Quote-of-the-day mailing list
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Subject: qotd: Why are health insurance premiums higher for public
Date: Fri, 28 Jun 2013 04:10:04 -0700
From: Don McCanne <email@example.com>
To: Quote-of-the-Day <firstname.lastname@example.org>
2013 Annual Research Meeting
June 23-25, 2013
Why are Health Insurance Premiums So Much Higher for Public Employers
Compared to Private Employers?
Co-author: Tom Buchmueller
Presenter: Alice Zawacki, Ph.D., Senior Economist, Center for Economic
Studies, Bureau of the Census
The Great Recession of 2007-2009, which took a major toll on the U.S.
economy, was especially hard on state and local governments. The fiscal
crises have led to increased scrutiny of public sector compensation
practices and renewed debate about how the compensation of public sector
employees compares to that of private sector workers. Employer-sponsored
health insurance represents a substantial share of non-wage compensation
and rising health care costs are a pressing concern for both public and
private employers. According to data from the Medical Expenditure Panel
Survey-Insurance Component (MEPS-IC), average health insurance premiums
in the late 1990s until 2000 were similar for public and private
employers. In subsequent years, public sector premiums grew more than
private sector premiums. In 2000, premiums for large public sector plans
were $705 or 22% higher than premiums for large private sector plans. By
2009, this difference grew to $1580 or 35%. This paper examines changes
in employee demographics, plan type and plan benefit design with the
goal of explaining why premiums in the private and public sectors have
diverged over the past decade.
To study the premium differences between sectors, we conduct regression
analyses on plan-level data from the 1996-2009 MEPS-IC augmented with
additional worker demographic characteristics we impute from the 2000
Decennial Census and the 2009 American Community Survey. Population
Studied: Health insurance plans offered by state and local governments
and private sector employers with at least 100 employees.
Early work shows that over 40 percent of the premium difference for all
plans in 2009 is attributable to demographic factors: public workers are
older, more likely to be female and are more educated than workers in
the private sector. Some of the gap is also explained by the fact that
cost sharing increased more in the private than the public sector.
These findings are consistent with the idea that private employers were
more aggressive in increasing cost sharing in the health plans offered
to employees. Increases in cost sharing can lead to lower utilization of
services for which benefit is low relative to the cost, implying an
increase in economic welfare. Alternatively, if utilization is not
significantly affected, increases in deductibles, co-payments and
co-insurance will merely shift costs from low risk employees who use
relatively little care (but pay premiums in the form of reduced wages)
to higher risk employees who use more care.
Implications for Policy, Delivery or Practice:
While the growing gap in health benefits spending in the public and
private sector does not necessarily imply that public sector benefits
are excessive, it is natural for policy makers to look to health
insurance costs as a potential area for reform and savings. It is
important that efforts in this area be guided by a clear and detailed
understanding of the health benefits that are provided to public sector
employees and how those benefits compare to those in the private sector.
Comment: In the past decade, health insurance premiums for state and
local government employers have grown more than premiums for employers
in the private sector. Although some of this is due to demographic
characteristics, a significant portion has been due to an increase in
the use of cost sharing in the private sector. Plans for public
employers have maintained the same level of benefits, whereas the
coverage in plans for private sector employers has deteriorated.
The policy implications of this should have us concerned. As explained
in a message earlier this week, the trend in the private sector has been
to expand the use of cost sharing, especially high-deductible plans,
with a detrimental impact on employees. It is highly unlikely that
private employers would support a reversal of this trend.
State and local governments have faced difficult budget decisions, so it
is logical that they would look at the high costs of their employee
health benefit programs as a source for reducing budget deficits. Many
have already tapped into their programs for retirees. Although unions
for public employees have been more effective in protecting benefits,
there will be considerable pressure to follow the lead of the private
sector and expand the use of cost sharing.
There is a far better option other than simply trying to adjust the
differences in plans for public and private employees. Instead of
thinking about traditional private insurance design options, especially
those that emphasize catastrophic coverage, we should consider changing
everyone to a prepaid health care system in which financial barriers to
care are removed - a single payer system.
Not only is single payer coverage much better, it also provides the
greatest value in health care. If we adopted a single payer system, both
public and private employers would no longer be placed in the role of
trying to control their budgets by hacking away at employees' well
earned health benefit programs.