The Nearly maj3 o 5rity peo rc fe uninsure nt of indiv dwo idual rker s is n frepo amilire ted s w Statement the ithir inco ind me ustry Summary uno de f p r rth im e ary pove employ rty linm e we ent reas un rie nsured tail trade, compared services, wior th IEmployers. am pleasedT tohe app employer ear befo srha e yre ou of to total dayh to ealt dis hcuss expe h nditures ealthcare hacos sremai ts an nd ed lack between of access. 28 and My 30 na perc me e is nt Dallas since Thesefindingssuggestthatthe satisfactionthatinsuredAmericansfeel fortheir healthcare may reduce their to choose afee-for-servicedeliverymodeor an HMO or PPO optionwithina singleplanat thepointofservice. Table 3 DallasTable L. Salisbury 4 man ab Salo u isbu ut fac 6rtper y. uring I c am ent , W to he or fthose ker pre ssw iden in ere fa tm of milie otsl he ls iwith k Employee elytin oI_ come un B iab ns enef uo red iv te Re 4 if00 ts hear e per y we ch crInstitute ent e se oflf the -empl (EBRI), poverty oyeda o lev rnonprofit, wo el. rking innonpa agriculture, rtisan, 1 w 19 9 illingn 65 80. , and N eo ss n_ vtio rtua th acc s lly lept e th ss heal eref same , orm th ca p pr roportio re opo ax sp ae lsnd n th as a it tture he may y ar s he alter av th ee sinc fa ors ration te e1980 st-ri the .si How care ng compo ethey ver,n ireceive fen oof ne t empl acc . epts oythe ee com prem pen ise station. hat In these plans, participants incur fewer out-of-pocket expenses when using designated HMO or PPO Annual Growth Rates: Employee EBRI Benefit Research Institute construction, retail sale None s, or lderly servicPopulat es. ion with Selected Sources of Health Insurance public policy researchorganization based inWashington, DC. EBRI has long been committed to the accurate employer Because employers' increasesar health epasse care d on expenditures to employees represent intheform a growing of lower cost wages of production, and salaries, many indargue ividuals that may such be providers than when they choose fee-for-service delivery Table I . Allied-Signal and Southwestern Bell are notable Employer Spending on Total Compensation, Wages and Salaries, and Health Insurance, 1960-1989 by Work Status L and Income Charactarlstlcs .J • Conclusions statistical analysis of public policy benefits issues. Through our research, we strive to contribute to the A b spending e19 aring 90 EB more puts RI/o G them fal th lup eat burden su a competitive rveyo efx growing plore disadvantage d phealth ublic att car itu and ede expenditures. sis tow hampering ardpolicy their optio individual ns for he competitiveness alth care reformand . These U.S. among companies that have implemented such plans. AT&T plansto implementa point-of-service managed Age Related Health Premiums for a Washlngton, D.C. Employer wlth 28 Employees, 1987-1991 EBRI Analysis of the March 1990 CPS • Health Insurance is a top priority for Americans.A recentEBRI/Galluppollfoundthat61 percentofworking Health Insurance Coverage is a Function of Employer Size competitiveness formulation of effective overall.and These responsible observers health, are apt welfare, to measure and retirement employer poli health cies. care In keeping expenditures with EBRI's as a surveys indicate a preference for employment based insurance versus government provision. Fifty-four care network thatwill havethe nation's largest enrollmentandwill beunique inthatthe company's unions have Americansregardhealthinsuranceastheirmostimportantemployeebenefit.Ninety-twopercentofAmericans The Year risingcostof healthinsuran Health cepremiums Insurance andthe pract Wa icge es ofan medical d Salaries underwriting Total have Compensation madeit expensive percentage What mission Initiatives of providing of corporate have objective employers profits and or to impartial and divide Insur such analysis, ersexpend undertaken our itures workby to does unit reduc not output econtain health thereby recommendations care yielding expenditur the amount e.s? of percent of respondents said the federal government should provide health coverage for all Americans. The majority of Americans consider health care to be a right. Although most prefer care with no cost, they are agreed to help write the standards andselect the bidders Employe . While rCov they erag are e a relatively new phenomenon, Nopoint- Health who said they have family physiciansrate the qualityof care they receive as excellent or good; among for smallemployersto offerhealthinsurance Total to theiremployees. There are several Tota reasons l that small Insuranc firms e health care in the price of a unit product (a car, for example). Health care costs, however, are only one Twenty-seven Employersandpercent insurers continued continueto to impl support ement government-provided variousmeasuresin health an effinsuran ortto manage ce evenhif ealth it meant carehigher costs. willing to share some costs explicitly and more costs on a hidden basis. Americans want "reform", but only of-service plans are gaining in popularity. Interstudyfound that enrollment inopen-ended HMOs, which allow 1961 9.7% 2.8% 3.0% TotalPremium Cost(Employer andEmployee) respondentswho had been hospitalizedduringthe past year, 82 percent rate the care they received as Total Private