Rising Premiums, Deductibles Boost Urgency of Healthcare Reform

November 25, 2019 - The average annual growth in premium and deductible costs for workers outpaced their median income growth from 2008 to 2018, a Commonwealth Fund study discovered.

“Over the last decade, employer health insurance premiums and deductibles have grown faster than workers’ wages,” said Sara Collins, lead author of the study and Commonwealth Fund vice president for Health Care Coverage, Access, and Tracking. “This is concerning, because it may put both coverage and health care out of reach for millions of people. Several simple policy steps, such as fixing the Affordable Care Act’s family coverage glitch, have the potential to make healthcare more affordable for U.S. families.”

The study analyzed responses from over 40,000 private employers regarding their employer-sponsored health plans using data from the Medical Expenditure Panel Survey—Insurance Component (MEPS—IC).

The researchers found that not only is the annual growth of premium costs rising, but the rate at which it is rising picked up between 2016 and 2018.

There are four main factors that affect the healthcare spending burden for employees:

• The overall premium size
• The amount that workers contribute to the premium
• The deductible size
• The employee’s income

READ MORE: Workers Face High Premiums for Employer-Sponsored Health Plans

In regards to premium size, the averages for annual growth of families’ and individuals’ premium costs were dropping for about eight years. They fell from around 6 percent in 2008 to 3.1 percent for families and 2.3 percent for individuals between 2014 and 2016.

However, in just two years between 2016 and 2018, both shot up to around 5 percent annual growth—5.1 percent for families and 4.9 percent for individuals.

And while premium annual growth rate may have slowed from 2010 to 2016, the percentage of median household income that premiums consumed during that time period was consistently higher than income growth across all ten years. The proportion of income to premium costs hit as high as 6.4 percent between 2010 and 2012.

Not only are premiums rising, but employees are also paying higher deductibles. The average deductible as a percentage of income rose two percentage points between 2008 and 2018, from 2.7 percent to 4.7 percent of the average family income.

These high-deductible health plans are having a major impact on out-of-pocket healthcare spending, which can manifest in numerous adverse medical choices by families struggling to manage healthcare spending. High deductibles mean high out-of-pocket healthcare spending for employees. Those on a lower income may avoid visiting a physician or not adhere properly to their medication. In these circumstances, individuals who cannot afford the high deductible are essentially underinsured.

READ MORE: High-Deductible Health Plans Are a Big Hit to Medication Adherence

As a result, premiums and deductibles together cost over 11 percent of the median income in 2018.

The study found that the premium and deductible changes varied sharply based on geographic location.

In five states, families were accountable for a third of the premium cost. Nine states—almost all located in the South—experienced premiums that consumed eight to ten percent of the family median income. Comparatively, premiums take up on average seven percent of the median income nationally.

Average deductibles in eighteen states hit five percent of median incomes or higher, as high as 6.7 percent of Mississippians’ median income. In that state, residents may expect to spend over 16 percent of their income on premiums and deductibles combined.

“Higher costs for insurance and health care have consequences,” the study said.

READ MORE: Regional Differences Seen in High-Deductible Health Plan Volume

In extreme but, potentially, increasingly common cases, high deductibles and premiums may cause employees to forego insurance altogether. The researchers pointed out that the Affordable Care Act plans and Medicaid are designed for lower income populations who may be facing the choice of covering rent or covering premiums. Some suggest expanding these services across income levels.

“But are the marketplace premiums and cost-sharing subsidies set at affordable levels for people across the income scale?” the researchers rebut. “Survey research indicates that many people, especially those with incomes just over the threshold for premium subsidies and cost-sharing reductions, may struggle to afford their premiums and deductibles.”

The study ends inconclusively, noting that some leaders support expanding the present resources to include a wider income pool, others support overhauling the entire system, and still other politicians decry both in favor of marketplace strategies. In each case, at least, policymakers share an urgency to move forward on a solution as premiums, deductibles, and healthcare costs continue to climb.

“The majority of people under age 65 in the U.S., 164 million, get their health insurance through an employer, and that insurance is less and less affordable for many of them,” said David Blumenthal, MD, Commonwealth Fund president. “Ensuring that everyone can afford health insurance and health care will require policy fixes and system-wide efforts to get to the heart of the health care cost problem — the exorbitant prices we often pay for health care in the United States."