Rising Health Care Costs Drag Down Economic Growth

Nearly everyone is feeling the pain of health care costs that are high, and rising. According to a new report from The Commonwealth Fund, between 2003 and 2010, the cost employers paid for family coverage rose 50% to an average of $13,871 a year -- and employees' share of that tab increased 63%. In the process, health care has gobbled up an enormous amount of capital that employers could have used for salary or wage increases, benefits, or hiring new workers.

It's a problem has become pervasive across the nation in a way that it wasn't before. Back in 2003, 13 states had average premiums that were under 14% of their average incomes. Today, that number has dropped to zero. In 2003, only one state had an average annual premium above 20% of average household income.Today, there are 23, home to 62% of the nation's population. And with higher deductibles, those premiums pay for less in terms of financial protection than they did at the start of the decade.

"No matter where you live in the United States, health insurance is expensive," says Cathy Schoen, senior vice president at The Commonwealth Fund, a private foundation that seeks to improve poor people's access to quality health care.

There's not much to stop the speeding train either. In fact, if insurance premiums for employer-sponsored health plans in each state keep growing at the rate they have during the last seven years, by 2020, the average premium could increase to $23,793, a 72% increase, according to The Commonwealth Fund.

Widespread Impact

Hardest hit were New York, Rhode Island, Connecticut, Florida, New Hampshire and the District of Columbia, where the average family premiums were about 25% above the lowest cost states such as Idaho, Arkansas, Hawaii, Montana and Alabama. Employer-based health insurance costs have risen three times faster than wages since the start of the decade.

There are, however, ways to save on health care, both employer-offered and individual plans. And, while the Affordable Care Act is no panacea for the health care system, it is a move in the right direction, says Schoen, who is optimistic about the law's new oversight of private insurance, which has as a goal lowering administrative overhead and returning the excess to customers in rebates, which takes effect next year. Furthermore, states will review premium increases of 10% or more, and other payment reforms could slow the rate of growth by 1% a year or more if reforms spread and private insurers start to deliver better value -- including lower overhead, she says.

The bottom line: Small changes could bring big rewards. Says Schoen, "The savings would be substantial -- $2,000 to $3,000 a year per family that could be redirected to wages or jobs."