Employer-Based Health Insurance:

High Costs, Wide Variation Threaten System

HRD-92-125: Published: Sep 22, 1992. Publicly Released: Oct 28, 1992.

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Pursuant to a congressional request, GAO provided information on business health insurance cost burdens and employers that are particularly vulnerable to the escalation of health insurance costs, focusing on: (1) various employers' health benefits costs; and (2) factors contributing to the cost differences among employers.

GAO found that: (1) from 1987 to 1990, business health spending has grown at a rate of 12 percent annually, or more than twice the rate of inflation, and health insurance premiums grew an average of 16 percent annually, increasing from $2000 to $3,600 per employee; (2) increases in business health expenditures and declines in employees' real wages have made health benefits a substitute for cash wages; (3) in 1991, 8 percent of firms paid less than $2000 per covered employee, while 13 percent paid more than $5000 per employee; (4) medium and large firms' average health costs total 10.8 percent of their payrolls; (5) fragmentations in the insurance market have caused businesses to acquire self-insurance plans, and over half of U.S. employees are covered by those plans; (6) characteristics including work-force health-risk attributes, scope and financing of the benefit plan, the firms size, location, and line of business explain variations in firms' high health costs; (7) firms requiring lower employee contributions, offering more supplemental benefits, and having more married and older employees have higher health costs; (8) small firms are subject to higher health insurance rates because of added regulatory and premium tax costs, higher health benefit tax rates, a lack of bargaining power, and higher premium increase rates; (9) geographic location has a significant impact on business health benefits costs, and health care markets are influenced by personal income, available health care resources, and the population's health status; (10) firms attempt to reduce costs by changing benefit plans, which includes shifting more cost to employees, cost-sharing incentives, self-insurance, cutbacks in retiree benefits, and eliminating coverage; and (12) options for firms unwilling or unable to change their benefit plans include limiting coverage, hiring lower-risk employees, replacing older workers, replacing young female workers, and replacing full-time employees with part-time contingent workers.

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