In this episode, we are joined by Sara Collins, Vice President of Health Care Coverage and Access at The Commonwealth Fund, to discuss their study focusing on the extent to which people with moderate incomes in employer plans face high premium and deductible costs relative to their income.
Highlights of this episode include:
- Background on The Commonwealth Fund’s annual study which began in 2010.
- How premium contributions and deductibles in employer plans took up a growing share of workers’ incomes over the past decade.
- Ways that the coronavirus pandemic and recession will impact income and healthcare costs.
- What the study’s findings mean for healthcare policy moving forward?
- And more…
Mike Passanante: Hi, this is Mike Passanante and welcome back to the award-winning Hospital Finance Podcast®. Recently, the Commonwealth Fund examined the extent to which people with moderate incomes in employer health plans face high premium and deductible costs relative to their income. To discuss the results of the study and the implications for policyholders going forward, I’m joined by Sara Collins, Vice President of Health Care Coverage and Access at the Commonwealth Fund. Sarah, welcome to the show.
Sara Collins: Thank you so much, Mike.
Mike: So, Sarah, I want to start out by telling us why you initiated this study and what you were looking for.
Sara: Well, employer health coverage is really the backbone of the US health insurance system. More than half the population of the United States, about 160 million people get their coverage through an employer. So the purpose of this study was to look at trends over the last decade and the amount that workers and their families are paying for their employer health insurance and the size of their deductibles in all 50 states and the District of Columbia. And we compared these worker costs to median income in each state in order to get a sense of the economic burden of these costs on middle-income families.
Mike: And how did you go about conducting the research?
Sara: Well, we’ve been conducting the study nearly every year since 2010 using the latest data from what’s known as the insurance component of the Federal Medicare Medical Expenditure Panel survey. This survey is the most comprehensive national survey of US employer health plans. In 2019, which is the latest year of data that’s available, this survey interviewed more than 40,000 business establishments with an overall response rate of 59%. We computed from the survey reported statewide average premiums. So we take the premiums reported by business establishments and average them across the state, and we do the same for deductibles, and then we compared those averages to the median income in each state. So this provides a rough measure of the affordability and protectiveness of employer coverage and allows us to track changes over time.
Mike: And what did you find after you conducted this study?
Sara: We found that premium contributions and deductibles in employer plans took up a growing share of workers’ incomes over the past decade. Those costs together, so premium contributions and deductibles, accounted for 11.5% of median household income in 2019. This is up from about 9.1% a decade earlier. This cost burden in employer health plans has increased over the past decade because cumulative growth in median income has been slower than growth in premium contributions and deductibles. We also find that these contributions, premium contributions and deductibles, as well as median income vary considerably across the country. The total cost of premiums and deductibles across single and family policies ranged from a low of $5,500 in Hawaii to a high of more than $8,500 in nine states. Median income ranged from a low of about 49,000 in Mississippi and New Mexico to highs of around 90,000 or more in Massachusetts, Minnesota, New Hampshire, New Jersey. Well, workers pay towards their premiums and their deductibles comprised about 10% or more of median income in 37 states in 2019. This is up from about 10 states in 2010. In nine states, workers combined costs were 14% or more of median income. Workers in New Mexico and Louisiana faced the highest potential costs relative to their income, more than 17%. And we also find that people living in states that have lower median incomes like New Mexico are doubly burdened. On average, workers in states where the median income is lower than the national median income face higher premiums and deductibles compared to people in states with higher median incomes. We also find that many people in employer plans across the country are underinsured because their deductibles are high relative to their incomes. The Commonwealth Fund has found that insured people who have high out-of-pocket costs and deductibles relative to their income are more likely to face problems accessing care or paying medical bills than people who are not underinsured. We’ve defined someone with insurance as underinsured if their health plans deductible equals about 5% or more of income or if their out-of-pocket costs reach similar thresholds. In this study across the country, many people in employer plans are underinsured by this measure. Average deductibles relative to median income were 5% or more in 20 states and ranged as high as 7% in New Mexico.
Mike: So the billboard is that we’ve lost some ground over the last 10 years as it relates to the ratio of income to affordability.
Sara: That’s right. And it climbed steadily for a few years. And that ratio has actually been flat. So it hasn’t worsened significantly over the last couple of years, but it also hasn’t improved.
Mike: And what impact will the coronavirus pandemic and the associated recession likely have on income and healthcare costs going forward?