Total Direct Indirect Public Medicaid Coverage face highercosts. First,insurancecompaniesusuallycharge higherpremiumsforgrouphealthcoverage in • Cost component Introduction containment of totalinitiatives compensation, include the cost measurement sharingthrough thatcopayments, is generally used deductibles, to determine and premium productivity sharing; and taxes, reform but thatwould means bemere willing caring-providers, to pay only an additional more accessibility, $337.10 in no taxes risk of per forfeiture, year, on and average. lower More costs.than one- 1962 13.5 6.7 7.1 enrollees to opt for care from nonnetwork providers, rose 118 percent (from 476,788 enrollees to 1,041,214 AgeandType excellentorgood.Yet, largelydueto uncertaintyof coverageandcost,56 percentratetheoverallhealthcare a smallfirm because the riskis spreadover fewer participantsand frequentlybase premiumson age. In competitiveness. ha 1963 lfof respondentsTable (56 percent) 2 illustrates said 9.5 that thatemployers employershould spending be 5.2 required for totaltocompensation provide healthas benefits 5.5 a proportion at no cost of alternative deliverysystems such as health maintenanceorganizations(HMOs) and preferred provider enrollees) from July 1988 to July 1990, compared with 7 percent growth in '_)ure"HMO enrollment over the ofCoverage March1987 March 1988 March 1989 March1990 March1991 (millions) systemasfairorpoor.When askedwhatthey likedmostabouttheircare, however,thepubliccitedfactorsthat 1964 13.0 7.3 7.4 addition,becausesmallfirmsoftenhavehigherturnoverratesandseasonalunemployment, they face higher organizations corporate after-tax (PPOs); profits utilization has actually review declined techniques; since expa 1985nd and edthat coverages employer for spending serviceson or wages settings and believ salaries edto B touemployees. siness, labor, More andthan gove four rnment respondents also viewinhealth five (84 car percent) e as a right. said employers Each is searc should hingbe forrequired a reform tothat provide will The American publicvaluesthe financialprotectionprovidedby health insurance. The healthcare delivery same period. are synonymouswith highercosts. 1965 13.5 7.7 7.8 SingleCoverage aTo dm tainistrative l costswhen trying 213 to .7provide 160.4 coverage 140 for .8 these71 wo .2rkers. 69.6 Finally,be 26.2 cause the1fixed 8.5 costs 34.4 of coverage b iseamore muchcost if more employees effe sig ctive; nificant paid and de part hea terminant lt of hthe procost; mo of total tion these programs. labor respondents expenditur Costes management said than they is employ would programs be er willing spending may to pay be on voluntar health an average care. yor provide greater access at a lower cost. Yet, because they must find the money, they are in a tough position. systeminthe UnitedStateshasperformeda numberof miraclesthatwere not possible30, oreven 10,years 1966 25.4 10.1 10.8 Lessthan29 $71.36 $89.90 $140.16 $148.44 $159.74 offeringhealthbenefitsare similarforfirms ofall sizesandsmallemployersare unableto spreadthese costs of the $59.50 remayper beamonth financial (orincentive $714 per for year). participation.Whilesomeemployershavereportedsuccesswithspecific Demographics and technology both play against those who want to spend less. The data in this testimony a In 1967 go. addition People to are offering surviving plans heawith rt attacks 14.9cost and management cancersthat features, oncew 7.1 esome refatal; employers vitalorgans have arebeing begun 7.3 transplanted to sponsor Aged30-34 $89.20 $112.40 $175.20 $185.54 $199.68 • Givenpublicpolicyoptionsof "free" mandatedemployercoverageandffree" nationalhealthinsurance,both Own Work Statue over initiatives, 1968 a largeothers number remain ofemployees, dissatis 24.7 th fied, eira per ndc most apitaco cost ntinue ofproviding to search 10.0health forways insuran to control ceishigher their10.3 than increasing thatofco lars ge T-76 tsr . as into well indas ividuals other who available thendata leadshow normal that lives; per capita premature health babi care escosts are growing rise dramatically up healthy; with diseases age. The have average been corporate Aged35-39 programs that may$107.04 helpto manage health $132.40 care costs$210 (and.26 possibly boost $222.64 productivity) by $239.60 promoting proposalsreceivedmajoritysupport(56 percentand54 percent,respectively).Interestingly, 84 percent said Familyhead worker a 74.9 60.9 54.6 51.2 3.4 4.3 2.1 11.6 firms. 1969 16.0 9.8 10.2 Aged40-44 $130.82 $164.82 $256.96 $272.12 $292.86 • Health Care Costs I age Other of the workers population is increasing 48.1 and there 39.8 are growing 35.0 numbers 17.7 of people 17.3 over age 2.3 65 and0over .9 age 85. 7.2 wellness eradicated. . Such At programs thesametime, include national smoking hea cess lth expend ation,weight itures control, havebfitness, een increasing stressmanagement, at twicetherate hype ofrgeneral tension, employersshouldbe requiredto providecoverage if employeespaid part of the cost, but support for 1970 18.7 6.4 6.9 Aged45-49 $154.60 $194.80 $303.70 $321.60 $346.10 Nonworkers 27.5 15.2 11.7 2.2 9.5 8.4 5.4 5.7 Employer effortsto controltheir health care expendituresthroughmandatory contributionsto monthly Even if increased efficiency were able to reduce health care expenditures for each age group by 25 percent, price health in risk flation appraisal, foroverand a decade. back care. Thirty- While fourmillion programs Ameri to promote canslackwellness health insurance, are generally which voluntary, limitstheir several ability government-provided health insurancedeclined to 27 percent if it meant highertaxes. 