Employers Shift Rising Health Care Costs to Workers: No Long-term Solution in Sight

Employers were shifting a growing share of rising health care costs to workers through higher deductibles, copayments, and premium contributions, but this approach offered no long-term solution to the underlying drivers of health care spending growth, according to research from the Center for Studying Health System Change (HSC). While cost shifting provided employers with short-term relief from premium increases, it did nothing to address the fundamental factors pushing health care costs higher -- including provider payment rates, utilization patterns, and the diffusion of new medical technology.

Accelerating Cost Shifting

Employers had responded to several years of double-digit premium increases by asking workers to bear a larger portion of health care costs. This took multiple forms: higher employee premium contributions, increased deductibles and copayments, and the growing adoption of coinsurance arrangements that exposed workers to a percentage of total costs rather than fixed dollar amounts. Some employers were also reducing their contributions to dependent coverage, making family insurance significantly more expensive for workers.

The acceleration of cost shifting was driven by competitive pressures that prevented employers from simply absorbing premium increases. In a global economy, many employers viewed health care costs as a competitive burden they could not sustain. Smaller employers, with less bargaining power and narrower profit margins, were particularly aggressive in shifting costs or dropping coverage entirely.

Effects on Workers and Families

The impact of cost shifting fell unevenly across the workforce. Lower-wage workers, who spent a larger share of their income on health coverage, were most affected. Some workers declined employer-sponsored coverage because the premium contribution was unaffordable, effectively joining the ranks of the uninsured despite being employed. Others enrolled but faced financial hardship when significant medical expenses consumed a substantial portion of family income through deductibles and coinsurance.

Research showed that higher out-of-pocket costs led some workers to delay or forgo needed care, including preventive services and chronic disease management that could prevent more costly medical problems. This pattern raised concerns that cost shifting might reduce health care spending in the short term while increasing costs over the longer term as untreated conditions worsened.

No Substitute for Systemic Reform

Cost shifting from employers to workers was inherently limited as a cost-control strategy. Once workers bore as much cost as they could absorb, employers would face the same underlying cost pressures that had prompted the shifting in the first place. Addressing the root causes of health care spending growth -- including provider market consolidation, fee-for-service payment incentives, administrative complexity, and the pricing of new technologies -- required systemic reforms beyond the reach of individual employer-worker arrangements.

The research underscored the need for policy approaches that addressed the supply side of health care costs while protecting workers from financial exposure that undermined their access to needed care. Without such approaches, the cost-shifting cycle would continue to strain workers and families without solving the affordability crisis facing the American health care system.

Sources and Further Reading

Based on HSC research including the Community Tracking Study Household Survey and site visits to 12 nationally representative metropolitan communities.