Health Insurance Needs Your Attention
Although it will be difficult to cover on one page, this column is about employer-supplied health insurance and the costs that are getting out of hand.
Americans spent $2.8 billion on health care in 1930, or $23 per person and 3.5% of GDP. This percentage jumped to 4.5% in 1950, 7.3% in 1970, 12.2% in 1990 and 15% in 2015. U.S. citizens spent $3 trillion on health care, or $9,536 per person, in 2015. Times change – the U.S. had 7,000 hospitals in 1975; there are 5,500 today.
Large employers will see a 6% increase in insurance-plan costs in 2019, similar to the 5.5-7.0% annual increase over the past five years. Putting this in context, $28,000 is total health-care costs for the typical U.S. family annually (annual premiums for employer-sponsored family health coverage reached $19,616 this year, up 5% from last, with workers paying $5,547 toward cost and with $1,573 in average deductibles). Fully 56% of small firms and 98% of large firms offer health benefits to at least some of their employees with an overall offer rate of 57%.
All of this is based on a Kaiser Foundation study of a few weeks ago and studies by PwC Health Research Institute. Actually, large employers contracting with health-insurance providers is effective cost reduction of this employee “hidden pay cut.” On balance, families spend an average 10.1% ($6,422) of income on health-insurance premiums and deductibles, varying nationally depending on location from 6.3% (in Massachusetts) to 14.7% (in Arizona, Florida and Texas).
It must be recognized that employers play an outsized role in providing health care nationally. One in two Americans gain health care via an employer benefit plan, and 75% of these through an employer-offered self-insured plan. For perspective, 68 million citizens are on Medicaid, and 58 million are on Medicare. U.S. health-care costs are more than all but the top 13 nations in the world according to gross domestic product.
And the cost of health care is going up on a per-employee basis, rising 75% while median salary was up only 25% over the last dozen years. While employers are heavily reliant on many vendors to manage health-care insurance spending, this area is their largest operating expense after wages. This leads us to the real problem: an about-to-burst bubble of industrial dissatisfaction with health-care inflation that far outpaces other business issues and failed government policies and initiatives.
The public, including employees in this distorted scenario, buy insurance plans to protect against unpredictable medical expenses, including those in or not in hospitals. The problem with this out-of-control spending is that there is little or no competition to keep prices stable or reasonable. The benefits that the public in general derive from their employer-provided health-care insurance, with their own substantial contribution, require dramatic change.
It has long been known that charges for medicines are skewed. It costs enormous sums to develop and test new drugs and technologies, and these sums must be recovered through sales with or without health-insurance contributions. These items, however, are often sold overseas at substantially lower prices than offered in the U.S. markets.
There is valid concern that medical insurance in the health sector, which is massively controlled by insurance companies and abetted by medical providers, exacts requirements on their major customers (industry) and manipulates the pricing systems. This is a very important matter to address before the economy is toppled by this out-of-control imposition by the providers of real medical needs and supplied through an inefficiently “managed” system of supply and demand.
This is really an American industry management issue that needs attention. Product providers as well as insurers must address these matters before the problems are beyond repair. Research and development of new medicines is critical. Honest and uniform pricing worldwide is critical. Health insurers have a role that supports these needs; not those of gaining from higher and higher premium incomes via their largest customer base, American industry.
It is time for private-industry management to have “come-to-Jesus meetings” with medical institutions, developers and providers of drugs, health-care insurers and government regulators.