1971 11.7 6.0 6.7 Aged50-54 $166.50 $209.78 $327.04 $346.34 $372.70 Children 63.2 44.4 Tab 39 le.42 0.1 39.4 11.2 10.1 9.9 In1989, 26 percentofself-employed workersand31 percentofworkersinfirmswithfewerthan25 employees premiums,copayments,increaseddeductibles,and the implementation of choicemakingbenefitplansmay health care spending wouid continue to increase as a result of changing demographics. Therefore, achieving to companies 1972 payfor health --U-Haul careInternational services. 17.2 and Baker Hughes, Inc., among 9.3 them_have established 10.1programs that U.S. expendituresonhealth care exceeded 12 percentof GrossNationalProduct(GNP) in 1990---more than Aged55-59 $166.50 $209.78 $327.04 $346.34 $372.70 Employer Spending on Health Insurance, a Wages and Salaries, and Total Compensation b in Billions of were 1973 coveredthroughtheirownemployers' 25.1 health plancompared 10.9 withnearly72 percentof 11.9 thoseworkingfor health havebegun care reform to sensitize that aims patients to reduce to themagnitude spending will of hea be extremely lth care codifficult. sts. In 1989, 48 percentof employeesin • require U. Over S. h Age eemployees alt60 hcare expenditures who smoke $1ex 66. orc 50 eed whoed are $675 significantly $209.78 billionand overweight 12 per $327.04 centor of GNP underweight in 1990. $346.34 to Providing pay more in $372.70 dthan ividua other lswith twice the proportion of GNP than in 1960 and more than that in any other industrialized country. In the last Statement Family Heada Work Status Dollars and as a Percentage of Corporate After Tax Profits, Selected Years 1974 12.1 9.0 9.7 firmswith1,000ormoreemployees.Self-employedworkersandworkersinfirmswithfewerthan25 employees medium-and large-sizedestablishments withgrouphealthcoveragewereinplansthatrequiredacontribution The employees benefit rapid promises inc toward reasein ithe nthe hea cost future lth ca ofrhealth e that costs are insurance. has asc chall omprehensive engedthe he as althose thcaretoday delivery will sys result tema in nd coin ntinued creased rapi thedcos growth ts 25 Full-ye years, ar,the U.S. health care sector has outgrown other sectors inthe economy by an average of 3 percent 1975 17.2 5.5 6.4 Family Coverage made up 49.8 percentof all uninsuredworkersin 1989 (chad 1). An additional15 percent of all uninsured to premiumforindividualcoverage ($25 per month,on average),upfrom26 percentin 1980 ($9 per month, Tof heexpenditures. never governm unemployed ent, The labor aging leade of rs 1 the ,65.4 and population emp 139.6 loyeaffe rs hc ats ve 125.9 costs been.For tryin 62.8 example, g to make Medi 63.1 the c he are altexpenditures h9.1 care system 4.5 ac m co ore unt cost 21 ed .5for of private and public health insurance coverage to the consumer. The results have been a reduction in health annually. The aging population and advances in medical technology meanthat this trend is likely to continue. 1976 22.6 10.4 11.5 Lessthan29 $177.16 na $324.66 $343.60 $369.82 full-time 155.7 133.7 121.9 60.6 61.3 7.7 3.6 18.7 workerswere infirmswithbetween25 and99 employees.Aftertakingindirectemployersponsoredcoverage on effective average). as well However, as increase evenaccess if patients and are quality. aware Although of the costs their o efforts f health may care, produce they can results, lack they much cannot of the insurance •1.97 Access perccoverage ent toofHealth GNP andin introduction Insurance 1990 and of ar4 cost e proje management ctedto reate ch chniques 3.01 per that cent have in 2000 reduced andthe 6.8providers' percent iability n 2060. Current 1977 discussions of health care 19.5 expenditures focus on perceived 10.5 problems in the system, 11.2 such as quality Aged30-34 $212.58 Before$251.72 the Committee on $389.58 Finance $412.30 $443.78 part-time 9.7 6.0 4.0 2.2 1.8 1.4 0.9 2.8 EmployerSpendingon EmployerSpendingon EmployerSpendingon and 1978 publiccoverage intoaccount, 15.2 almost28 percentof workers 12.6 infirmswith fewerthan 251employees 3.0 were in Washington formationnecessa DC small ryto employers evaluateand aremak charged e rational overpurchase $1,000 per decisions monthfor about family hea clt overage hcare treatment. for a 55 yMo earso tld to provide subsidize universal uncompensated access to health care.services at a lower overall cost. The pursuit of greater access and better and Agaccess ed35-39to health care, but $248.00 they also encompass $293.68 the notion$454.52 that the United States $481.04 is spending $5'l 1oo 7.72 much" Full-year, Health Insurance a Wages and Salaries Total Compensationb 1979 17.2 11.8 12.2 uninsuredcomparedwithonly8 percentof workersinfirmswith 1,000 ormoreemployees. In 1989, although comparedto$370 permonthfora 29year old.Costgrowthandunderwriting practiceshavecausedmany small purchase Aged40-44 decisions,infact, are $336 made .58 bythe providers na of