Summary Points from June 24, 2003 Background Paper
The Status of New Jersey's Employer-Sponsored Health Insurance Coverage |
GENERAL COST TRENDS
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Employers in New Jersey and nationwide are struggling with double-digit annual premium increases. Premiums rose 8.3 percent in 2000 and 11.0 percent in 2001, a sharp reversal from the low rates of growth from 1994 to 1998. In 2002, the cost of employee-only coverage, nationwide, averaged $3,392 annually, up from $3,008 in 2001. In New Jersey, the numbers grew at even higher rates: average employer premium costs in New Jersey have increased 35 percent in the last three years. |
SPECIAL ISSUES FOR SMALL BUSINESSES
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Rising premiums and a weak economy are generating questions about the erosion of health insurance coverage throughout the business world. But those problems are especially acute for the more than 46 million Americans who work for small firms. Coverage generally costs more for firms with fewer than 50 workers. Of covered employees, low-income workers - many of whom are concentrated in small businesses - were the most likely to experience these reduced benefits and increased health coverage costs. Insurance premiums rose rapidly for all firms in 2001 and 2002, but small firms were hit particularly hard, with an average hike in New Jersey of 16 percent in 2001. |
THE WORKING UNINSURED
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There is a clear-cut relationship between the uninsured and the nation's workforce: the uninsured represent 14.6 percent of workers in America. More than 80 percent of the uninsured live in families headed by a full-time worker. The National Federation of Independent Businesses estimates that 60 percent of the over 41 million Americans who lack medical insurance are members of families who own or work for small businesses. |
NEW JERSEY:
INSURANCE MARKET REFORMS
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New Jersey has long been viewed as a leader in promoting access to affordable health insurance coverage for its residents. The state is good on "guaranteed issue," "guaranteed renewal," limitations on pre-existing conditions, and community rating laws prohibiting the use of past claims in setting premiums for small groups. New Jersey has repeatedly exhibited its commitment to citizen insurance coverage by:
- instituting, in the 1990s, the most comprehensive insurance reforms in the country for
the individual-purchase and small-group insurance markets.
- legally guaranteeing (1993 Individual Health Coverage Program (IHC) law) access to
coverage for those who do not have employer-based group insurance or Medicare.
- permitting the deduction of insurance premiums paid by self-employed workers.
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INDIVIDUAL & SMALL EMPLOYER HEALTH BENEFITS PROGRAMS
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As part of New Jersey's health insurance market reforms, the IHC Program has been in operation in New Jersey since August 1993, and the Small Employer Health (SEH) Benefits program went into effect in January 1994. Enrollment census as of 2001 in the IHC program stood at 83,896 and for the SEH program at 875,306. Although current enrollment for the SEH program shows an increase from the 779,299 persons covered in the 4th quarter of 1995, current enrollment for the individual health coverage program declined from a high of 186,130 in the 4th quarter of 1995. |
EMPLOYERS
RESPOND
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Of the employers who amended their benefits plans between 2001 and 2002, the most common change was to ask employees to pay more toward their health care services. In a study published in January of this year, the Employee Benefit Research Institute reported that, in 2001-2002:
- Sixty-five percent of employers who made changes reported increasing deductibles and co-pays.
- About 30 percent increased the share employees were required to pay for coverage and also cut back on the scope of the benefits offered.
- 35 percent switched insurers, seeking a better deal.
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Specific Savings
Firms sought to minimize their liability cost sharing for premium increases by:
- increasing deductibles;
- mandating co-payments;
- instituting co-insurance (requiring employees to pay part of the cost of the premium);
- instituting three-tier prescription drug benefit standards with employees required to pay progressively more for generic, non-preferred brand name, and preferred brand name drugs.
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EMPLOYERS'
COST STRATEGIES:
SHIFTING COSTS AND TIERED BENEFITS
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Higher Employee Premium Contributions
To cut back on premium costs, employers tried a number of strategies. Some employers:
- set their premium contributions at a fixed percentage, thus transferring some of the
burden of premium increases to employees;
- decreased the percentage they contributed to the premium;
- abandoned the fixed percentage approach in favor of making a fixed dollar contribution,
leaving employees responsible for any premium costs above that amount;
- reduced cost by dropping all contributions for dependent coverage (an action that also
creates the potential for "adverse selection," since higher costs tend to deter healthier
families who need the services less from enrolling their dependents and paying the
higher premium);
- replaced fixed dollar co-payments with a percentage coinsurance, increasing workers'
costs even more.
Changing Plans and Carriers
Some employers:
- moved from preferred provider plans to point-of-service plans, or from PPOs to HMOs;
- haphazardly switched carriers, shopping for small savings advantages.
Offering Fewer Services and Setting Tighter Eligibility Rules
Some employers:
- trimmed certain previously covered services from their plans - for instance, eliminating
coverage for fertility treatment, or reducing coverage for mental illnesses;
- tightened program eligibility requirements, adding, for instance, stricter rules for participation by spouses and dependents;
- specified waiting periods before a new employee would be eligible for coverage;
- encouraged employees to enroll in their spouse's health plan;
- offered cash-back payments to workers who declined enrollment.
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EXTREME
COST-SAVINGS MEASURES
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A few employers explored selected extreme cost-saving measures that included:
- Cutting Retiree Health Care Eligibility
- Going to Defined Contributions
- Dropping Coverage Entirely
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CURRENT FEDERAL PROPOSALS
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The Bush Administration supports several strategies, currently being debated by Congress:
- Medical Savings Accounts
- Health Credits
- Tax credits of $1,000 per individual and $2,650 per family to pay for health premiums
- Patients' Bill of Rights
- Association Health Plans
- Restructuring Medicare/Medicaid
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