopies, joint replacements and cataract removal starting in 2011. For example, the maximum for a knee or hip replacement surgery was set at $30,000, with Calpers’ members paying 20%, or up to $3,000. Members selecting hospitals that charged more than Calpers’ maximum were forced to pay the difference out-of-pocket. As a result, the knee and hip replacement surgery market share for lower-priced hospitals rose by 28%, with higher-priced institutions lowering their prices to stay competitive. Prices for the surgeries fell overall by an average of more than 20%, saving Calpers and its patients $6 million over two years.

This is part of a long-term trend where employers are attempting to force employees to become better, more knowledgeable, and more cost-conscious consumers of health care. It is hoped that consumers who clearly see the costs of health coverage (and are forced to make choices while paying more out of pocket) will take more personal responsibility for their physical condition and habits.

Also, many employers have taken measures to decrease health care benefits for retirees in order to cut costs. Whether by raising retirees’ share of premiums, capping the total amount paid or cutting benefits either partially or entirely, employers have been steadily placing more of the financial burden of health care onto their retired employees. These trends will likely continue over the mid-term, with more and more of the cost of elderly health care being pushed onto Medicare.

State and local governments face some of the largest cost problems of all. This is because many cities and other government units provided employees with exceptionally generous health care coverage plans, and in many cases continued this coverage after employees retired.

Employees who practice unhealthy lifestyles cost their employers staggering amounts of money due to health complications. Many employers are taking proactive measures. Examples include employer-sponsored wellness or disease management programs, as well as employers increasing certain employees’ share of premiums, co-payments or deductibles. Some firms are penalizing employees who practice poor health behaviors such as smoking. For example, employees who admit to smoking must pay an additional fee per year for health benefits.

Another alternative is called reference-based pricing, in which employees have a choice among hospitals, doctors or procedures. Information regarding pricing and quality of care is available to help employees decide. Should the employee choose a procedure or provider that is more expensive that what is offered under the employer health care plan, he or she may be required to make up the difference. Should the employee go with a less costly option, the employer can offer a health care credit against another procedure. Reference-based pricing encourages employees to learn more about their health benefit options and make cost-effective choices.

Hospital Pricing Transparency Required Online

A Trump administration mandate requiring hospitals to publish list prices for care online took effect in early 2021. The rules require that hospitals must post the following information: gross charges, discounted cash prices, payer-specific negotiated charges and “de-identified” minimum and maximum negotiated rates. A complete file must be filed with the federal CMS office, while up to 300 procedures must be listed on a website available to the general public.

For example, see Methodist Hospitals, Indiana comprehensive pricing lists at: https://methodisthospitals.org/insurance-financial-info/methodist-hospitals-price-transparency. Also, see Methodist Hospitals of Houston major procedures pricing at: Www.houstonmethodist.org/for-patients/patient-resources/billing-insurance/diagnostic-related-groups.

Dozens of major corporations, including American Express, Marriott, Macy’s, IBM and The Coca-Cola Company, have formed the Health Transformation Alliance (HTA) to cut health care spending for employees. The alliance created group contracts to purchase prescription drugs through CVS Health Corp. and UnitedHealth Group, Inc., and created specialized physician networks. As of September 2023, HTA had almost 60 corporate members representing 4.5 million employees, saving employers members more than $1 billion collectively. Meanwhile, Haven Health, an alliance between Amazon.com, Inc., Berkshire Hathaway, Inc. and JPMorgan Chase & Co., disbanded in early 2021 due to its inability meet its goal of promoting lower employer costs for health care.

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