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Ten-Year Projection of Employer Health Insurance Costs in Iowa

Projecting into the FutureI just can’t help it.

Give me some historical data and I want to run projections into the future. If it is good enough for Congress to rely on the Congressional Budget Office (CBO) to make budget projections based on assumptions that impact legislative proposals, why not do the same for Iowa employers on the health insurance they pay?

Many assumptions we make usually begin with a very short, yet powerful, word – ‘if.’ This word provides a fallback position for anyone who is willing to venture guesses on what the future may hold on any given subject matter. The Merriam-Webster dictionary explains how the word ‘if’ is used:

  • to talk about the result or effect of something that may happen or be true
  • to discuss the imaginary result or effect of something that did not happen or that is or was not true
  • to say that something must happen before another thing can happen

So, I want to make a few projections (not necessarily predictions) of what family health premiums ($15,743 in 2016) will be for Iowa employer-sponsored plans over the next 10 years (2017-2026). To do so, I will first need to make a few assumptions using the word, “if.” So here we go…

IF we assume over each of the next 10 years:

  1. Employers continue to offer health insurance coverage; and
  2. Employer-sponsored medical premiums increase by 7.7 percent (using the average annual growth in premiums between 2012 and 2016 received by Iowa employers PRIOR to making benefit plan changes); and
  3. Iowa employers make NO changes to their plans and accept this average increase; and
  4. Medical inflation is similar to 2016 rates and continues unchanged; and
  5. No deep recession (depression) has occurred; and
  6. ‘Pay-for-value’ reimbursement systems remain ‘experimental,’ meaning that there is no clear consensus on controlling costs and appreciably enhancing value of care delivered; and
  7. The average employer share of paying for family premiums remains at 68 percent of the total premium (employees pay the other 32 percent); and
  8. The median household income in Iowa during 2014, $53,816, increases annually by 1.5% to 2026; and
  9. Lack of political decisiveness continues without passing any new major health reform measures beyond what we currently have in 2016; and FINALLY
  10. Life continues as we currently know it today.

THEN we may see:

By the year 2026, total family medical premiums will have exceeded $33,000, which would be 51 percent of the projected 2026 median household income in Iowa ($64,344).

Ten-Year Projection of Family Premium at 7.7 Percent

IF we make the same assumptions above, but tweak #2 and#3 to make the likely assumption that employers WILL make changes to their medical plans to keep them more competitively priced, and that the average annual growth of premiums will increase by only 3.5 percent annually, the average family premium by 2026 will grow to $22,207, or 35 percent of the projected 2026 median Iowa household income. The power of compound rates can make a huge difference. In this case, the 2026 family premium would be $10,849 less using 3.5 percent compared to 7.7 percent.

Ten-Year Projection of Family Premium at 3.5 Percent

Before we become somewhat giddy about ‘saving’ this type of premium by using a lower percentage, it is important to understand what is NOT shown on this particular graph – how health plans will change by 2026 AFTER the employers make annual alterations to keep their plans affordable. Deductibles and out-of-pocket maximums would continue to increase, offsetting any potential ‘savings’ made by not having higher premiums. However, employees would assuredly bear the undeniable burden of paying more out-of-pocket expenses when seeking more expensive medical care.

In 2014, according to the Health Care Cost Institute, total annual spending was $660 less per person with those employees who had high deductible health plans, or about 13 percent less than spending in conventional health plans. But what is not known is if this ‘savings’ came from avoiding needless tests and procedures or employees skimping important (and necessary) treatment, which can be detrimental to long-term health.

Something tells me that the use of the word “giddy” will not be part of the 2026 health insurance vocabulary.

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