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Impact of Wage Level Variation on Employer-Sponsored Plans

New research finds significant disparities in utilization among low-wage and high-wage employees in employer-sponsored plans.

Research finds disparities in how high and low-wage employees use their employer-sponsored plans.

Source: Thinkstock

By Thomas Beaton

Findings from a recent study of healthcare utilization and spending by four self-insured employers show a correlation between wage levels and the types of services received.

Based on data on 42,936 employees at four self-insured employers that used a private health insurance exchange in 2014, the average annual spending for the lowest-wage employees totaled at $4,835 and totaled at $5,074 for the highest-wage employees. The two middle-wage groups recorded average annual spending costs of $3,952 and $3,987.

“Despite the comparatively higher health care spending as a percentage of wages borne by low-wage workers, they did not appear to be savvy consumers of appropriate care. Rather, their utilization patterns reflected a more reactive approach to health care, perhaps as a result of either necessity or choice, which led to substantially greater emergency department use and fewer preventive visits, along with a significantly greater number of ambulatory care–sensitive hospitalizations, relative to their higher-paid counterparts,” wrote Sherman et al.

“In contrast, higher-wage earners had higher health care utilization rates for nearly all outpatient categories, coupled with comparatively lower hospitalization rates,” they continued. “With their greater use of preventive and outpatient services, these individuals appeared to be addressing health concerns before they became serious, therefore avoiding either emergency department or inpatient care.”

Census data from 2016 found that the low-wage employee group whose salaries range from under $24,001 to $30,000 a year with employer-sponsored insurance made up 28.8 percent of adult civilian workers. These workers paid an average annual deductible of $1,478 and an average premium of $1,129 per year. This group of low-wage earners spent 8.5 percent of pretax earnings for healthcare while lowest-wage workers with high-deductible options in the study may have paid up to 21 percent of pretax income for premiums and deductibles hitting deductible limits.

“Low-wage workers have been particularly affected by employers’ health care cost containment efforts,” the researchers said. “Cost shifting in benefit design has resulted in a 67 percent increase in deductibles since 2010, which is six times more than the rise in workers’ wages (10 percent) and general inflation (9 percent). Perhaps related, financial challenges are now the most prevalent source of employee stress—ahead of work issues, family concerns, and personal health.”

Healthcare spending disparities across wage groups reveal the differences in healthcare spending between these groups. The researchers believe that findings such as these can help employers, policymakers, and payers improve benefit design for employees at all wage-levels and optimize healthcare spending.

“For plan sponsors, health plans, benefit consultants, and policy makers, these data have substantial implications regarding benefit design and health care cost trend management,” the researchers said. “We hope that the results from our analysis prompt further investigation, ultimately leading to more thoughtful employer support for low-wage workers’ health.”

Spending on hospitalization and emergency department costs accounted for the bulk of spending within low-wage employee groups compared to higher-wage employees whose greatest share of expenditures went toward outpatient medical services and medication.

These spending habits reveal the effect of socioeconomic factors on the services sought out by high-earning and low-earning employees. As the wage level increased, workers were significantly more likely to refill prescriptions or file a prescription claim compared to the lower categories.

Conversely, adjusted hospitalization rates increased as wage level decreased. Hospitalization rates peaked at 31 per 1,000 employees earning between less than $24,001 and $30,000 a year. The higher-wage group reported hospitalization rates of 17 per 1,000 employees earning more than $70,000 a year.

Preventive care office visits and cancer screening rates were significantly higher within high wage group than low wage groups. When compared to the higher groups, low-wage employee preventive care visits were 50 percent lower. Screening rates for breast, cervical, and colon cancer respectively were 42 percent, 39 percent, and 35 percent lower.

The researchers believe employers can mitigate the costs and improve the effectiveness of employer coverage to lower wage employees, such as by implementing wage-based premiums or deductibles to subsidize low wage employees. Another suggestion Sherman et al. raised was the use of on-site clinics for workers to reduce emergency services for low-wage workers.

Suggested policy improvements based on the findings included interventions for low-wage workers to treat their chronic conditions as a pre-deductible service through legislation or benefit design.

“Such approaches would increase access for workers at all wage levels, although with the risk of increasing near-term benefit expenditures. Alternatively, a shift in employer health related incentive strategies to disproportionately reward low-wage workers might also promote more appropriate use of health care services,” the researchers concluded. 

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