In the years since the Affordable Care Act (ACA) took effect, public debate over the cost and quality of insurance has focused primarily on health plans sold through the marketplaces established by the law. There has been less attention on the 158 million Americans who have employer-based coverage.1
Faced with rising premiums, U.S. employers are sharing more of their costs with their workers, particularly through higher deductibles, copayments, and coinsurance. Recent research indicates that employer plan premium contributions and out-of-pocket costs, like those for prescription drugs, are eating up an increasing portion of household budgets.2
In this brief, we use findings from the Current Population Survey (CPS), a federal survey of households, to report on the amounts that workers under age 65 and their dependents spent on premium contributions for their employer coverage and on out-of-pocket costs for health care. We also report on the percentage of people in each state who faced premium contributions or out-of-pocket expenses that were high relative to their income in 2016–2017 (see “Definitions” box).
This brief complements an earlier Commonwealth Fund state-level analysis of the size of employee premium contributions and deductibles reported by employers. The previous report looked at what workers were at risk of spending out of pocket to meet their deductibles when they used their insurance.3 This brief examines what workers report actually spending on care for themselves and their families.
This brief focuses on U.S. households in which all members are under age 65 and have employer coverage.
- Households have high premium contributions relative to income if the total annual amount they pay for their employer plan premiums equals 10 percent or more of annual household income.
- Households have high out-of-pocket costs relative to income if the total annual amount they pay out of pocket for medical expenditures not covered by their employer plan — such as payments for doctor or dental visits, prescription medicine, eyeglasses and contacts, and medical supplies (excluding over-the-counter items) — is 10 percent or more of annual household income, or 5 percent or more for families earning less than 200 percent of the federal poverty level.
- Households have high premium contributions and high out-of-pocket costs relative to income if their household expenditures meet both of the above definitions.
- The median, or midpoint, of annual household spending on employer insurance premium contributions ranged from $500 (Hawaii) to $3,400 (South Dakota) in 2016–2017. In 11 states, households in the top 10 percent of spending on premium contributions paid $9,000 or more.
- Across states, 6 percent to 17 percent of people with employer coverage had household premium contributions that were high relative to their income. High premium contributions relative to income were common across the South.
- Median annual out-of-pocket spending on medical care ranged from $360 (Hawaii) to $1,500 (Nebraska). In four states, households in the top 10 percent of out-of-pocket expenses spent $7,000 or more on these items.
- Across states, 4 percent to 11 percent of people with employer coverage had high out-of-pocket costs relative to household income.
High Cost Burdens
- An estimated 23.6 million Americans with employer coverage had high premium contributions or high out-of-pocket costs relative to income, or both.
Total Household Spending
- The median amount spent on both premiums and out-of-pocket costs ranged from $1,500 (Hawaii) to $5,540 (South Dakota).
Spending on premium contributions and out-of-pocket costs among households covered by employer plans can range widely. Households in the midrange (median) spent $2,200 annually in health plan premium contributions in 2016–2017 (Table 1). But there are households that contribute nothing toward their employer premiums, since some firms cover 100 percent of their employees’ premiums.
At the high end of the spending range, households spent $8,000 on premiums, nearly four times the median. Households with high premium contributions, however, may have plans that require little cost-sharing — like no deductible. But others have coverage with both high premiums and high deductibles.4
Some households reported spending nothing on medical care, but most households incurred at least some out-of-pocket costs, which in our analysis includes spending on payments for doctor or dental visits, prescriptions, eyeglasses and contacts, and medical supplies (excluding over-the-counter items). Median spending on out-of-pocket costs over the course of a year was $800, but at the high end, households spent $5,000 (Table 2).
While household size affects both premium contributions and out-of-pocket expenses, the health status of family members can cause out-of-pocket spending to vary dramatically from year to year, not only between households but within the same household.
Premium contributions for job-based insurance, out-of-pocket health expenses — or both — place a weighty financial burden on an estimated 23.6 million Americans.
We find an estimated 17.4 million working-age adults and children — 11.6 percent of those living in nonelderly households with employer coverage — had high premium contributions relative to income. This means household spending on plan premiums equaled or exceeded 10 percent of income.
