Employer-Sponsored Health Plans Prove Costly to Consumers

December 10, 2018 - Workers and their families are spending a larger share of their income on their employer-sponsored health plans, according to a new study from the Commonwealth Fund.

Coauthored by Sara Collins, Vice President of Health Care Coverage and Access at The Commonwealth Fund, and David Radley, PhD, a senior scientist for The Commonwealth Fund’s Tracking Health System Performance program, the study used the latest data from the federal Medical Expenditure Panel Survey–Insurance/Employer Component to examine trends in employer premiums at the state level.

The goal was to ascertain how much workers and their families pay for their employer-sponsored coverage in terms of premium contributions and deductibles. The authors examined the size of these costs relative to income for those at the midrange of income distribution. More than 40,000 business establishments were surveyed in 2017.

Last year, average employee premium contributions for single and family health plans consumed nearly seven percent of median income —- up from five percent in 2008.

There was a sharp rise in average premiums for employer health plans last year, following a modest climb between 2011 and 2016, the findings show. In eight states, annual single-person premiums hovered above $7,000 while family premiums were at least $20,000 in seven states and the District of Columbia.

READ MORE: CMS Reports Slowed Growth of National Health Spending in 2017

For single-person plans, average premium contributions ranged from $675 in Hawaii to $1,747 in Massachusetts. Meantime there also was a range in family plans, from $3,646 in Michigan to $6,533 in Delaware.

Average employee premium contributions across single and family plans accounted for 6.9 percent of U.S. median income in 2017. That’s up from 5.1 percent in 2008. In 11 states, premium contributions were at least eight percent of median income. The high was 10.2 percent in Louisiana.

The average annual deductible for single-person policies rose to $1,808 in 2017, ranging from a low of $863 in Hawaii to a high of about $2,300 in Maine and New Hampshire. Average deductibles across single and family plans amounted to 4.8 percent of median income in 2017, up from 2.7 percent in 2008. In three states (Florida, Mississippi, and Tennessee), average deductibles comprised more than 6 percent of median income.

Combined, average employee premium contributions and potential out-of-pocket spending to meet deductibles across single and family policies rose to $7,240 in 2017. In eight states, it was at least $8,000. Nationally, this potential spending amounted to 11.7 percent of median income in 2017, up from 7.8 percent a decade earlier. In Louisiana and Mississippi, these combined costs rose to at least 15 percent of median income.

In the aftermath of modest annual growth between 2011 and 2016, employer health plan premiums jumped by 4.4 percent in 2017 for single plans, 5.5 percent for family plans.

READ MORE: Consumers Maintaining Positive Health Savings Accounts

In 45 states and DC, average single-person premiums rose. In eight states — Alaska, Connecticut, Delaware, Massachusetts, New Jersey, New York, Rhode Island, and Wyoming — it surpassed $7,000.

Meantime, in 44 states and DC, there was a spike in family premiums while seven — Alaska, Connecticut, Massachusetts, New Jersey, New York, West Virginia, Wyoming, and DC — experienced a hike of at least $20,000.

On average, those with job-based insurance pay about one-quarter of their overall premium cost which in recent years, has changed little. However, in 14 states, those with family plans paid for at least 30 percent of the cost of their insurance. Those in Delaware, Louisiana, and Virginia doled out 34 percent.

Even though the share of premiums paid by employees has remained stable, their payments are on the rise. In 2017, because the rate of growth in employer premiums jumped overall, the amount employees paid also escalated. Nationally, between 2016 and 2017, average employee premium contributions rose 6.8 percent to $1,415 for single-person plans and 5.3 percent to $5,218 for family plans.

Of course, higher costs for insurance and healthcare have implications, said Collins. “People with low and moderate incomes may simply decide to go without insurance if it competes with other critical living expenses like housing, food, and education.”

READ MORE: Narrow Network Health Plans Continue to Dominate ACA Exchanges

The situation is particularly hard on residents in the South.

For example, people in Mississippi on average spend 15 percent of their incomes on premiums and meeting deductibles. While the overall premium for a family policy falls below the national average, families are asked to contribute 30 percent of the cost, exceeding the national average. At $42,500, the state has one of the lowest median incomes in the country.

In New Hampshire, per year, individuals pay more for their insurance and deductibles. However, the median income, $75,0000, is among the highest in the country.

In 2017, average per-person expenditures on food in the US amounted to 13 percent of median income and housing costs were 32 percent. People with coverage but deductibles that are high relative to income are nearly as likely as those uninsured to skip needed health care, like filling prescriptions or going to the doctor when they are sick.

The findings come on the heels of recent national surveys showing that the cost of healthcare is a top concern among American households.

“While the Affordable Care Act’s marketplaces receive a lot of media and political attention, the truth is that far more Americans get their coverage through employers,” Collins noted. In 2017, 56 percent of those under 65; or about 152 million individuals, had insurance through an employer — either their own or a family member’s. Meantime, only nine percent had a plan purchased on the individual market, including the marketplaces.

The Affordable Care Act yields some buffer to those with employer coverage. Among those eligible for marketplace subsidies are individuals with employer premium expenses surpassing 9.5 percent of their income. That triggers a federal tax penalty for their employers, Collins remarked. However, this applies only to single-person policies. Consequently, many middle-income families are left caught in the so-called “family coverage glitch.” The data in this report show that the average employee contribution to a family plan exceeds 9.5 percent of state median income in 22 states and the District of Columbia.

There are several options policymakers can use to cut the cost of health insurance for middle-income families and narrow regional discrepancies. For example, Congress could lower many families’ premiums by repairing the family coverage glitch by pegging unaffordable coverage in employer plans to family policies instead of single policies, or upgrade the cost protection of plans, said Collins. Currently, under the ACA, people in employer plans may become eligible for marketplace tax credits if the actuarial value of their plan is less than 60 percent. Congress could increase this to 70 percent (the level of silver plans sold in the individual market) or higher

Income-related cost protections must be paired with systemwide efforts to slow medical spending, such as innovation in care organization and provider payment. That would culminate in greater value and improved health outcomes. Increasing the concentration of insurer and provider markets through antitrust policy also can be addressed, as well as slowing the growth rate of prescription drug costs.

 “Policymakers will need to recognize that the increasing economic strain of health care costs facing middle-income and poor Americans is driven by multiple interrelated factors and will require a comprehensive solution,” Collins observed.