1. Health Benefits 2007: A USA and California Update Jon R. Gabel Senior Fellow National Opinion Research Center

2. Presentation Objectives  To document the state of employer-based health benefits, 2007, in the US and California  To examine changes in benefits over the last year and five years  To examine trends in underlying health care expenses  To examine the affordability of individual and small group health insurance in California 

3. Telephone survey of 1,997 randomly selected public and private employers National Research conducts interviews with employee benefit managers from Jan. 2007 to May 2007 Response rate of 49 percent in 2007 Survey conducted by HIAA 1987-1991 and KPMG 1991-1998 Use of statistical weights Employer-based statistics Employee-based statistics KFF/HRET Health Benefits Survey

4. 2007 California HealthCare Foundation/NORC Employer Health Benefits Survey Telephone survey of 805 randomly selected private employers with three or more workers. National Research conducts interviews with employee benefit managers from April 2007 to July 2007. Questionnaire is similar to KFF/HRET national survey. Margin of error for responses among all employers is +/_ 3.5 percent.

5. Increases in Health Insurance Premiums Compared to Other Indicators, 1988-2007 * Estimate is statistically different from the previous year shown at p<0.05. No statistical tests were conducted for years prior to 1999. † Estimate is statistically different from the previous year shown at p<0.1. No statistical tests were conducted for years prior to 1999. Note: Data on premium increases reflect the cost of health insurance premiums for a family of four. Source: KFF/HRET Survey of Employer-Sponsored Health Benefits, 1999-2005; KPMG Survey of Employer-Sponsored Health Benefits, 1993, 1996; The Health Insurance Association of America (HIAA), 1988, 1989, 1990; Bureau of Labor Statistics, Consumer Price Index (U.S. City Average of Annual Inflation (April to April), 1988-2005; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April), 1988-2005. 13.9%†

6. Cumulative Changes in Health Insurance Premiums, Overall Inflation, and Workers’ Earnings 2000 - 2007 Source: KFF/HRET Survey of Employer-Sponsored Health Benefits, 2001-2006; Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), 2001-2006; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April), 2001-2006.

7. Premium Increases, by Plan Type and Funding Arrangement, 2007* * Tests found no statistically significant differences between fully insured and self-funded plans at p<.05. Fully insured plan: An insurance arrangement in which the employer contracts with a health plan to assume financial responsibility for the costs of enrollees’ medical claims. Self-funded plan: An insurance arrangement in which the employer assumes direct financial responsibility for the costs of enrollees’ medical claims. Employers sponsoring self-funded plans typically contract with a third-party administrator or insurer to provide administrative services for the self-funded plan. Note: Data on premium increases reflect the cost of health insurance premiums for a family of four. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2005.

8. HDHP/SO HMO PPO POS All Plans Average Annual Premiums for Covered Workers, by Plan Type, 2007 * Estimate of total premium is statistically different from All Plans by coverage type at p<.05. Note: Family coverage is defined as health coverage for a family of four. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2006. $4,479 $12,106 $4,299* $11,879 $4,638* $12,443 $4,337 $11,588 $3,669* $10,693*

9. Increases in California Health Insurance Premiums Compared to National Trends, 1999- 2007 Health insurance premiums in California grew by 8.3% in 2007, significantly higher than the 6.1% rate of increase nationally. Sources: CHCF/HSC California Employer Health Benefits Survey: 2005-2006; CHCF/HRET California Employer Health Benefits Survey: 2004; Kaiser/HRET California Employer Health Benefits Survey: 1999-2003; Kaiser/HRET Survey of Employer-Sponsored Health Benefits. 1999-2006. * Estimates are statistically different between California and US. Chart #9

10. Chart #10 Source: CHCF/HSC California Employer Health Benefits Survey: 2006 Average Percentage Increase in Health Insurance Premiums in California, by Firm Size, 2007 * Estimate is statistically different from all other firms. Premium increases were greater for small employers than for large employers in 2007: small firms (3 to 199 workers) experienced average premium increases of 10.0%, compared with 7.3% for large firms (200 or more workers). Note: Data are worker weighted.

