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Health Care Reality Will Be Ongoing Economic Drag

Posted by Larry Doyle on September 3, 2010 6:39 AM |

I have often thought that staying physically fit is not only a good way to live but also makes enormous economic sense as well. Not that staying fit will keep one’s healthcare premiums totally in check. The simple fact is the cost of healthcare insurance in our country is downright scary. The pace of change in healthcare premiums has been even scarier. How much so? Do you care to make a best guess as to what the average increase in a family’s annual healthcare premium has been over the last decade? 50%? Keep going? 75%? Still too low? 90%? Getting closer, but still not there. The Wall Street Journal gives us this answer and much more in writing, Employers Sharply Raise Workers’ Share of Health Costs:

Overall, annual premiums for families reached an average of $13,770 this year, up 114% since 2000.

Will Obamacare address and mitigate the underlying forces driving this increase? Honestly, I am not optimistic. I view Obamacare as nothing more than another of the redistribution and rationing programs in which those who can pay will absorb the costs for those who can’t. But how are these increases truly being absorbed? To an ever increasing extent, the cost of healthcare is being shifted from the employer to the employees. The WSJ further highlights this reality in writing:

Employers passed health-insurance costs onto employees at a sharply higher rate this year, and businesses’ premiums grew more slowly than they have in a decade, according to an annual survey of companies.

The increased cost-shifting reflected an acceleration of a trend that has been on the rise for years. As companies struggle to cut costs amid difficult economic times, more of them are reducing benefits they offer workers or making workers pay more for them. Still, companies are paying nearly three-quarters of workers’ health-care premiums.


Employees paid an average of about $4,000 toward their family coverage this year, up 14% from last year, according to a report by the Kaiser Family Foundation and the Health Research and Educational Trust. But total insurance premiums paid by the employer and the employee rose just 3% for a family plan—the slowest rate of growth in 10 years, according to the data.

The nonprofit research groups surveyed about 2,000 large and small companies between January and May.

“It’s the first time I can remember when employers have coped with costs by shifting it all to workers,” said Drew Altman, the Kaiser Family Foundation’s president and chief executive.

The survey showed workers with family plans are now paying 30% of their premiums, compared with 27% last year and 26% five years ago.

Businesses explained the shift by pointing to stark choices between cutting staff and reducing benefits.

“It’s no surprise, since businesses are struggling to keep their doors open,” said James Gelfand, director of health policy at the U.S. Chamber of Commerce. “The premium increase may have been modest but it’s still a premium increase and businesses can’t absorb those costs.”

As the increased costs are shifted to employees, what is the knock on economic impact? There is no doubt that discretionary consumer spending will suffer a further drag. That reality is nothing more than Principles of Economics 101.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

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