healt $616 hcare, .84 whothemselves $652.82 are largely $70una 2.62bleto quality for better value can be successful, but not without paying for it. on health care--that health care consumption and expenditures are inherently too high. These perceptions some unemployment 15.6 8.8 7.5 3.8 3.6 2.6 2.1 4.8 Private health insuranceand publiclyfinanced health programscover mostAmericansunder age 65 and 1980 15.2 9.6 9.8 Aged45-49 $425.16 na $779.16 $824.62 $887.52 one ly mployers 22 percent toof drop the nonelderly insurance,po and pulation population livedin aging families combined whosefamily with age head rating worked will for cause a firmmore withless eros th ion anin make Part-fye ully ar informeddecisionsbecause 10.3 medicine 5.1 isan 3.4 imprecise 1.8 science.1.5 Therefore 2.7 itisnotcertain 2.2 whet3. he 1r • Public Attitudes on Health Care Percentage Percentage Percentage have led employers and government policymakers (who together account for 63 percent of total U.S. virtually 1981 all of those above age 18 65, .9 providingacce U.S. ss to Senate preventive 10.1 medicalservices. Most 10.3privatehealth Aged50-54 $478.32 na $876.56 $927.70 $998.48 Nonworker 22.4 6.9 4.1 2.7 1.4 11.8 9.7 5.0 coverageamongemployeesof smallfirms inthe future.Age rating also has the effect of making the tax 25 employees,thisgroupaccountedfor nearly40 percentof the uninsured. cost sharingcan effectively of Corporat control ethe quantityof healthcar of Corporat e services e delivered. of Corporate 1982 14.7 5.0 5.5 expenditures on health services and supplies) to make assorted proposals for reforming the financing and insuran Aged55-59 cecoverageis employment $499.56 based. Healt na h insuranceco $945.52 veragehasincreased $968.94consum$1,0 erdemand 42.84 for Year $billions After-Tax Profits $billions After-Tax Profits $billions After-Tax Profits exemption for employer-provided health Insurance relative to Income most valuable for older, low- 1983 11.0 5.7 6.0 delivery OverAge of60 health care. $499.56 na $915.52 $968.94 $1,042.84 Income Level The health puc bare licw se illrvic bees the and arbit stimulated er of whethe ther development or nothealthof ref new ormpro initc iat edures ivesare and fote cus chniques. ed proper The ly. in To creased assessco the st income workers with health Insurance. 1984 9.0 9.7 9.6 Health Insurance coverage Is related to Income and earnings HMOsgiveprovidersfinancialincentivesto providecosteffectivecare and arethereforegenerallyidentified • Footnotes of0-99% health ofc po are vert se y rviceshas further 28.3 increased 6.3 consumer 3.5 demand 1.5for healt 2h .1insuran 13 c.1 e. 12.4 9.8 1shifting 950 tides $0.7 of public opinion, 3% EBRI and The Gallup $147.2 Organization, 589% Inc. have conducted $155.4 a monthly 622% series of 1985 5.2 Hearing on 7.4 6.9 Lowerpaidworkersare lesslikelyto becoveredbyemployersponsoredhealthinsurancethanotherworkers with cost containment. A surveyby A. FosterHigginsfound that annual HMO premiumswere lower,on 1960 100-124% of poverty 3.4 13 8.6 3.8 272.8 2.8 100 13 .2 1.6 296.7 1.9 1109 .6 1 3.3 national 1986 public opinion polls on public 9.3 attitudes toward economic 6.1 security issues such as health 6.1 insurance, • Concernoverthe currentlevelandgrowthof healthspendingmaybedriveninpartbythefactthat healthcare 125-149% of poverty 8.7 4.9 3.7 1.5 2.3 1.5 1.1 2.8 1970 and are,therefore, 14.6 lesslikely35 to becoveredbyprivate 551.5 healthinsuran 1323 ce. This may 618.3 be relatedtothe 1483natureof average, than fee-for-service premiums in 1989 ($2,319 versus $2,600, respectively). These figures 1198 The7followingsection drawsfrom EBRI 9.6 Issue Brief#114, "Health Care: 7.4 What Role in the U.S. Econo7.1 my?" forthcoming. A Why ccess are toHealth healthCare insuran Expend ceand itures access Grow toing? health care services are different. Individualswithout health health care satisfaction, and the value of benefits since June 1989. As elected officials well know, the tide 150-199% of poverty 18.7 12.5 10.4 4.4 6.1 2.1 1.3 4.8 1980 expenditures 71represent .6 an 48 increasinglylarge 1372 component .0 of 916 employee compensation 1638.2 and public 1094 budgets. the employment(part-timevs.full-timeorpart-yearvs.full-year)orthe industry(workermay be ina lowpaying represent 1988 a 16.5percentincrease 10.0 from1988 forHMOs,compar 8.0 edwith20.4 percentgrowthfor 8.1 fee-for-service To In add order, ition please to incr call eas (301) ing the 338-6946 quantity . of health care services provided, the increasing ratio of elderly to working Between 1947 and 1987, the U.S. healthcare sectoroutgrew the combined other sectors of the economy by insuranceare able to access health services,but may face financialor otherbarriersthat make access to of opinion can shiftrapidly and a move Health from 'What Care do Costs youand want?" Lack toof '_N Access hatare you willing to pay?" can produce 1985 200-399% of124 poverty .3 97 74.0 62.8 1975.2 56.2 1546 25.8 30.3 2367.5 4.4 11853 .7 9.2 Health care costs, however, are only one component of total compensation. Total compensation as a 1989 8.8 indust 5.9 ryoran industrylesslikely 5.9to offerhealth 2While this istrue inthe aggregate, individual employer experience mayvary. Retiree health care costs and ageof active plans. individuals How will ever, contribute manyemployers to an increase feelthat inthe HMOs proportion haveo been f GNunsuccess P that isaccounted fulinreducing for by health costs.expen Theird rea iture so sns . he an 400% a average lthservi or more of ces of 2.more 5 pove per rty ce diffi ntc annually ultthan 75.4it.is Hea forltthose 7 h 0ca .1 rew pri ithce 64 insuran s .1rose1 c.e. 6 36. per Uninsured 9 centfaster 27.individuals 2 annually 3.1fa than ce limited non 0.6-ha ea cce lth ss ca 4.4 r to e 1989 very different 178.1 results. 