Aside from premiums, an estimated 10.3 million working-age adults and children — 6.8 percent of those in nonelderly households with employer coverage — had high out-of-pocket costs relative to income. Our study considered such spending to be high if it accounted for 10 percent or more of household income, or 5 percent or more for households below 200 percent of the federal poverty level (about $24,000 for a single person in 2016).5
Four million adults and children were counted in both groups. They lived in households that were saddled with high premium contributions and high health-related out-of-pocket expenses relative to income (Tables 3 and 4).
The median annual amount households with employer coverage spent on premiums alone varied widely across states, ranging from $500 in Hawaii to nearly seven times that — $3,400 — in South Dakota in 2016–2017 (Table 1). In eight states, the median amount spent was $3,000 or more. Five of the states with the highest median premium contributions were in New England, though three of these (Connecticut, Massachusetts, and New Hampshire) also had the highest median incomes of any state in the country.6
In 11 states, households in the top 10 percent of spending on premiums paid $9,000 or more (Table 1). In about half these states (Louisiana, Maine, North Carolina, South Dakota, and Texas), median income was below the U.S. median of $62,000.7
Across the U.S., the proportion of residents under age 65 with employer coverage who had high premiums relative to income ranged from 6.1 percent in the District of Columbia to 17.4 percent in Louisiana (Table 1). These households spent at least 10 percent of household income on premium contributions.
In nearly half of states, at least 12 percent of working-age adults and children were in households that had high premium contributions relative to income. Five of the eight states with the greatest percentages of people who had high premiums relative to income were in the South.
In only one state, Hawaii, was the median amount spent on out-of-pocket costs less than $500. In half of states, households at the midpoint, or median, of spending on out-of-pocket costs had at least $1,000 worth of medical expenses. Nebraskans had the highest median household spending on out-of-pocket costs: $1,500.
In four states, households in the top 10 percent of spending on out-of-pocket costs paid $7,000 or more (Table 2).
Looking at how much these out-of-pocket expenses are relative to income, between 3.7 percent (the District of Columbia and Rhode Island) and 10.8 percent (Utah) of under-65 adults and children with employer coverage were in households that had high out-of-pocket expenses relative to income.
In eight states, about one in 10 people with employer coverage lived in households with high out-of-pocket expenses relative to income (Table 2).8 States in the South and West had the highest rates — 9 percent to nearly 11 percent.
Generally, health plans with lower premiums tend to have higher deductibles and more cost-sharing, and vice versa. And some people just don’t use much health care during the year, regardless of how much they spend on premiums.
At the national level, combined household spending on both premium contributions and out-of-pocket costs ranged from $300 at the low end to $12,080 at the high end. The spending midpoint, or median, was $3,700 (Table 3). Across states, median spending on premium and out-of-pocket costs combined ranged from $1,500 in Hawaii to $5,540 in South Dakota. The share of people in households with both high premiums and high out-of-pocket costs relative to income was small — 2.7 percent nationally.
Many U.S. households with employer-based health coverage are burdened by high premium costs, high out-of-pocket expenses, or both.
There are several policy options that could reduce this increasing cost burden. To lower households’ premium contributions to employer plans, Congress could:
- Fix the so-called family coverage glitch by pegging affordability and access to marketplace subsidies to the cost of family coverage rather than single coverage. Currently, under the Affordable Care Act, a worker with employer premium expenses for a single-person plan that exceed 9.9 percent of income may be eligible for subsidized marketplace coverage. But families that spend that much for a family plan are not eligible, creating the family coverage glitch.9
- Raise the “minimum value standard,” or the percentage of medical costs that employer plans must cover, on average. When a plan fails to meet this standard, the employer is subject to a penalty, and enrollees may be eligible for tax credits to buy marketplace coverage.
To improve the financial protectiveness of employer plans, Congress could:
- Require plans to expand and standardize the set of services that are exempt from the deductible. The ACA requires all health plans to cover a range of preventive care services before the deductible kicks in, and many employer plans already voluntarily exclude additional services from the deductible. But the number and type of additional excluded services varies considerably.10
- Make a refundable tax credit available to people with employer coverage whose out-of-pocket spending for health care exceeds a certain percentage of income.11
If enacted, these policies could help reduce the health care cost burdens of millions of people with employer coverage. 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.
