Health Care Costs for California Workers Are Growing Far Faster Than Incomes

November 26, 2019

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Source: San Francisco Chronicle

Californians who get health insurance through their jobs are having to spend a greater share of their paychecks on health care costs, according to a new analysis of employer-sponsored health plans to be released Thursday by the Commonwealth Fund, a nonprofit foundation that researches health industry trends.

California workers went from spending 8% of their income on health insurance premiums and deductibles in 2008, about $4,100, to nearly 12% of their income on premiums and deductibles in 2018, about $6,900. That is a 68% jump in employees’ health care spending over the past decade — which far outpaces wage growth during the same period. Between 2008 and 2018, median household income in the state grew just 16%, from about $52,000 to $60,000, according to the report.

Workers in California went from paying on average $2,600 in premiums in 2008 to paying $4,100 in premiums in 2018. Their deductible costs went up $1,450 to nearly $2,800 during the same period.

The analysis provides data for each state and was based on responses from 40,000 private sector U.S. employers that provide health plans for their workers. Employer-sponsored health plans cover about half of Americans under age 65, or roughly 164 million people.

California’s figures largely mirror the national trend. Nationally, employees’ contributions to insurance premiums and deductibles jumped from about 8% of median household income in 2008 to nearly 12% of median household income in 2018, according to the report.

The report does not specify how much more employers are paying for their workers’ health care, but companies typically pay between 70% and 80% of premiums, so they too are shouldering the burden of rising health care costs.

The primary driver of rising health care prices is hospitals raising their prices for commercial health plans — in part because they are often the only medical provider in town and have leverage to do so — and passing those costs onto employers, the report’s authors said.

Prices for health care services, such as medical procedures and hospital stays, are negotiated privately between hospitals and the insurers or employers that pay for their workers’ care. Even huge employers like Walmart and Amazon have limited leverage when negotiating with hospitals outside of the few regions where they employ large portions of the population, said Dr. David Blumenthal, president of the Commonwealth Fund.

“Amazon may dominate Seattle but doesn’t dominate anywhere else, and the same is true for Walmart,” he said. “So when they go to the local hospital and say, ‘Give us a better price,’ the local hospital says, ‘No thanks.’ They can live without that segment of the population. That’s the nature of our health care markets. There is little restraint on pricing.”

Hospital consolidation has given providers more ability to set prices, he said.

Most “hospital markets in the U.S. are high concentrated, meaning there’s no competition,” Blumenthal said. “So the Walmarts of the world can’t say to the hospital that refused to lower prices, ‘OK, we’ll go to the hospital down the street.’ There is no hospital down the street.”

In California, concerns over anticompetitive pricing by large hospital chains prompted Attorney General Xavier Becerra to sue Sutter Health, Northern California’s largest health system, alleging that it used its market power to raise prices — a charge that Sutter denied. The state and Sutter reached a confidential settlement last month.

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