103 2573.2 1491 3079.0 1784 workforce proportion as well of corpo as size raof tefirm afteall rtax affect profits the outcome hasactually . declined since 1985.Employers couldexplictlytradeoff insurance). Thirty-sixpercent of wage and includea 17 percentannualincreaseinpremiums,coupledwiththe increasedcostsassociatedwithoffering Medicare expenditures alone, which are estimated to have represented 1.9 percent of GNP in 1990, are prices,andthequantityof healthcare deliveredgrew0.9 percentfasterthanotherquantities.Morerecently, basichealthcare servicesinpartbecausetheylackprivatehealthinsuranceandareineligible for(orotherwise Source: EBRI tabulationsof U.S. Departmentof Commercedata, 1990. health expendituregrowthfor a slightreductioninwages if employeeswere willing.Such a solution is not 3Various studies indicatethat when there is a choice betweenan HMOand atraditional indemnity plan, younger, healthier (percentage within work status and income categories) salaryworkers earning lessthan $10,000 annu- Source: HMO options, EBRI tabulation including s of data the from added the U.S. administrative Department ofcosts Commerc of mu e, National ltipleplans Income and andpossible Product Acc increases ounts. inindemnity projected to increase to 3.0 percent of GNP in the year 2000 and 6.8 percent of GNP in2060. These figures from 1977to 1987,the healthcaresectoroutgrewothersectorsofthe economybyanannualaverageof 3.0 Oursurveys indicate that obtaining health insurance is a top priority for mostAmericans. A 1990 EBRI/Gallup notreceiving)publiclyfinancedhealthcare. Uninsuredindividuals maybeforcedtoseekcareforpreventable availablefor governmentsincontrollingthe costsof socialprograms. by employees may be more likelyto opt for the HMO, leaving a higher-risk group inthe indemnity plan andthereby causing alnctudes employer contributions for group health insurance, Medicare Hospital Insurance, and military medical insurance. Chart 1 ally werecovered through their employer's plan ratesassociatedwithadverseselection. 3 Employersare cuttingbackon the numberof HMO optionsthey suggest that health care financing for the elderly willcontinue to be adifficult issue for both public policymakers percent,with medicalservicespricesoutgrowingpricesinnon-healthindustriesbyanaverageof 3.0 percent, Total ailments poll found b that thatco 61 uld percent havebeen of working 1treated 00.0% Americans less 75.0 expensively % regard 65.9% w health ith access 33.3 insuran % to preventive ce 32.6 as% their m hea 12.2 ost lt % h impor servitc ant 8.7% es.employee The16. co 1% st indemnity premiums to increase. blncludes wages and salaries, health benefits, and all other non-cash benefits. WorkerswithoutHealthInsuranceAged18--64, compared with 90 percent of wage and salary offer andnegotiatingharderfor ratecutsbypressingfor increasedexperiencerating(groupratesbased on and private employers. Given the magnitude of such projections, it is not surprisingthat many employers with andthe quantityof medicalservices deliveredaveragingthe same growthas quantitiesof othergoodsand of benefit; ineffic 59 ient, percent uncompensated said they would care is not borne accept bya all job pay that ersdid inthe nothealth provide care health delive benefits. rysystem. Respondents said • 4Some These data employers are taken have primarily made from aggr an e EBRI ssivSpecial eefforts Report to cont entitled rolthe "Uninsured growth of inthe hea United lth exStates: penditThe ures Nonelderly by making by FirmSize workers earning more than $50,000 annually. Own Work Status actualhistoricalclaimsexperiencefromthegroupitself). Accordingtothe U.S. Departmentof Labor,HMO relatively large retiree populations have been at the forefront of proposals to reform the U.S. health care servicesdelivered. The relativelyrapidgrowthof pricesmaybe explainedbyfactorssuchas the growthin Gov Population ernments. without EBRI Health Analysis Healthcare Iof nsuranc the spending March e" published 1990 has CPS grown in April as1990. a proportion To order, ofplease revenues call Debbie at both Moss the fed at eral (202) lev 775-6315 el and th .e that emp their loyee employer smorecar would efulbuyers have to of pay health them car an eservi average cesthrough of $4,219 plan infadditional eaturessuin ch come as mandatory to forgo their concurrent tributions Dallas L. Salisbury Among allwageandsalaryworkers,28 percent Familyhead workera 100.0 81.3 72.9 68.3 4.6 5.8 2.9 15.1 enrollmentamongemployeeswith employer-sponsored healthplansgrewsteadilyfrom2 percentin 1980to delivery system. th 5 Because e priceof individuals medicallabor may be and covered capital by and more thethan slow one ergrowth source,in totals