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Premiums versus Paychecks: A Growing Burden for North Dakota's Workers

10/02/2008

INTRODUCTION

Throughout the first eight years of the new millennium, health care costs have skyrocketed,
while working families’ wages have stood still. Other factors have also threatened families’
economic well-being, including rising gasoline prices and the downturn in the housing
market, but the confluence of stagnant wages and rising health care costs has become a significant strain on family budgets. Numerous national studies have documented this damage.1

As important as these studies are, they do not reflect the varying burdens experienced by families in different states. Just as labor markets, health systems, and economic circumstances vary from one state to another, the impact caused by rising health care costs and stagnant earnings differs considerably among the 50 states.

In 2006, Families USA undertook the first state-by-state analysis of growing health care premiums versus stagnant earnings in the new millennium. Since then, state economies have weakened, while health insurance premiums have continued their upward trend. Health care costs are now an even greater burden on American families. This report, which is based on data from the U.S. Census Bureau, the Department of Labor, and the Department of Health and Human Services, examines what these trends mean for North Dakota’s working families.

Over the past eight years (2000 through 2007), family health insurance premiums for North
Dakota’s workers rose 2.8 times more quickly than median earnings. On average, health care
premiums for families rose by 74.3 percent, while median earnings rose by only 26.4 percent.
In addition to higher premiums, working families faced higher out-of-pocket health care costs, such as deductibles, copayments, and costs for services that were not covered by their insurance plans. As a result, health care costs are absorbing an ever-larger portion of family budgets, and it is clear why many North Dakota families feel worse off economically
than they did eight years ago.

KEY FINDINGS
Spiraling Health Insurance Premiums for North Dakota’s Workers and Employers
(2000-2007)

• Health insurance premiums for North Dakota’s working families skyrocketed over the last eight years, increasing by 74.3 percent from 2000 to 2007 (Table 1).
• For family health coverage in North Dakota, the average annual premium (employer and worker share of premiums combined) rose from $6,124 to $10,674, an increase of $4,550 (Table 1).
• For family health coverage in the state, the employer’s portion of annual premiums rose from $4,379 to $7,429 (a difference of $3,050), while the worker’s portion rose from $1,745 to $3,245 (a difference of $1,499) (Table 1).

[See attached PDF file for table]

Table 1
Increases in Premiums for Family Coverage in North Dakota, Employer-Based Health
Insurance, 2000-2007*

• For individual health coverage in North Dakota, the average annual premium (employer and worker share of premiums combined) rose from $2,293 to $4,018, an increase of $1,725 (Table 2).
• For individual health coverage in the state, the employer’s portion of annual premiums rose from $1,931 to $3,303 (a difference of $1,372), while the worker’s portion rose from $362 to $715 (a difference of $353) (Table 2).

[See attached PDF file for table]

Table 2
Increases in Premiums for Individual Coverage in North Dakota, Employer-Based Health
Insurance, 2000-2007*

Slow Wage Growth for North Dakota Workers

• Between 2000 and 2007, the median earnings of North Dakota’s workers increased from$19,196 to $24,255—a mere $5,059, or 26.4 percent (Table 3).
• Health insurance premiums for North Dakota’s families rose 2.8 times faster than median earnings from 2000 to 2007 (Table 4).

Table 3
Growth in Earnings in North Dakota, 2000-2007

[See attached PDF file for table]

Table 4
Growth in Premiums in North Dakota for Family Health Insurance
Coverage Compared to Growth in Earnings, 2000-2007

[See attached PDF file for table]

DISCUSSION
Overview
This report analyzes trends in employment-based health insurance premiums and workers’
earnings from the beginning of 2000 to the end of 2007. Our findings draw attention to a
disheartening trend: Over the past eight years, North Dakota’s working families have seen their
health care costs go up faster than their earnings. As a result, the cost of health insurance premiums now imposes a greater burden on family budgets than ever before.

