Workers Face High Premiums for Employer-Sponsored Health Plans

Over 23 million beneficiaries on employer-sponsored health plans face high costs relative to their incomes.

By Sara Heath

May 24, 2019 - Workers enrolled in employer-sponsored health plans are paying an extraordinary amount for their health insurance, specifically through relatively high premiums and out-of-pocket costs, according to a recent report from the Commonwealth Fund.

The report, which looked at data from the Current Population Survey (CPS), outlined the costs that the 158 million individuals in an employer-sponsored plan must pay. While workers put money toward their health through various arrangements, the report specifically looked at premium and out-of-pocket costs relative to a beneficiary’s annual income.

When premium or out-of-pocket costs amounted to 10 percent or more of a household’s income, the researchers deemed that a relative high cost.

In total, 23.6 million households face high payer costs. Just over 13 million experienced relatively high premium costs, while 6.2 million had high out-of-pocket costs that stemmed from high deductibles. Over 4 million households experienced high costs for both premiums and out-of-pocket care.

There were considerable differences in premium costs across the country, the researchers added. In Hawaii, premiums were as low as $500, whereas costs reached $3,400 in South Dakota. In 11 states, households in the top 10 percent in premium spending saw over $9,000 in payer premiums.

The report did not disclose median incomes in various states, so it is unknown if the $500 premium paid in Hawaii was still a high cost relative to a potentially lower income.

There were also disparities in out-of-pocket spending based on state. In Hawaii, out-of-pocket costs totaled at $360. Out-of-pockets reached $1,500 in Nebraska.

In four states, the highest spenders were looking at nearly $7,000 in out-of-pocket spending. Between 4 and 11 percent of households had high out-of-pocket costs relative to their incomes.

There are numerous policy implications to this data, the report acknowledged.

Foremost, policymakers should fix the family coverage glitch, the report authors said. This glitch bars many families from accessing health insurance marketplace subsidies. This occurs because those subsidies are calculated based on figures for individuals, not families.

Currently, an individual with employer-sponsored healthcare premiums that are 9.9 percent of their income or higher qualified for subsidies on the insurance marketplaces. Making those subsidies available to families as well will help close the gap in affordable healthcare coverage, the researchers said.

Additionally, policymakers may consider increasing the minimum coverage standard. These standards establish a set percentage of the services to be covered under a certain employer-sponsored plan. Failure to meet those standards can result in financial penalties for plan and employer.

Increasing the minimum coverage standard will at the very least create a more comprehensive product, ideally cutting out-of-pocket costs.

A similar approach to coverage for preventive care will be key, the researchers added. Specifically, payers may reconsider the services that are exempt from the beneficiary’s deductible. Including more deductible-exempt services will chip away at out-of-pocket spending.

Finally, creating a tax credit for individuals or households whose out-of-pocket costs reach a certain percentage of their annual incomes could be helpful.

“If enacted, these policies could help reduce the health care cost burdens of millions of people with employer coverage,” the researchers stated. “But they must be paired with systemwide efforts to rein in the cost of health care — the main driver of growth in private insurance premiums and the trend toward greater consumer cost-sharing.”

Ultimately, it is these high service costs that lead to high payer costs. As premiums continue to rise and employers must pass along those costs to their employees, healthcare policymakers will need to contend with the rising price tag of certain services.

“Hospitals with more leverage in their markets are able to negotiate higher prices with insurers and employers,” the researchers concluded. “To arrest the growth in premiums and deductibles, more attention needs to be paid to what we pay hospitals and physicians.”

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