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Premiums Rise Faster than Wages

The cost of health insurance premiums is rising faster than wages.

Between 2001 and 2007, health insurance premiums rose 78% while earnings rose 19% (Kaiser, 2008). Household income rose 1.2% between 2000 and 2007 (Bernstein, 2008). Inflation rose 17% during this time (Kaiser, 2008). The rise in the cost of insurance is related to the rise in healthcare costs generally, and it affects employers, employees, and people who buy their insurance on their own. Employers facing rising premium costs generally respond to rising health insurance costs in one or more of these ways:

  • They spend more on health insurance by spending less on wages (Kaiser, 2008).
  • They reduce their costs by raising the employees’ contributions to the cost of the premium.
  • They choose a cheaper health insurance plan that has fewer services or higher cost of care to the patient (co-pays, coinsurance, and deductibles) (Arnst, 2009). (For more information on who pays for employer-based coverage, click here.)

When employees’ health insurance premiums rise, they are less likely to enroll in the coverage offered by their employers (Cutler, 2002).

People with private insurance that is not through an employer are also affected. People with self-purchased health insurance policies saw premium increases of 17.8% between 2002 and 2005 (Bernard and Banthin, 2008), and many will see much larger increases in 2009-2010 (Appleby, 2009).

Sources

Bernstein, Jared. 2008. Median Income Rose as Did Poverty in 2007; 2000s Have Been Extremely Weak for Living Standards of Most Households. Economic Policy Institute, August 26. www.epi.org/publications/entry/webfeatures_econindicators_income_20080826.

Kaiser Family Foundation. 2008. Wages and Benefits: A Long-Term View. February. www.kff.org/insurance/snapshot/chcm012808oth.cfm.

Arnst, Catherine. 2009. Survey: Company Health-Care Costs to Rise 9% in 2010. Business Week, June 18. www.businessweek.com/bwdaily/dnflash/content/jun2009/db20090618_304565.htm.

Cutler, David M. 2002. Employee Costs and the Decline in Health Insurance Coverage. NBER Working Paper 9036. www.nber.org/papers/w9036.

Bernard, Didem and Jessica Banthin. Premiums in the Private Health Insurance Market for Policyholders under Age 65: 2002 and 2005. 2008. MEPS Statistical Brief #202. www.meps.ahrq.gov/mepsweb/data_files/publications/st202/stat202.pdf.

Appleby, Julie. 2009. Costs for Individual Health Plans Soar. USA Today, February 20. www.usatoday.com/news/health/2009-02-19-health-coverage_N.htm.

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