Oct 1, 2018

Corporate health costs don't look like a crisis

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Reproduced from a Kaiser Family Foundation report; Chart: Axios Visuals

The conventional wisdom is that corporate America has a renewed, almost crisis-level concern about rising health costs. But, in a puzzle I am struggling to solve, the data don’t suggest a basis for a new level of urgency about health costs in corporate America.

Why it matters: In fact, just the opposite is true. There's just not that much change — so any solution that's designed for a crisis will probably miss the mark or could unnecessarily harm workers.

The big picture: As Axios has recently reported in Vitals, employer health costs are eating up a larger share of overall compensation that they did 20 years ago. But as this chart shows, over the last 10 years, health costs as a percentage of overall compensation for larger employers — the ones that are most outspoken on the issue — have moved in a narrow band, between 8 and 9 percent of total compensation.

  • For all private employers, it has remained between 7 and 8 percent of compensation over the same period.
  • Premium growth has also been modest — in the 3 to 4 percent a year range — and is not likely to jump in 2019. There is no question that workers are feeling the pain of out-of-pocket costs, but that’s a different problem.

Between the lines: There may be a few explanations for the perception of a health cost crisis in the corporate world. Employers have held costs down, in part, by shifting them to employees. They may now feel cost shifting is nearing a natural limit.

They get blowback about it from their employees, and most have always seen cost shifting as an expedient way to shave their annual premium increase rather than as a meaningful cost containment strategy.

  • Even if health costs have not been growing recently as a percentage of compensation, there still can be sticker shock, with the average cost of a family policy around $19,000 per year, about the cost of a Honda Civic. Plus, health benefits still consume 7.5% of overall compensation for private sector employers — a significant share, though far less than wages (69.6%).
  • The averages also conceal the fact that some employers are getting hit harder than others.

What we've seen in recent years in our employer survey is largely business as usual, with most employers deploying a grab bag of cost strategies, from cost shifting to disease management to wellness programs and more, without expressing great confidence in any one strategy. That approach is more consistent with the data showing the burden of health costs largely stable with moderate cost growth. 

The bottom line: The data on corporate health costs are at odds with the rhetoric of a crisis or the sense that employers are poised to take dramatic action.  Please let me know what I am missing.

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Coronavirus dashboard

Illustration: Aïda Amer/Axios

  1. Global: Total confirmed cases as of 3 a.m. ET: 5,410,228 — Total deaths: 345,105 — Total recoveries — 2,169,005Map.
  2. U.S.: Total confirmed cases as of 3 a.m. ET: 1,643,499 — Total deaths: 97,722 — Total recoveries: 366,736 — Total tested: 14,163,915Map.
  3. World: White House announces travel restrictions on Brazil, coronavirus hotspot in Southern Hemisphere Over 100 coronavirus cases in Germany tied to single day of church services — Boris Johnson backs top aide amid reports that he broke U.K. lockdown while exhibiting symptoms.
  4. Public health: Officials are urging Americans to wear masks headed into Memorial Day weekend Report finds "little evidence" coronavirus under control in most statesHurricanes, wildfires, the flu could strain COVID-19 response
  5. Economy: White House economic adviser Kevin Hassett says it's possible the unemployment rate could still be in double digits by November's election — Public employees brace for layoffs.
  6. Federal government: Trump attacks a Columbia University study that suggests earlier lockdown could have saved 36,000 American lives.
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Updated 2 hours ago - Politics & Policy

U.S. coronavirus updates

Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Andrew Witherspoon/Axios. This graphic includes "probable deaths" that New York City began reporting on April 14.

The CDC is warning of potentially "aggressive rodent behavior" amid a rise in reports of rat activity in several areas, as the animals search further for food while Americans stay home more during the coronavirus pandemic.

By the numbers: More than 97,700 people have died from COVID-19 and over 1.6 million have tested positive in the U.S. Over 366,700 Americans have recovered and more than 14.1 million tests have been conducted.

World coronavirus updates

Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Axios Visuals

Japan's economy minister outlined plans on Monday to end the nationwide state of emergency as the number of new novel coronavirus cases continues to decline to fewer than 50 a day, per Bloomberg. Japan has reported 16,550 cases and 820 deaths.

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