- Issue: With 2020 elections coming up, some Democratic presidential candidates and members of Congress have suggested ways to reduce costs of insurance and care, including proposals for employer plans, which cover roughly half the population of the United States.
- Goal: Examine trends in employer coverage over the past decade to determine how much workers are spending on premiums and deductibles and compare costs to median household income in each state.
- Methods: Data from the Medical Expenditure Panel Survey–Insurance Component (MEPS–IC), which surveyed more than 40,000 private-sector employers in 2018 on their health insurance plans.
- Key Findings and Conclusions: Average annual growth in the combined cost of employees’ contributions to premiums and deductibles outpaced growth in U.S. median income between 2008 and 2018 in every state. Middle-income workers spent an average 6.8 percent of income on employer premium contributions in 2018; per-person deductibles across single and family plans amounted to 4.7 percent of median income. Recent proposals would enhance the affordability and cost protection of Affordable Care Act marketplace plans, allow people with employer plans to buy coverage on the marketplaces, or replace private insurance with a public plan like Medicare.
Health care costs are a top concern for voters as the nation heads into the 2020 presidential election.1 Many people — an estimated 164 million under age 65, or roughly half the population of the United States — have insurance through employers.2 Sensing this concern, some Democratic presidential candidates and members of Congress have proposed ways to reduce the costs of health insurance and care. These have included proposals that would aid people in employer plans.
To examine trends in employer coverage over the past decade, we used data from the federal Medical Expenditure Panel Survey–Insurance Component (MEPS–IC), and asked: How much are workers spending on premiums and deductibles? How do those costs compare to median income in each state? To smooth year-to-year fluctuations, we examine two-year moving averages across the decade. The MEPS–IC, the most comprehensive national survey of U.S. businesses on their health insurance plans, surveyed more than 40,000 private-sector employers in 2018.3
Premium Growth in Employer Health Plans Has Ticked Up
Following a slowdown between 2012 and 2016, average annual growth in employer premiums (including contributions from both employers and employees) rose at a faster pace between 2016 and 2018, rising by 4.9 percent for single plans and 5.1 percent for family plans (Exhibit 1). The average annual growth rate from 2016–18 was 7 percent or higher in seven states for single-person plans and in eight states and the District of Columbia for family plans (Tables 1a and 1b). In 2018, average premiums for single-person plans ranged from a low of $5,971 in Tennessee to a high of $8,432 in Alaska. In family plans, the lowest average premium was $17,337 in North Dakota and the highest was $22,294 in New Jersey.
Workers’ Premium Payments Grew Faster Than Median Income over the Decade
U.S. workers contributed about 21 percent of the overall premium for single plans and 28 percent for family plans in 2018. This has not changed over the decade (Table 2). But in some states the share is much higher: workers were responsible for a third of their family plan premiums in Louisiana, Mississippi, Nevada, North Carolina, and Virginia.
Worker contributions to single-plan premiums averaged $1,427 in 2018. They ranged from a low of $755 in Hawaii to a high of $1,903 in Massachusetts (Exhibit 2, Table 3a). Contributions to family plans averaged $5,431 in 2018 and ranged from a low in Washington of $3,862 to a high of $6,597 in Virginia (Exhibit 3, Table 3b).
To see what these costs mean for people with middle incomes ($64,202 a year), we compared premium contributions to median household income in 50 states and D.C.4
Between 2008 and 2018, employee premium contributions — for both single and family plans — grew at an average annual rate higher than 4 percent, going as high as 6.4 percent between 2010 and 2012 (Exhibit 4). This was faster than growth in median household income over the same time period, which ranged from –1.5 percent during the deep recession of 2008 to 2010 to 3.8 percent in 2012 to 2014.
On average, the employee share of premium amounted to 6.8 percent of median income in 2018. This was up from 5.1 percent in 2008, but has remained largely constant since 2012 (Exhibit 5, Table 6). In nine states (Arkansas, Florida, Georgia, Louisiana, Mississippi, Nevada, New Mexico, North Carolina, and Texas), premium contributions were 8 percent or more of median income, with a high of 10 percent in Louisiana (Exhibit 6).
Average Deductibles Also Outpaced Growth in Median Income
In most states, even though people are paying high premiums relative to their income, they are potentially exposed to high out-of-pocket costs because of large deductibles. Research has indicated that high deductibles can act as a financial barrier to care, discouraging people with modest incomes from getting needed services and leaving them effectively underinsured. In studies of this phenomenon, the Commonwealth Fund has defined people as underinsured if their plans’ deductible equals 5 percent or more of income.5
In 2018, the average deductible for single-person policies was $1,846 (Exhibit 7, Table 4), with average deductibles ranging from $1,308 in D.C. and Hawaii to $2,447 in Maine.
Average deductibles grew faster than median income over the decade (Exhibit 4). While the gap narrowed over the most recent two-year period, deductible growth continued to outpace income growth.