Premiums for employment-based health insurance have risen rapidly over the past eight years:
Health insurance premiums for North Dakota’s working families have risen by 74.3 percent—2.8 times faster than median earnings in North Dakota (Table 4). At the same time, rising health care costs have forced employers to make hard choices. Some employers have concluded that they can no longer afford to offer health insurance to their workers and have dropped coverage, driving an increase in the number of uninsured workers. The proportion of Americans covered by employmentbased insurance dropped by more than 5 percentage points between 2000 and 2007 (from 64.2 percent of adult Americans in 2000 to 59.3 percent in 2007). During the same period, the number of uninsured Americans rose from 38.4 million to 45.7 million—an increase of nearly 20 percent. In North Dakota, the number of uninsured people under age 65 is now 68,000 (approximately 12.6 percent of the non-elderly population).³

Other employers continue to provide coverage, but they now ask their workers to pay a greater
share of the premiums. In addition, a growing share of employers are lowering their health costs by providing “thinner coverage”—coverage that offers fewer benefits and/or that comes with higher deductibles, copayments, and co-insurance.⁴

As a larger portion of health care costs is shifted onto workers, North Dakota’s families are
finding that the burden is becoming too great to bear. Families’ paychecks are increasingly
consumed by health care costs. For many, the growing costs are hindering their ability to pay for other necessities—and reducing their standard of living. Other families are making even tougher decisions—decisions that may force them to join the ranks of the uninsured and underinsured.

Rising Premiums for Employment-Based Health Insurance
In North Dakota, health insurance premiums for employment-based health insurance rose rapidly for both individuals and families from 2000 to 2007. Average premiums rose from $2,293 to $4,018 for individuals and from $6,124 to $10,674 for families (these numbers include both the employer and the worker share of premiums) (Tables 1 and 2). During this eight-year period, premium costs borne by workers alone for family coverage rose from $1,745 to $3,245 (an increase of 85.9 percent), and for individual coverage, these costs rose from $362 to $715 (an increase of 97.4 percent) (Tables 1 and 2).

Rises in Workers’ Premiums Outstrip Increases in Earnings
While health insurance premiums rose rapidly, median earnings for North Dakota’s workers grew slowly. As a result, average health premiums for family coverage rose 2.8 times faster than median earnings from 2000 to 2007 (Table 4).

Higher Costs, Less Coverage
To make matters worse, workers are increasingly paying more for less. Rising health care costs and the associated increase in health insurance premiums are leaving employers struggling to cope. Faced with mounting costs, employers must make tough decisions that often come down to either cutting benefits or reducing wages.5 Some employers are forced to take the drastic step of dropping coverage for their workers. This is most common among small businesses, which have seen the largest increases in premiums.6 Other employers attempt to hold down rising premiums by offering “thinner” coverage. Providing health plans with higher deductibles, more copayments, and fewer benefits has become a common method of attempting to control rising insurance costs.⁷

As health insurance costs rise, the trend toward offering thinner coverage continues, with plans
increasingly moving away from fully covered benefits to partial coverage with higher cost-sharing, and, eventually, to the elimination of some benefits completely.⁸ In addition, coverage is evolving to require higher cost-sharing for services such as hospital care and prescription drugs. Workers now face much greater cost-sharing when hospitalized than they did in the 1990s, with half required to pay hospital-specific deductibles and copayments.9 Cost-sharing for prescription drugs is also on the rise, with a move toward drug plans that make individuals pay more for certain drugs.¹⁰

Increases in cost-sharing continue in spite of the fact that experts in the field—including insurance company executives—generally concur that such increases will not result in a significant reduction in premiums or overall health care costs.¹¹ Moreover, increases in cost-sharing have a detrimental effect on the health and well-being of workers. A sizeable body of research indicates that increases in cost-sharing reduce access to necessary care.¹²

Mounting Burden—More Families Face Catastrophic Health Care Costs
As premiums increase and plans offer thinner benefits, working families are shouldering a growing share of health care costs. For many workers, this burden is becoming too great. Higher out-ofpocket costs and health insurance plans that offer fewer benefits leave many families struggling to pay medical bills when health care is needed. This is exacerbated by the fact that earnings have failed to keep pace with rising costs. As a result, a growing share of working families faces catastrophic medical costs.