Sara: Well, first, we know now that the ongoing economic effects of the pandemic are depressing US income growth. So this means that even if premium contributions and deductibles in employer plans don’t change, let’s just say they stay flat in 2020, they could still take up a larger share of workers’ incomes in 2020 and 2021. The pandemic’s effects on actual premiums, premium contributions, and deductibles is uncertain. Both premiums and deductibles are driven by trends in health care costs. So those are the primary determinant. Overall spending determines how much premiums and deductibles grow every year. In the past year, we’ve seen both spikes in healthcare spending from COVID-19 hospitalizations. In some states obviously just huge issues right now, particularly in California. But we’ve also seen deep drops in spending from declines in elective surgery and other nonurgent care. People are just going to the doctor less because of the pandemic. And the net effect appears to be lower overall spending and higher profits for insurance companies. But because the Affordable Care Act requires insurers to return their excess profits to employers and their workers if the medical loss ratio requirement. This could mean lower premiums, in 2021, if insurers anticipate that these trends are going to continue. Just looking at an analysis of rate filings in the ACA marketplaces, for the 2021 plan year, gives some clues as to what we might see in the employer group market. But this analysis found that some insurers increased premiums for this plan year in anticipation of higher COVID-related costs, while others decreased premiums because they anticipate ongoing lower health care use. Just under half the plans that cited COVID in their rate filings as driving their premiums either viewed the countervailing effects on spending increases because of COVID, decreases because of underutilization as a wash, or noted that the effects were just too uncertain to have an impact on their premiums. In the employer market, even if premium contributions and deductibles fall, remain unchanged, or grow more slowly, incomes could fall or grow more slowly, leaving household cost burdens unchanged or even higher. So we really won’t know the full impact of COVID on the economic burden of health care costs on workers until we have 2020 and 2021 data.
Mike: Sara, what do you think the findings of this study mean for health care policy moving forward?
Sara: Well, the good thing is the ACA provides some cost protection to people with employer coverage and high-cost plans. First, people with low incomes, less than about 17,000 for an individual are eligible for Medicaid in the 38 states and DC that have expanded eligibility under the Affordable Care Act. This is true regardless of whether or not they’re offered a plan through their job. So you can be offered a plan through your job and still be– your income still makes you eligible for Medicaid, if your state expanded. People enrolled in Medicaid pay no premiums or cost sharing– or only very limited amounts. Second, people with employer premium costs that exceed 9.8% of their income are eligible for marketplace subsidies, so ACA at the ACA marketplaces. This means they can buy a plan through the ACA marketplaces and receive subsidies if their income is less than about 51,000 for an individual and their health plan meets that threshold of affordability for their employer. This triggers a federal tax penalty for their employers. This is the employer mandate. The penalty is also triggered if the actuarial value of their plan is less than 60%, meaning that it covers less than 60% of their costs, so they’d have really high deductibles and out-of-pocket costs.
But there’s a catch. These provisions only apply to single-person policies, which has left many middle-income families caught in what’s known as the family coverage glitch. They have an expensive family plan, but they don’t qualify for marketplace subsidies. The data in this report show that the average employee contribution to a family plan was 10% or more of median income in 8 states in 2019, so technically, above that 9.8% threshold that allows someone to become eligible for a single– at least if they’re a single plan– their single plan costs are higher. President-Elect Biden and members of Congress have proposed fixing this family coverage glitch, so making it apply to family plans, making that threshold apply to all family plans. They can do that either administratively– so President-Elect Biden can probably make a change through the rulemaking process, or Congress could pass legislation that would fix that. It could also ease ACA restrictions to give more people employer plans, a choice of enrolling in a plan offered through the marketplace.
So right now, there’s what’s known as a firewall. If you’re offered an affordable plan, by your employer, you’re not eligible for subsidies through the marketplaces. And so, there’s been some discussion, including President-Elect Biden’s health plan proposals when he was a candidate, to lower that firewall or make changes in the bylaw just to make it easier for people to access what could potentially be lower premium plans. And they’ve also proposed enhancing marketplace premium and cost-sharing subsidies and extending them further up the income scale, which would provide even more relief both to people in marketplace plans right now, but also people in employer plans who become eligible for the subsidies.
Finally, the 12 states that have expanded Medicaid are among those where workers are experiencing the highest cost burdens. Expanding Medicaid, if they’re– Texas and Florida are two examples of very large, heavily populated states that haven’t expanded yet. So workers in those states with unaffordable plans can’t enroll into Medicaid like they can in other states. So expanding Medicaid would provide a lot of relief to workers in those states. But clearly, the current COVID crisis in the non-expansion states and basically across the country might make it difficult for states to be able to pass legislation this year to do that. So in the absence of that, Congress could allow people who are eligible for Medicaid in those states to enroll in marketplace plans at zero premiums and to make it sort of equalized federal financing across the states because some states have expanded and are paying, that shared fee, the cost of that with the federal government. The federal government could also increase the federal matching rates to those states just to equalize the federal support, particularly in light of the fiscal crisis a lot of states are facing right now. So even these relatively small changes, the family coverage glitch, enhancing marketplace and cost-sharing subsidies, and providing some kind of federal fallback option for people who are eligible for Medicaid and non-expansion states could help millions of people that are struggling to afford their health care.
Mike: Great insights, Sara. And if someone wanted to read the detail of this study, where can they go?
Sara: They can go to our website, the Commonwealth Fund, which is www.commonwealthfund.org.
Mike: Sara Collins, thank you for joining us today on the Hospital Finance Podcast.
Sara: Thank you very much for having me, Mike.