The average deductible for a middle-income family amounted to 4.7 percent of income in 2018 (Exhibit 5, Table 6). This is up from 2.7 percent in 2008.
Across the country, average deductibles relative to median income were 5 percent or more in 18 states and ranged as high as 6.7 percent in Mississippi (Exhibit 8).
Premium Contributions and Deductibles Added Up to More Than 11 Percent of Median Income in 2018
Added together, the total cost of premiums and potential spending on deductibles across single and family policies climbed to $7,388 in 2018 (Table 5). This ranged from a low of $5,815 in D.C. to a high of more than $8,000 in Arizona, Minnesota, Nevada, New Hampshire, New Jersey, North Carolina, South Dakota, Texas, and Virginia.
The average annual growth in the combined costs of premiums and deductibles outpaced average annual growth in median income between 2008 and 2018 in every state. For people with middle incomes, these combined costs amounted to 11.5 percent of income in 2018 (Exhibit 5, Table 6). This is up from 7.8 percent in 2008. In 2018, premiums and deductibles were 10 percent or more of median income in 42 states, up from seven states in 2008. Five states (Arkansas, Florida, Louisiana, Mississippi, and Nevada) have combined costs of 14 percent or more of median income (Exhibit 9, Table 6). Middle-income workers in Louisiana and Mississippi faced the highest potential costs relative to their income (15.9% and 16.5%, respectively).
This measure does not account for coinsurance, which could increase employees’ costs even further.
Conclusions and Policy Implications
For U.S. families, the growth in employer health insurance costs has outpaced average growth in median income over the past decade. In addition, as costs have climbed, families haven’t received higher-quality insurance. In 18 states, the average health plan deductible is now 5 percent or more of income, meeting the threshold for underinsurance. While this study only considered families with middle incomes, lower-income families with employer coverage devote an even larger share of their income to health insurance and related costs.
People across the United States are not experiencing health care costs equally. Worker cost burdens are driven by four factors: the size of the overall premium, the share that employees contribute to those premiums, the size of their deductibles, and their income. In Mississippi, for example, people could spend more than 16 percent of their incomes on premiums and meeting deductibles, compared to an average cost burden of 8.4 percent in Massachusetts. In Mississippi, combined premiums and deductibles are higher than those in Massachusetts and Mississippi has the second-lowest median income in the country ($47,800) (Tables 5 and 7). In contrast, median income in Massachusetts is among the nation’s highest ($81,913).
Higher costs for insurance and health care have consequences. People with low and moderate incomes may decide to go without insurance if it competes with other critical living expenses like housing and food, which consumed 36 percent of average family income in 2018.6 Research indicates that high deductibles lead people to delay or skip needed health care and prescription medications.7
The Affordable Care Act (ACA) provides some cost protection to people with employer coverage. First, people with low incomes — less than 138 percent of poverty (or just under $17,000 for an individual) — are eligible for Medicaid in the 33 states, as well as D.C., which have expanded eligibility under the ACA. This is true regardless of whether or not they are offered a plan through their job. People enrolled in Medicaid pay no premiums or very limited premiums and face low or no cost-sharing. Second, people with employer premium expenses that exceed 9.86 percent of their income are eligible for marketplace subsidies, which trigger a federal tax penalty for their employers. This penalty is also triggered if the actuarial value of their plan is less than 60 percent (i.e., covers less than 60% of their costs on average). There’s a catch: these provisions only apply to single-person policies, leaving many middle-income families caught in the so-called family coverage glitch, where they have an expensive family plan but do not qualify for marketplace subsidies. The data in this report show that the average employee contribution to a family plan is 10 percent or more of median income in nine states (Tables 3b and 7).
What is the right level of premiums and cost-sharing for Americans? The ACA set standards for the marketplaces: required premium contributions for marketplace plans begin at 2.08 percent of income at the poverty level ($12,140 for an individual and $25,100 for a family of four) and rise to 9.86 percent for people at 300 percent to 400 percent of poverty ($36,420 to 48,560 for an individual and $75,300 to $100,400 for a family of four). The law also set standards for the benefits plans must cover and the amount that patients pay providers when they use their plans, with subsidies for people with lower incomes.8
Congress could extend these marketplace requirements to employer plans or allow all people with employer plans to buy coverage in the marketplaces. But are the marketplace premiums and cost-sharing subsidies set at affordable levels for people across the income scale? 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.9
Several Democratic members of Congress and presidential candidates have proposed enhancing the marketplace premium and cost-sharing subsidies and extending them further up the income scale.10 Others also would give people in employer plans the option of enrolling in a public plan offered through the marketplaces. Other members and candidates have suggested eliminating all private insurance and replacing it with a public plan like Medicare, and ending or reducing premiums and cost-sharing.11 Republican health reform ideas tend to favor replacing the ACA with market-oriented approaches that give states more discretion over insurance markets and the Medicaid program.12 We are certain to hear from voters on this issue in the coming year.