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Healthcare Costs Affect Businesses

Gina-Marie Cheeseman
| Wednesday November 26th, 2008 | 2 Comments

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Over the last five years, health insurance premiums for employers increased almost five times faster than inflation, and four times faster than wage growth, according to a study by the National Coalition on Healthcare (NCHC) released last February. Premiums are rising at double digit rates which makes it harder for businesses to provide health insurance coverage for employees. “It is becoming clear to many companies that at current rates, their health insurance expenses will out pace their profits,” the NCHC study stated.
Between 2000 and 2007, premiums for businesses increased almost 100 percent, but wages increased only 24 percent. The NCHC study listed how the rising cost of premiums affects businesses, including reducing their capacity to grow. Higher premiums also are a “drag on economic growth” because the job growth rate slows and wages are suppressed.


The lack of universal healthcare coverage also affects businesses. Productivity decreases for businesses that can’t afford to provide their employees with coverage. The HR Policy Association puts the annual cost of decreased productivity between $87 billion and $126 billion.
Employer sponsored insurance is the leading source of health insurance in the U.S., covering about 158 million, according to a recent survey by the Kaiser Family Foundation. When asked what changes they will make in health plans for the next year, 40 percent of employers surveyed said they are or are very likely to increase workers contributions. Forty-one percent said they will increase deductible amounts, 45 percent will increase office visit cost sharing, and 41 percent will increase the amount employees will pay for prescription drugs.
The Urban Institute released a study titled Making Healthcare Reform Work for Small Businesses in September. The study showed that small businesses are more affected by rising health insurance premiums than large businesses. In 2006, only 35 percent of businesses with less than 10 workers offered health insurance to employees, but 98 percent with 1,000 or more workers did. According to the study, small businesses pay “significantly more” for the same health benefits than large businesses do.
The tipping point
The Employee Benefit Research Institute’s study, The Future of Employment-Based Health Benefits concluded that employers “have clearly passed the tipping point on retiree health benefits, which are in a sharp decline.” The percentage of businesses with less than 200 employees that offered retiree health benefits decreased from 68 percent in 2000 to 59 percent in 2007.
The National Federation of Independent Business believes that the “current system of health insurance and health care is financially unsustainable and threatens the health and financial security of the American people.” Small business owners and their employees are “especially vulnerable to the weaknesses of our current system.”
The National Association of Professional Employer Organization (NAPEO) surveyed 365 of its small business members, and found that almost one in 10 said they would drop health benefits in 2008 or were not sure of continuing coverage due to costs. The members said their premiums increased by as much as 10 percent in 2007.
“Soaring health costs hit small businesses especially hard,” said Milan P. Yager, NAPEO executive vice president.
Wal-Mart, Labor Union agree on extending healthcare coverage
In 2007, the Wal-Mart CEO Lee Scott took part with the Service Employees International Union President Andrew Stern in a campaign called “Better Health Care Together.” The goal of the partnership is to extend healthcare coverage to all Americans by 2012.
“Wal-Mart is committed to high quality, affordable, and accessible healthcare,” said Scott. “But our current system hurts America’s competitiveness and leaves too many people uninsured.”
“CEO Lee Scott and I agree: We need ‘real solutions’ for America’s broken health care system, and that ‘every day we do not work together to solve this challenge is a day that our country becomes less competitive in the global economy,” Stern said.
“Clearly, we’re going to start moving away from employer provided health insurance,” said Richard Brown, director of the UCLA Center for Health Policy Research. “Employers are seriously looking for a way to get out of this.”
Coming Friday: Will Obama Fix the U.S. Healthcare System?


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  • jason

    The insurance companies are out of control with their rates. We need to look at their profits and install a governing body to mandate fair health care coverage at a reasonable cost. I am in the health care field and the reimbursement that i recieve is ridiculous and the co-pays/deductibles patient have are out of control. The insurance companies are the problem and while i do not believe universal health care is the answer I do believe that there needs to be a regulatory body to make sure consumers are getting fair coverage for the cost.

  • jason

    The insurance companies are out of control with their rates. We need to look at their profits and install a governing body to mandate fair health care coverage at a reasonable cost. I am in the health care field and the reimbursement that i recieve is ridiculous and the co-pays/deductibles patient have are out of control. The insurance companies are the problem and while i do not believe universal health care is the answer I do believe that there needs to be a regulatory body to make sure consumers are getting fair coverage for the cost.