Health insurance is reemerging as an issue for employers

LEE -The cost of providing health insurance to employees is remerging as an issue for Massachusetts employers after several years of price stability.

A survey by Associated Industries of Massachusetts, where I serve as board chair, found that state companies saw their health-insurance premiums increase an average of 7.2 percent in 2022, up from 5.9 percent in 2021 and from 6.2 percent in 2020. Average premiums have increased another 7.6 percent statewide this year, according to healthinsurance.org Here's the problem. Rising health-insurance premiums erode the ability of employers to provide the kind of health insurance we want to offer - affordable plans that allow employees to care for themselves and their families. In the face of significant inflationary pressures as well as rising labor costs, it is difficult for employers to fully absorb the increasing health care premiums. Employers are making the difficult choice to maintain the same plan but shift more of the premium costs onto employees, or select lower cost plans with higher deductibles and co-pays. The AIM survey finds that while employer contributions to health-insurance premiums have remained steady, some 20 percent of companies plan to increase co-pays and deductibles for employees in 2023.

Cost-sharing within private health-insurance plans increased by 16.9 percent in 2021, according to the Center for Health Information and Analysis, meaning that workers and employers both ended up paying more for coverage. Enrollment in high deductible health plans grew by 4.1 percent, which now accounts for 42.7 percent of total enrollments in the private commercial market. Health care and health insurance has always been somewhat of a paradox for Massachusetts, which passed a first-in-the-nation health-care reform law in 2006 and a cutting-edge health-care cost-containment law in 2012. While the commonwealth is a national leader in innovative and high-quality health care, it is also among the states with the highest healthcare spending.

The average cost of health insurance in the state of Massachusetts is $8,068 per person based on the most recently published data. For a family of four, that's over $32,000. This is $1,087 per person above the national average for health insurance coverage. The high cost of health insurance is yet another force working against the state's efforts to stem population loss and attract workers.

The problem of rising health care insurance costs is most acute for small businesses. Businesses with less than 50 employees purchase their insurance in the small business market, which was merged with the individual insurance market in Massachusetts in 2006. This policy decision was made to make individual coverage more affordable, but it had the effect of small businesses subsidizing individual insurance coverage, and paying more than they would have to in a separate market. From 2019 through 2021, small group insurance premiums in Massachusetts have increased 5.3 percent annually compared to 3.2 percent a year for large businesses. Workers at smaller businesses also tend to have health plans with disproportionately higher deductibles, meaning they must pay more upfront and out of pocket before certain benefits kick in.

Berkshire County has many businesses with less than 50 employees. Based on the 2017 census, Pittsfield ranked 13th among small metro areas across the U.S. that have the most businesses with 50 or fewer employees. These businesses need to be able to offer competitive benefits to attract workers in this tight labor market. Increasing insurance premiums are putting them at a disadvantage as they compete for talent against larger companies.

What is driving the higher insurance premium costs? The increases reflect a range of factors, including increased labor costs in the employee-strapped health care field, persistent inflation, rising prices for prescription drugs and people returning to routine health appointments and elective procedures after putting off surgeries and medical appointments during COVID-19.

Total health-care expenditures in Massachusetts rose 9.0 percent in 2021, the most recent year for which information is available. Spending had dropped by 2.4 percent in 2020, but the decline was the result of the reduction in use of care due to the COVID-19 pandemic, not a reduction in the amount paid for a given service. Commercial prices not only grew in 2020 but increased at an aggregate rate of 2.7 percent, higher than in previous years.

The long-term solution to rising health insurance rates is complex and multi-faceted. It includes policy elements such as transitioning to an episode-based payment model for large employers, de-merging the individual small business insurance marketplace, deploying technology to reduce administrative complexity, increasing flexibility with licensure to allow cross-state behavioral health telehealth visits, managing care in the community and allowing patients access to the right care setting, and requiring companies involved in the drug supply chain to undergo the same transparency as the rest of the health care system.

Without such comprehensive reforms, employers and employees will be left to divvy up an ever-larger expense in a zero-sum game in which no one is the winner.

Patricia Begrowicz, the president and co-owner of Onyx Specialty Papers in Lee, is chair of the board of directors of Associated Industries of Massachusetts.