Premium increases are smaller this year than in previous years, but the number of employers offering medical insurance is declining, according to a new report from the Kaiser Family Foundation and the Health Research and Educational Trust.

Premiums for employer-sponsored health insurance rose an average of 6.1% this year, compared to 7.7% last year. That's still higher than the increase in workers' wages (3.7%) and the overall inflation rate (2.6%), according to the report. The average annual premium for family coverage is $12,106, and workers pay an average of $3,281 to cover their share of the cost of a family policy.

KFF President Drew Altman says, "Employers are doing everything they can to hang on. They may be forced to shift more costs to employees... New, smaller employers [in particular] are not offering health insurance. The real thing to worry about here is if health costs and premiums continue to rise."

Sixty percent of employers provided health benefits in 2007, down from 61% in 2006 and 69% in 2000. Fewer than half (45%) of small businesses with three to nine workers offer health benefits.

Jon Gabel, senior fellow at the National Opinion Research Center at the University of Chicago, says, "We are witnessing a slow erosion of our employer-based system. Despite the economic expansion that added two million new jobs from April 2006 to April 2007, the employer-based system can do no better than tread water. It makes one ask, 'What will happen during the next economic downturn?'"

Widespread adoption of consumer-driven health plans could keep premiums low and shift costs to employees. However, only 5% of covered workers use such plans, the report indicates. Roughly 10% of employers offered a CDHP this year, up from 7% last year.

"Consumer-driven plans have established a foothold in the employer market, but they haven't grown as much as one might think, given all the attention that they receive," says KFF Vice President Gary Claxton. "They're new and relatively complicated. Explaining them to your employees [can be] a complex thing to do. [But] the health plans are still pushing these things. This is really their only new thing."

Other key findings include:

• The average annual deductible for single coverage is $461 for PPOs, $401 for HMOs, $621 for POS plans and $1,729 for consumer-driven health plans.
• For plans with three- or four-tiered drug cost-sharing, the average copayments are $11 for generic drugs, $25 for preferred drugs and $43 for non-preferred drugs.
• Nearly half (47%) of firms with health benefits make them available to unmarried, opposite-sex domestic partners, and nearly 37% offer them to same-sex partners.
• 57% of workers are enrolled in a PPO, compared to 21% in an HMO, 13% in a POS, 5% in consumer-driven health plan and only 3% in conventional indemnity.

Looking ahead, cost-shifting is projected to continue. About 21% of employers are "very likely" to raise workers' premium contributions next year, while 13% are "very likely" to increase office visit copayments. Another 12% are "very likely" to raise deductibles, while 11% are "very likely" to increase prescription drug copayments.