medi do cal not productiv add to 100 ity than percent in.non-healthsectors state and local government level. Federal government health care spending represented 15.1 percent of employer-provided Eighty to monthly -fourpremiums, percent health ofco Americans -benefits. payments, Individuals Have and dedu Health prefer ctibles. Insuran the However hidden ce costs , research of lower Indi wages catesover thatdirect these payments initiatives Otherworkers 100.0 82.8 72.8 36.8 36.0 4.7 1.9 15.0 of workers with earningsbelow $10,000 were President 17 percentin 1989. of the economy. Reasonsfor the relativelyrapid growthinthe quantityof healthcare servicesdelivered fehave dNonworkers eral produced revenues in a tem 1989, porary more100 redu than .0 ct 4ion times 55.3 in health as much expenditure 42.7 as in 1965,8.2 growth before th 34.5 but e implementation havenot 30.4reduc oed f19.8 Me actual dicare health 2 a0 n.d 8 The like In1978, premium notio approximately nthaco-payments. tbenefits88 are per only cent onof eelemen the nonelderly tof a tota po lcompe pulatio nn sa was tion co package veredby that eith an eremployee privatehea and lthinsurance employer uninsuredcomparedwith only 2.0 percent of care Children costs. 198.0 70.3 62.4 0.1 62.3 17.7 15.9 15.6 between1957 and 1977 (1.2 percent between 1957 and 1967 and 2.4 percent between 1967 and 1977) Medicaid. As a proportion of total U.S. health expenditures, the change is not nearly as significant. Federal or negotiate a publiis cly not finan new. ced Outside health program. of collectively However bargained , both contracts, the number however, and the some perce employers ntageof the claim non that eld they erly Employee Benefit Research Institute 1,000or More _ Self-Employed workers withearnings above$40,000. PPOsare a relativelynewtype ofhealthcare deliverynetworkinwhichanorganization,generallyan insurer, Why are We Concerned About the Growing Health Care Sector? includethe developmentandutilizationof new technologiesand the spreadof healthinsurance. Ongoing government expenditures on health care accounted for 9 percent of total expenditures on health services and do po Not pulation not only (and doco Am could vered erica not) by nsmake hea valu lte hexplicit tinsura he provi trade-offs ncsio ehave nof ide ns between u clined ranceover ,benefits the the majo past and ritycash are 10 years. sat compensation. isfied Inwith 1989, the84 health percent care ofthey the Family Heada Work Status contractswith a network of doctors, hospitals, and other healthcare providersto provideservicesat a In many cases, when observers discuss a sector of the economy that is flourishing, it is considered to be a • in Ecireases ghty-four inp health ercent se of rvn ic onelderly es wages Ameri and the cans ag had ingbaby health bo insura omgeneration ncein 1989, may leaving cause mor thee pri than ce and 16 pquan ercen tity t, or suppli receive. es However, in 1965, 15 they percent are not in satisfi 1967 (a efd ter with the the implem U.S. hea entation lthcare ofsystem Medicare asa and whole. Medicaid), A 1991 and EBRI 16/Ga percent lluppoll in nonelderlypopulationwas covered, leavingmore than 16 percent, or 34.4 millionpeople,without health Full-year, Employees ._88_ Familieswith very lowincomewere muchmore favorable discounted situation price schedule. . After all, growing Providers businesses enter these often agreements create desirable hoping by-to produ gen ce ts rat su eca h as higher jobs,volume revenues of of 34.4 heamillion lth carepeople servicwithout es,respe hea ctively, lth insuran to continue cecoverage. to outgrMost owthose of the of other uninsured goods (54.4 andper serv ce icnt) es.were working f1989. oundthat Statewhile and more local than healthhal spending f of Americans represent (56 ed percent) 14.4 percent rate the of U.S. state hea andlth local system revenues as fair inor 1989, poornearly , most insuran Many economists, cecoverage. however, argue that such trade-offs are made in the long run_Nhether implicitly or neverunemployed 100.0 84.4 76.1 38.0 38.1 5.5 2.7 13.0 Washington, DC likelythanthosewithhigherincometo be cov- business. PPOs may be offeredon a stand-alonebasisor as an optionwithina traditionalindemnityplan. (bo adults, th of Full- while whi time chthe generate remainder tax revenues), were 100.0nonworking capital 85.8 adu investment, lt 78.3 s (16.7 per investment 38.9 cent)or c in 39.4 hildren resear(28.7 ch 5. and 0per development, cent). 