11. Source: Strunk, and Ginsburg, 2005 Percentage Increase in Underlying Health Care Spending, 1991-2005, for All Services

12. Trends in Provider Revenues from Non-Medicare Patients, 1991 – 2005, (Annual Percent Change Per Capita)

13. Health Plan Enrollments for Covered Workers, by Plan Type, 2001 – 2007, in California and the USA The percentage of covered workers enrolled in HMOs in California was considerably higher than nationally. Conversely, enrollment in PPOs in 2007 remained far lower in California than nationally. Enrollment in high-deductible plans with a savings option among California workers has increased from 2% in 2006 to 4% in 2007, a level comparable to the proportion nationally. California U.S. Sources: CHCF/NORC California Employer Health Benefits Survey: 2007; CHCF/HSC California Employer Health Benefits Survey: 2005-2006; CHCF/HRET California Employer Health Benefits Survey: 2004; Kaiser/HRET California Employer Health Benefits Survey: 2001-2003; Kaiser/HRET Employer Health Benefits Survey: 2001-2007. Note: Conventional plan enrollment in California in 2001, 2005 and 2007 is less than 1%. Due to the addition of HDHP in 2006, no test was conducted comparing 2006 with 2005. * Distribution is statistically different from previous year shown.

14. Average Monthly Worker Contribution, 1988-2007 * Estimate is statistically different from the previous year shown at p<.05. No statistical tests were conducted for years prior to 1999. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2006; Health Insurance Association of America (HIAA), 1988. Percentage of Premium Paid by Covered Workers, 1988-2007 * Estimate is statistically different from the previous year shown at p<.05. No statistical tests were conducted for years prior to 1999. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2006; Health Insurance Association of America (HIAA), 1988.

15. * Estimate is statistically different from the previous year shown at p<.05. ^ Information was not obtained for HMO single coverage prior to 2003. Note: Average deductibles for PPO and POS plans are for in-network services. Averages include covered workers who do not have a deductible. If covered workers with no deductible are excluded from the calculation, the average deductibles for single coverage for 2005 are as follows: conventional - $671; HMO - $568; PPO -$445; POS - $495. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2005. Average Annual Deductibles for Single Coverage, by Plan Type, 1999-2007 ^

16. * Estimate is statistically different from estimate for All Other Non-HDHP/SO Plans (p<.05). ‡ When those firms that do not contribute to the HSA (66% for single coverage and 47% for family coverage) are excluded from the calculation, the average firm contribution to the HSA for covered workers is $806 for single coverage and $1,294 for family coverage. For HDHP/HRAs, we refer to the amount that the employer commits to make available to an HRA as a contribution for ease of discussion. HRAs are notional accounts, and employers are not required to actually transfer funds until an employee incurs expenses. Thus, employers may not expend the entire amount that they commit to make available to their employees through an HRA. As such, the employer contribution amounts to HRAs that we capture in the survey may exceed the amount that employers will actually spend. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2007. Average Annual Premiums and Contributions to Spending Accounts For Covered Workers, HDHP/HRA, HSA-Qualified HDHP and All Other Non-HDHP/SO Plans, 2007 HDHP/HRA HSA-Qualified HDHP All Other Non- HDHP/SO Plans SingleFamilySingleFamilySingleFamily Total Annual Premium$3,894*$11,492$3,826*$9,666*$4,514$12,183 Worker Contribution to Premium$617$3,113$413*$2,564*$704$3,304 Firm Contribution to Premium$3,277*$8,379$3,412$7,102*$3,810$8,879 Annual Firm Contribution to the HRA or HSA ‡ $915$1,800$428$714NA Total Annual Firm Contribution (Firm Share of Premium Plus Firm Contribution to HRA or HSA) $4,192*$10,179*$3,840$7,815*$3,810$8,879 Total Annual Spending (Total Premium Plus Firm Contribution to HRA or HSA, if Applicable) $4,809$13,292*$4,254$10,380*$4,514$12,183

17. Percentage of Workers Covered by Their Employer’s Health Benefits, in Firms Both Offering and Not Offering Health Benefits, by Firm Size, 1999-2007 # Year-to-year estimates are not significantly different at p<.05. However, there is a significant change between 2000 and 2005 for All Firms and All Small Firms at p<.05. Source: KFF/HRET Survey of Employer-Sponsored Health Benefits, 1999–2005.

