Industry Trends: Large Employer Sponsored Plans Not Shielded from Rapid Health Care Spending

Industry Trends: Large Employer Sponsored Plans Not Shielded from Rapid Health Care Spending

Typically, generous health coverage has been one of the strong benefits of working for a medium to large employer. These businesses and public sector agencies are traditionally able to leverage their size to negotiate more aggressive premiums with insurers. However, those with access to large employer health plans have not been insulated from the growing increase in health care costs over the past two decades. As insurers have demanded higher premiums, employers have shifted a bigger share of the cost onto employees in the form of higher premiums, copays and deductibles.

A recent study from the Kaiser Family Foundation found that from 2008 to 2018, average premiums for a family on a large employer health plan increased 55 percent, while average cost-sharing increased 70 percent. During that time, average wages only rose 26 percent. As a result, typical annual health care spending by families covered by large employers has increased by two-thirds, from $4,617 to $7,726. For lower-wage employees of large firms, that amounts to a significant share of their annual income, thus making it difficult to keep pace in today’s economy.

Much of the change is due to the cost of health care itself, rather than employers shifting the burden to workers. Between 2008 and 2018, the average portion of health care costs covered by employers only declined slightly, from 68 percent to 66 percent. In fact, the average large employer covers a larger share of prescription drug costs now (89 percent) than they did a decade ago (80 percent). The average employer share of inpatient services has remained flat, at about 93 percent. Meanwhile, employers have decreased the share of outpatient services they cover from 84.8 percent to 80.8 percent.

Not surprising, the most notable change in plan design has come from the rise in high deductibles. Far more workers have annual deductibles and the size of the average deductible has risen significantly. In 2003, only 20 percent of the average employee’s out-of-pocket costs went towards a deductible. By 2017, deductibles accounted for 51 percent of out-of-pocket spending.