February 12, 2013

How Your Health Insurance Bill Can Grow Much Faster Than Health Insurance Costs

If you haven't had your health insurance premiums increase a lot then then you're in a minority. However the increase in the bill you pay may not have much to do with the increase in the health insurance cost. Its actually quite common and easy for your own health insurance premiums to go up at a very fast rate while the cost of your insurance has only grown marginally.

The reason for this is that employees normally only pay a small fraction of the actual premium costs.   Then when the premium increases the employer may shift the bulk of that price increase to the employees.

Here is a simple example to illustrate :

Lets say your health insurance ran you $133 a month in 2012 and now in 2013 they jacked it up to $147 a month.   Thats a 10% increase.   Your costs went up 10%.

However your employer actually pays 80% of the premium.   In 2012 the actual total premium was $8,000 and your employer paid $6,400.   Then in 2013 when the rates went up 2% to $8,160 they decided to make you pay the entire increase and passed the extra $160 on to you.   In 2013 the employer pays $6,400 and you pay $1,760.

Now that example is a bit extreme and most employers don't dump the entire increase on the employees in a given year.   So this isn't really what I'd call typical but it certainly can and does happen.

As the cost of health insurance has gone up over the years the employers have pushed more of the increased premiums over to the employees.   This results in high percentage increases for the employee premiums.   Most employees see this as a 10% increase and then assume that means that the cost of health insurance rose 10% while it doesn't mean that at all.  

Over the past decade or two on the average the workers cost has gone up a bit faster than the employer share.   Between 2007 and 2012 the worker premium for family coverage at large firms went from $2,831 to $3,926   Thats a total increase of 39% and annual growth of 6.75%.   However the cumulative increase in premiums from 2007 to 2012 was up only 30%. or just annual growth of 5.4%.

As you can see in this chart the total increase in premiums from 1999 to 2012 was up 172% while the workers premium grew by 180%.  Thats not a huge difference but if you look at that chart you can see that the total premium and worker share grew mostly at the same rate till about 2009.  Then from 2009 to 2012 the worker share grew a lot faster and in fact 2009 shows a large leap in the worker share.

This isn't exactly earth shaking revelation to many as I assume many people are  well aware that their employers are shifting more of the costs or at least the increases to the workers.   However I think a lot of people simply don't know or just don't think about how their portion of health insurance costs are usually small compared to what the employers pay.  Plus it does take a little basic algebra level math to see how your increase in cost for your smaller fraction isn't  the same as the increase in costs for the entire amount. 
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1 comment:

  1. I did it the old fashioned way - got married and say the premiums increase. However, my employer pays the premiums, they were just one of the enlightened firms to show to cost of insurance... and they've been doing it a while.

    HSA + HDHP. The HSA was confusing with HR since I got married in the summer, but I got them to withhold to the higher limit (it's a cafeteria plan).

    Anyway, any prediction of costs over the next 3 years, 2014-2016? I'm waiting with bated breath and my prediction is pessimistic, but obviously I'd be happy with a drop.

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