18. Increase in Productivity Growth versus Real Wage Growth, 1970-2006 19702006

19. Real GDP Growth Versus Growth in Real Wages, 1970-2006 19702006

20. Percentage of Income Spent on Premiums and Expected out-of- pocket Medical Expenses, 2006, for Single Persons in Small Group and Individual Insurance Market in California

21. Percentage of All Employers Supporting California “Pay or Play” Legislation, 2007 Half of all California firms (52%) either strongly or somewhat supported the California “Pay or Play” legislation. Small firms were more likely to strongly support the legislation than were large firms, at 18% versus 7%. Sources: CHCF/NORC California Employer Health Benefits Survey: 2007 * Distribution is statistically different from all other firms.

22. Distribution of Firms’ Opinions on the Effectiveness of the Following Cost Containment Strategies, 2007 *Distributions are statistically different between All Small Firms and All Large Firms within category (p<.05). Note: Distributions are among all firms both offering and not offering health benefits. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2007. Tighter Managed Care Networks* Higher Employee Cost Sharing* Consumer-Driven Health Plans Disease Management Programs*

23. Summary, Conclusions, and Projections Economic slowdown will greatly affect health care. –Continued moderation in expenses and premiums –Substantial decline in employer-based coverage High cost of coverage makes both health care unaffordable to many Americans, but also makes the solution unaffordable. CDHP growth modest, but not meeting expectations. Economic slowdown may boost CDHP and more restrictive managed care. More aggressive wellness efforts on the part of employers.

25. Percentage of California Employers Agreeing That All Firms Bear Some Responsibility For Providing Health Benefits, 2007 Two-thirds of all California firms agreed that employers bear some responsibility for providing health benefits. Eighty-eight percent of all large firms (200 or more workers) agreed that all firms bear some responsibility for providing health benefits, with nearly half (48%) strongly supporting that statement. Sources: CHCF/NORC California Employer Health Benefits Survey: 2007 * Distribution is statistically different from all other firms.

26. Mean versus Median Income Growth, 1970-2006 1970 2006

27. Percentage of Workers with Single/Single Plus One/Family Coverage in California, Massachusetts, and Nationally, 2007 1 The percentage of California workers enrolled in single, single plus one, and family coverage is similar to the national distribution. However, when compared to Massachusetts, a state experiencing changes to its employer-sponsored health system by legislative mandate, the enrollment distribution is significantly different. In particular, there appears to be little differentiation between single plus one and family coverage in Massachusetts as compared to California. Source: CHCF/NORC California Employer Health Benefits Survey: 2007; RWJF/KSC Massachusetts Employer Health Benefits Survey: 2007; Kaiser/HRET Employer Health Benefits Survey: 2006. * Distribution is statistically different from California.1 U.S. estimates are from 2006.

28. Percentage of Covered Workers in Partially or Completely Self-Funded Plans, By Firm Size, 1999-2007 * Estimate is statistically different from the previous year shown at p<.05. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2005.

29. Percentage of California Firms Offering Health Benefits to Domestic Partners such as Unmarried Opposite Sex and Same Sex Couples, 2007 Nearly seven of every ten firms in California offered health benefits to domestic partners in 2007. Firms in California were more likely to offer health benefits to domestic partners than in the rest of the US. Sources: CHCF/NORC California Employer Health Benefits Survey: 2007; Kaiser/HRET Survey of Employer-Sponsored Health Benefits: 2007 * Estimates are statistically different between California and US.

30. Among Covered Workers Facing Copayments for Primary Care Physician Office Visits, Distribution of Copayments, 2004-2007 *Distribution is statistically different from previous year shown at p<.05. Note: Copayments for in-network services in PPO and POS plans were used to calculate the distribution shown. The distribution does not include covered workers who do not face a copayment for office visits (e.g., workers who face coinsurance). Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2004 - 2005. *