2.3Morethan an 12.0 d 85 twice of those as much who stated as a pro they portion haveo family f revenues physic asians in 19 rate 65.the Inqual terms ityo o fftotal careU.S. theyspending receiveas onexcellent health service or good s a(92 nd explicitly--and that it istherefore employees--not employers--who bear the burden of increasing health care Part-time 198.0 61.3 40.7 22.4 18.3 13.9 9.4 28.6 In the latter case, insurers usually encourage participantsto use the preferred providers by waiving foreign exports. Health care delivery industries supplied 16 April16 1991 percent of net new jobs between 1960 and 1990. percentof the uninsuredwere eitherworkersor dependentsof workers. Health insurance provision is a As 5oo-999 the baby_boom generation ages, the elderly population wil ered l grow by pub fro lim cly31.7 financed million health people programs in 1990 . More (13 supplies, however, state and local spending has changed little, representing 12 percent of total U.S. costs The percent). major in the Initadd form yofitthe ion, of lower none among id non-health erly respo pondents pulation compensation. who rechad eives bee hea Ifnthat hosp lth argument insurance italizedduring is coverage true, the itlast isfrom unlikely year privat (26 that percent e, increasing emplo oy fe all r- Full-year, dedu Employees ctiblesor _ offeringmore attractivecoinsuranceprovisions. thanPP 46 Os percent appear of topeople be gaining in families popularity: with tin- he Further, function industries of employer suchsiz ase.pharma Twenty ceuti -six cper alsce and ntof medi selfc -al employed equipment work have ersand higher 31 per than cent average of worklev ers eils n fi of rms percent of the population) to 70.1 million people (23 percent of the population in 2060), and the demand for expenditures in 1965 and 14 percent in 1989. s business res popo nsored ndents), spending group a large hea onlt health majority h plans. care (82 Nearly costs percent) per 66 per se rate is cent eroding the of care the global nonel theycompetitiveness. received derlywer as e cexcellent overRather, edeit or her good. itthrough is employees theirwho own someunemployment 100.0 56.3 48.1 24.7 23.4 16.6 13.5 31.1 come below the poverty line were covered by withfewerthan 25 employeeswere coveredbytheirownemployers'plancomparedwithnearly72 percent of U.S. investment Departon ment resear of Lc abor h and found development thatin 1989, in addition 10 percent to a opo f pa sitive rticipants balanin cem of edium-siz trade. Given edand these large faemployer cts, why health care services will increase. The elderly population accounts for a disproportionately high share of c are urrent experiencing or formeraemployer decline inor the as income a dependent they otherwise of someone mightwith have employer hadavailable coverage for non-health (table4).consumption. Otherswere Part-year 100.0 49.3 32.4 17.7 14.7 26.4 21.4 29.7 employees lOO-499 _ infirmswith1,000ormoreemployees.Self-employed public wo health rkersand insurance workersin coverage firmswithin few1989 erthan healthplanswere enrolledin PPOs, comparedwith only 1 percentin 1986. Employersare dividedintheir are Nonwo so many rker parties upset over 198 the .0 current 30.8 boom of18.2 the health12.2 care sector? 6.1 52.6 43.5 22.2 health care expenditures becausethe incidenceof sickness increases with age. In 1989,for example, elderly While the proportion of the total health care bill paid by governments has remained essentially constant since W c Regardless ov he en red asby keindividually d of wh who at the bears ypur liked the chased m burden osprivate tabout of increasing the health overa insuran ll health quality ce(9 care of per the cexpenditures, ent) care and they publi received c in lyfinan the from aggregate, cedtheir health physicians, progra employer ms 25 employeesmadeup49.9 percentof alluninsured workersin1989.An additional15 percentof alluninsured responsesto PPO effectivenessat controllingcosts. A. FosterHiggins& Co., Inc.foundthat 55 percentof Employees_ Under 25 compared with only 4 percent of those in fami- individuals (age 65 and over) averaged 9.1 annual physician contacts, almost twice as many as individuals the implementation of Medicare and Medicaid, the share of public budgets consumed by health care continues spending respondents (12 percent). on 5 health cited factors care represents that are synonymous less than 6 percent with higher of total cost labor such costs. as attention Therefore, and changes care (12 in employer percent), Income Level workerswere infirmswith25--99 employees.Health insurance provision is a function of income. Thirty- employerssurveyedsaidtheywereunableto Emeasure mployees theefflies ectwith ofPPOs income onabove medical 400 copercent sts,whil oe fthe 24 p pove ercent rty Concerns over the current level and growth of health spending may be driven in part by employers' perception between the ages of 25 and 44. Likewise, patients age 75 and older averaged 4,098 days of hospital care to grow because public budgets have remained relatively fixed as a proportion of GNP while health care friendliness health expenditures (11 percent), haveand lessavailability impact on the (10 growth percent). rate When of total asked compensation what they liked than least do changes about their in employer care, no 0-98% of poverty 100.0 22.4 12.5 5.2 7.3 46.5 43.8 34.8 line. six percent of wage and salary workers earningless than $10,000 annuallywere covered throughtheir saidthey reducedcosts,17 percentsaidthere was no effect, and4 percentsaidPPOs increasedmedical that health care expenditures represent an increasingly large component of employee compensation (5.8 per 1,000 persons per year, more than seven times as many days as patients between the ages of 35 and expenditures have increased. The increase in the proportion of public budgets consumed by health care expendituresonwages Most singleof factor thereceived Uninsured special and Are salaries(which emphasis, Working Adults butrepresent they were84percent factors thatofwages generally and reduce salaries) cost (table including 3).2waiting Moreover, time 100-124% of poverty 100.0 43.7 32.2 13.3 18.8 22,4 18.5 38.3 employer'splan comparedwith90 percent ofthose earningmorethan $50,000 annually.Sixty percent of the costs. percent in 1989 co 25-99 mpared with 1.5 percent in 1965), federal and state governments' perception that Medicare 44. 