Approximately 50.7 million non-elderly Americans with insurance are in families that will spend
more than 10 percent of their pre-tax income on health care costs in 2008,¹³ and more than onequarter of insured Americans report problems with medical bills or say that they are in the process of paying off medical debt.¹⁴ The problem is even greater for individuals with health plans that offer thinner coverage, such as those that require higher deductibles.¹⁵ Families whose medical expenditures total 10 percent or more of their income or whose plans include deductibles greater than 5 percent of income—known as the “underinsured”—are at particular risk. For underinsured families, medical bills have a profound effect on their health and financial security. More than half (53 percent) of underinsured adults went without needed care (such as skipping a test or treatment recommended by a doctor or not filling a prescription) because of cost in the last year.¹⁶ In addition, nearly half (45 percent) of underinsured adults had a medical bill problem in the last year.¹⁷

When the burden of high medical costs becomes too great, working families often have no choice but to consider drastic changes in lifestyle and, eventually, bankruptcy. Before resorting to bankruptcy, working families do all that they can to prevent financial ruin. One study found that, in the two years prior to filing for bankruptcy, more than 40 percent lost telephone service, approximately one-fifth went without food, and more than one-half went without needed medical or dental care because of the costs associated with this care.¹⁸ If these choices are not enough to avert financial ruin, bankruptcy often becomes the only option. More than half of bankruptcies are now due, at least in part, to problems with medical costs.¹⁹

Medical Debt and Uninsurance—A Vicious Circle
Illness, high medical costs, and the resulting financial insecurity form a vicious circle. Illness
drives increases in medical costs that, in turn, lead to financial difficulties.20 Concurrently, workers facing illness are often forced to reduce the hours they work and may lose their jobs completely. As medical costs rise, earnings often drop, resulting in greater financial insecurity. Moreover, individuals forced to leave their jobs due to illness may lose their employment-based insurance. Faced with the loss of insurance, families with mounting medical debt are drawn deeper into financial turmoil.

CONCLUSION

In North Dakota, health insurance premiums are rising considerably faster than workers’ earnings. As a result, health care costs are consuming ever-larger portions of family budgets and causing substantial hardships. If this trend continues, more and more families will inevitably join the ranks of the uninsured and underinsured, and North Dakotans will face diminishing economic and health security. This crisis will only worsen until there is leadership in Washington, D.C. and in the states that takes decisive and meaningful action to make health care truly affordable and accessible to all.

