Health Care Costs: Perception Versus Reality

The cost of health care is of great concern to Americans in both managed care and traditional fee-for-service plans. However, a comparison of what Americans believe is true about rising costs and the amount they are paying and the reality of verified increases (or decreases) in these areas reveals perceptions that are startlingly different from reality.

Perceptions

While just 36 percent of Americans believe that health care, in general, has gotten worse over the last 5 years, 81 percent believe that health care costs have gotten worse in that time.

  • Individuals in HMO-type and PPO-type managed care plans are less likely than individuals in fee-for-service plans to report that health care costs had gotten worse in the last 5 years. Nearly all individuals enrolled in fee-for-service plans report worse health care costs (93 percent), compared with 78 percent of HMO-type enrollees and 85 percent of PPO-type enrollees.
  • Individuals ages 35- 64 are more likely than those ages 20- 35 to report that health care costs have gotten worse over the last 5 years (83 percent v. 73 percent, respectively).
  • Four in 10 Americans indicate they are not confident they will be able to afford health care without suffering financial hardship in the next 10 years (41 percent). Only 22 percent are highly confident about being able to afford health care.
  • While 46 percent of respondents favor increasing government regulation of health insurance, only 20 percent would favor increasing regulation if it increased health insurance costs by $50 per month.
  • When rating aspects of managed care, the cost of managed care plans receives a high percentage of fair or poor ratings (41 percent).

Reality

During the last 5 years, health care costs have increased modestly, on average, and out-of-pocket spending has not significantly increased. Meanwhile, employees have not been paying an increasing share of the premium.

  • In 1960, out-of-pocket spending accounted for 31 percent of all private health care expenditures. By 1992, out-of-pocket spending accounted for 37 percent of all private health care expenditures. Between 1992 and 1995, out-of-pocket spending as a percentage of private health care expenditures remained at 37 percent. (Source: Health Care Financing Review, Fall 1996.)
  • Health insurance costs have increased modestly since 1993 among employers with 10 or more employees. Between 1993 and 1994, average health insurance costs decreased 1.1 percent. Between 1994 and 1995, health insurance costs increased 2.1 percent, and between 1995 and 1996, spending increased 2.5 percent. Between 1996 and 1997, health insurance costs increased less than 0.5 percent. (Source: Mercer/Foster Higgins, National Survey of Employer-Sponsored Health Plans 1997.)
  • Between 1993 and 1995, the percentage of workers employed in small firms required to contribute toward employee-only coverage declined from 49 percent to 30 percent. The percentage of workers required to contribute toward family coverage declined as well. However, the average contribution as a percentage of the premium increased significantly for workers required to contribute, mainly for workers enrolled in fee-for-service plans. (Jensen and Morrisey, 1998.
  • While employee spending for health benefits increased between 1993 and 1997, employees have not been paying an increasing share of the premium. In 1993, employees working for large firms (those with 500 or more workers) paid 23 percent of the premium for employee-only coverage in HMO plans and 33 percent of the premium for family coverage. By 1997, employees continued to pay 23 percent of the premium for employee-only coverage, and paid 34 percent of the premium for family coverage. (Source: Mercer/Foster Higgins.)
  • In 1993, employees working for large firms paid 24 percent of the premium for employee-only coverage in fee-for-service plans and 33 percent of the pre mium for family coverage. By 1997, employees continued to pay 24 percent of the premium for employee-only coverage, and paid 32 percent of the premium for family coverage. (Source: Mercer/Foster Higgins.)
  • In 1993, employees working for large firms paid 24 percent of the premium for employee-only coverage in PPO plans and 31 percent of the premium for family coverage. By 1997, employees paid 23 percent of the premium for employee-only coverage, and paid 36 percent of the premium for family coverage. (Source: Mercer/Foster Higgins.)
  • In 1993, employees working for large firms paid 19 percent of the premium for employee-only coverage in POS plans and 35 percent of the premium for family coverage. By 1997, employees paid 22 percent of the premium for employee-only coverage and paid 31 percent of the premium for family coverage. (Source: Mercer/Foster Higgins.)
  • In 1997, the average cost for an HMO for employer with 10 or more workers was $3,165. The cost for a PPO was $3,321. The cost for a POS plan was $3,481. The cost for a fee-for-service plan was $3,521. In addition, employee contributions for employee-only and family coverage in the HMO were lower than contributions for other health plans. (Source: Mercer/Foster Higgins.)

Source: 1998 Health Confidence Survey.

Note: Plan type is categorized by the number of managed care plan design features (out of a total of four) a respondent reports as describing his or her health plan. Individuals enrolled in plans with all four plan design features are considered to be in "HMO-type" managed care plans; individuals enrolled in plans with at least one of these features are considered to be in "PPO-type" managed care plans; and individuals enrolled in plans with none of the four features are considered to be in "traditional" fee-for-service insurance plans. All respondents older than age 65 are considered to be Medicare participants.