125-149 Table %one of podemonstrates verty the 100.0 age rated 55.individual 5 42.4 andfamily 16.6 premiums 25.8 for group 16.7 health coverage 12.4 for 32.2 an expenses (8 percent), suggests insufficient thattime increases spent in bypublic physician health with sppatient ending (6 arepercent), now coming and limited at the expense availability of oth (4 percent) er public. since In1989, labor most productivity oftheuninsur generally ed were measures workingadu output lts(54.6 in terms perc of ent) total while labor the costs, remainderwere total compensation nonworkseems ingadults to uninsured were in families with income under 200 percent of the poverty level. 150-199% of pov Employees erty 100.0 67.2 55.8 The 23.4uninsured 32.4are concentrated 11.2 disproportion- 6.9 25.7 and Medicaid represent a growing proportion of public budgets (29.5 percent in 1989 compared with 11 employer whose firm size is 28 inWashington, D.C.between 1987 and 1991. Itclearly shows the implications expend In addition ituresto such givingas high infrastructure ratings to their and personal education health (human care, capit respondents al). This may also repr expressed esent a more satisfaction likely thre with at be (16a .7more perce relevant nt)or children measure (28.7 for issues percent). of competitiveness More than 85 percent and profitability. of the uninsuredwere either workers or The views expressed in this statement are solely those of the author and should not be attributed to the 200-399% of poverty 100.0 84.8 75.9 34.9 41.0 6.0 2.2 12.5 ately in low-income families. In 1989, 60 per- Fromthe participant'sperspective,the relativeattractiveness of the varioustypesofplansoftendepends on percent in 1965), and individuals' perception that a greater proportion of their disposable income is going of their population health insurance aging. benefits. to American competitiveness than employer contributions to health expenditures. dependentsof workers. Eventhoughonly 12percentoffull-yearfull-timeworkersandtheirdependentswere • The 400% un orinsur moreed of poverty do generally100.0 have acce93.0 ss to health 85.1care they 49.0 do not 36.1 readily have 4.1 access 0.7 to financing. 5.8 cent of the uninsured were in families with Employee Benefit Research Institute, its officers, trustees, sponsors, or other staff. The Employee Benefit thevaluethe individualassignstofreedomofchoiceintheselectionofproviders.SinceAmericanshavelong toward the purchase of health insurance and health care services (5.1 percent in 1989 compared with 4.2 uninsuredin 1989, they represented54 percent of the uninsuredbecause the majorityof the workersare The result is significantcost shiftingto pay for uncompensatedcare by those who do pay for healthcare Research Institute is a nonprofit, nonpartisan public policy research organization. beenaccustomed to fee-for-servicemedicine,manyplacea highvalueonfreedomofchoice. Forthisreason, 18.8Million Uninsured Workers Aged 18--64 income under 200 percent of the povertylevel percent in 1965). Indeed, health expenditures do represent a growing proportion of compensation, Individuals. Despite the fact that more employers today require premium contributions for group plans than employed a Familyhead core nsistently fersto the on family afull member -time wi basis. ththe highest Nonwo report rkers ed were earnings more in 1 likely 989. In to families beuninsured of nonwork than ers, all the other familyworki head ing s services. The greatest burdenhitssmall employersthat providehealth insurance.Communityrating and ($24,200fora familyoffourin1989). Generally, someinsurershavefoundthatplansthatpreservethe ultimaterighttochoosewhilegivingpowerfulincentives disposable income, and public budgets. b_efamilymemberwiththehighestreportedpersonalincome. they did 10 years ago, and deductibles are higher and copayments more common, individual health spending groups--nearly 21 percentdid nothave any healthinsurancein 1989. compositegroupratingcouldhelplowercostsforsmallemployers,butcostshifting dueto uncompensatedcare as income increases, the percentage of the Totalsdo no add to 100 percentbecauseindividualsmay havecoveragefTommorethanone source. to useanidentifiablegroupof providersare moresuccessfulinthe market. Theseplansallowtheemployee as a share of adjusted personal income has increased by only 0.9 percentage points since 1965. Moreover, wouldonlybe solvedbyuniversalaccesstofinancng.Forsmall businesses, the "problem" might bethat populationwithouthealthinsurancedecreases. EMPLOYEE BENEFIT RESEARCH INSTITUTE individual households pay a considerably smaller proportion of total U.S. health spending than they did in they would pay more for the "reform" than they now pay for health Insurance. 2121 K Street, NW / Suite 600 / Washington, DC 20037-2121 9 10 5 Telephone 202-659-0670 FAX 202-775-6312