ENDNOTES

1. Most recently, Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits: 2007 Survey (Washington: Kaiser Family Foundation, September 2007).
2. Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith, Income, Poverty and Health Insurance Coverage in the United States: 2007 (Washington: U.S. Census Bureau, August 2008).
3. Data from the U.S. Census Bureau’s Current Population Survey, 2006-2007.
4. Cathy Schoen, Sarah R. Collins, Jennifer L. Kriss, and Michelle M. Doty, “How Many Are Underinsured? Trends among U.S. Adults, 2003 and 2007,” Health Affairs 27, no. 4 (June 10, 2008): W298-W309; Cathy Schoen, Michelle M. Doty, Sara R. Collins, and Alyssa L. Holmgren, “Insured but Not Protected: How Many Adults Are Underinsured?” Health Affairs Web Exclusive (June 14, 2005): W5- 289-W5-302.
5. David Cutler, “Employee Costs and the Decline in Health Insurance Coverage,” Frontiers in Health Policy Research 6, no. 3 (2003).
6. Christine Eibner, The Economic Burden of Providing Health Insurance: How Much Worse Off Are Small Firms? (Santa Monica, CA: The RAND Corporation, April 2008); Jon Gabel, Gary Claxton, Isadora Gil, Jeremy Pickreign, Heidi Whitmore, Benjamin Finder, Samantha Hawkins, and Diane Rowland, “Health Benefits in 2005: Premium Increases Slow Down, Coverage Continues to Erode,” Health Affairs 24 (September/October 2005): 1,273-1,280.
7. Cathy Schoen, Sarah R. Collins, Jennifer L. Kriss, and Michelle M. Doty, op cit.; Cathy Schoen, Michelle M. Doty, Sara R. Collins, and Alyssa L. Holmgren, op. cit.
8. James C. Robinson, “Reinvention of Health Insurance in the Consumer Era,” JAMA 291, no. 15 (April 21, 2004): 1,880-1,886.
9. Jon Gabel, Gary Claxton, Isadora Gil, Jeremy Pickreign, Heidi Whitmore, Benjamin Finder, Samantha Hawkins, and Diane Rowland, op. cit.
10. Kaiser Family Foundation, Trends and Indicators in the Changing Health Care Marketplace, Section 4: Trends in Health Insurance Benefits (Washington: Kaiser Family Foundation, 2005).
11. Laura Tollen and Robert M. Crane, A Temporary Fix? Implications of the Move Away from Comprehensive Health Benefits (Washington: Employee Benefit Research Institute, April 2002).
12. Martin Chalkley and Ray Robinson, Theory and Evidence on Cost Sharing in Health Care: An Economic Perspective (London: Office of Health Economics, 1997); and Joseph P. Newhouse, Free for All?: Lessons from the RAND Health Insurance Experiment (Boston: Harvard University Press, 1996 reprint).
13. Kim Bailey and Beth Wikler, Too Great a Burden: America’s Families at Risk (Washington: Families USA, December 2007).
14. Sarah R. Collins, Jennifer L. Kriss, Karen Davis, Michelle M. Doty, and Alyssa L. Holmgren, Squeezed: Why Rising Exposure to Health Care Costs Threatens the Health and Financial Well-Being of American Families (Washington: The Commonwealth Fund, September 2006).
15. See Michelle M. Doty, Jennifer N. Edwards, and Alyssa L. Holmgren, Seeing Red: Americans Driven into Debt by Medical Bills (Washington: The Commonwealth Fund, August 2005).
16. Cathy Schoen, Sarah R. Collins, Jennifer L. Kriss, and Michelle M. Doty, op. cit.
17. Ibid.
18. David U. Himmelstein, Elizabeth Warren, Deborah Thorne, and Steffie Woolhander, “Illness and Injury As Contributors to Bankruptcy,” Health Affairs Web Exclusive (February 2, 2005): W5-63-W5-73. See also Sarah R. Collins, Jennifer L. Kriss, Karen Davis, Michelle M. Doty, and Alyssa L. Holmgren, op. cit.; Sarah R. Collins and Alice Ho, From Coast to Coast: The Affordability Crisis in U.S. Health Care (Washington: The Commonwealth Fund, March 2004); and Sara R. Collins, Michelle M. Doty, Karen Davis, Cathy Schoen, Alyssa L. Holmgren, and Alice Ho, op. cit.
19. David U. Himmelstein, Elizabeth Warren, Deborah Thorne, and Steffie Woolhander, op. cit.
20. Michelle M. Doty, Jennifer N. Edwards, and Alyssa L. Holmgren, op. cit.

METHODOLOGY
Estimates in this report are based on data drawn from U.S. federal government sources, including the Department of Health and Human Services (HHS), the Census Bureau, and the Department of Labor. A more detailed methodology is available upon request from Families USA.

Premiums
Estimates of employment-based health insurance premiums are based on data from the Medical Expenditure Panel Survey (MEPS) conducted by the Agency for Health Care Research and Quality of HHS. Premiums were trended forward from 2006 to 2007 using the national premium growth pattern presented in data published by the Kaiser Family Foundation and the Health Research and Educational Trust (September 2007).

Earnings
Estimates of median worker earnings are 2000 to 2007 data from the Census Bureau’s American Community Survey (August 2008).

Real Earnings
Families USA adjusted 2000 to 2005 median worker earnings data from the Census Bureau’s
American Community Survey to 2006 dollars using the Department of Labor’s Consumer Price Index (CPI). Non-seasonally adjusted CPI-U-RS data were used to make these adjustments.

ACKNOWLEDGMENTS
This report was written by:
Kim Bailey, Senior Health Policy Analyst
Families USA

The following Families USA staff contributed to the
preparation of this report:
Ron Pollack, Executive Director
Rebecca Bruno, Health Policy Analyst
Laura Parisi, Villers Fellow
Peggy Denker, Director of Publications
Ingrid VanTuinen, Senior Editor
Tara Bostock, Editorial Associate
Nancy Magill, Senior Graphic Designer