Employer-Sponsored Health Insurance:

Pressing Problems, Incremental Changes

January/February 2002
Health Affairs, Vol. 21, No. 1
Sally Trude, Jon B. Christianson, Cara S. Lesser, Carolyn A. Watts, Andrea Staiti

espite large premium increases, employers made only modest changes to health benefits in the past two years. By increasing copayments and deductibles and changing their pharmacy benefits, employers shifted costs to those who use services. Employers recognize these changes as short-term fixes, but most have not developed strategies for the future. Although interested in "defined-contribution" benefits, employers do not agree about what this entails and have no plans for moving to defined contributions in the near future. While dramatic changes in health benefits are unlikely in the short term, policy makers may want to watch for future erosions in health coverage.

With health care costs on the rise again, employers are struggling to hold premium increases to single digits. Premiums rose 8.3 percent in 2000 and 11.0 percent in 2001, a sharp reversal from the low rates of growth form 1994 to 1998. These increases are partly attributable to employers' choosing looser managed care products in response to the managed care backlash, combined with rising corporate profits and tightening labor market. At the same time, health spending has begun to rise, and health plans, to restore profitability, have abandoned premium-cutting strategies to gain market share. Employers now see a return of the double-digit premium increases of the late 1980s and early 1990s.

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