There is growing evidence that the primary driver of per capita costs in private insurance are prices paid to providers.12 These prices vary across states and even within the same markets since they are the consequence of private negotiations between providers and insurers. Hospitals with more leverage in their markets are able to negotiate higher prices with insurers and employers. To arrest the growth in premiums and deductibles, more attention needs to be paid to what we pay hospitals and physicians.
How We Conducted This Study
This analysis uses data from the U.S. Census Bureau’s Current Population Survey (CPS), Annual Social and Economic Supplement, specifically the September 2017 and 2018 data releases reflecting health insurance costs in 2016 and 2017. Our estimates are based on an average of two years of survey data to ensure adequate sample size at the state level.
Based on these data, we estimated the dollar amount that households (including single-person households) comprising people under age 65 with employer coverage spent on premium contributions and, separately, on out-of-pocket costs.
We chose to report the median dollar amount spent rather than the average because in some states there were a very small number of households that had much higher spending than all the others. These outliers pull up the average, making spending on premiums and on out-of-pocket costs appear higher than it actually is for the typical household. The median, which is the midpoint of all the values, is not affected by these outliers, and therefore provides a better representation of what households in the middle of the range are spending. To be consistent, we report the median amount (as opposed to the average) spent at the national level as well. We also report the dollar amounts that represent the 10th and 90th percentiles of the spending distribution for premium contributions and out-of-pocket expenses in each state and at the national level. This helps illustrate the wide range in household spending for employer coverage that exists within states and across the country.
CPS respondents were grouped to ensure that individuals residing in the same household were likely to purchase health insurance together (referred to as a health insurance unit, or HIU).
Out-of-pocket expenses included cost-sharing payments (copayments or coinsurance) to health care providers (doctors, dentists, hospitals) or direct payment for services that fall within plan deductibles; payments for diagnostic tests, prescription medicines, glasses and contacts, and medical supplies. Out-of-pocket expenses did not include the cost of insurance premiums or over-the-counter health care items.
Annual household premium contributions were considered high relative to income if they totaled 10 percent or more of a household’s annual income.
Out-of-pocket costs were considered high relative to income if they totaled 10 percent or more of a respondent’s annual household income, or 5 percent or more if the respondent’s household income was less than 200 percent of the federal poverty level ($23,760 for a single person in 2016).
The authors thank Sherry Glied and Ougni Chakraborty of New York University for their analytic support, including initial work to group respondents into HIUs and aggregating household spending on health insurance and health-related out-of-pocket expenses. The authors also thank David Blumenthal, Munira Gunja, Herman Bhupal, Chris Hollander, Paul Frame, and Jen Wilson, all of the Commonwealth Fund.
1. Sara R. Collins, Herman K. Bhupal, and Michelle M. Doty, Health Insurance Coverage Eight Years After the ACA: Fewer Uninsured Americans and Shorter Coverage Gaps, But More Underinsured (Commonwealth Fund, Feb. 2019).
3. Sara R. Collins and David C. Radley, The Cost of Employer Insurance Is a Growing Burden for Middle-Income Families (Commonwealth Fund, Dec. 2018).
5. The two thresholds we use to identify people who had high out-of-pocket spending on medical care relative to income have been used in previous Commonwealth Fund analyses. See Sara R. Collins, Munira Z. Gunja, and Michelle M. Doty, How Well Does Insurance Coverage Protect Consumers from Health Care Costs?: Findings from the Commonwealth Fund Biennial Health Insurance Survey, 2016 (Commonwealth Fund, Oct. 2017); and Cathy Schoen et al., America’s Underinsured: A State by State Look at Health Insurance Affordability Prior to the New Coverage Expansions (Commonwealth Fund, Mar. 2014).
8. In Arizona, Arkansas, Idaho, Nebraska, North Carolina, Oregon, Utah, and Wyoming, 9.5 percent to 10.8 percent of people in nonelderly households with employer coverage had high out-of-pocket costs relative to income.
9. Christine Eibner, Sarah Nowak, and Jodi Liu, Hillary Clinton’s Health Care Reform Proposals: Anticipated Effects on Insurance Coverage, Out-of-Pocket Costs, and the Federal Deficit (Commonwealth Fund, Sept. 2016).
10. Munira Z. Gunja, Sara R. Collins, and Sophie Beutel, How Deductible Exclusions in Marketplace Plans Improve Access to Many Health Care Services (Commonwealth Fund, Mar. 2016).
11. Eibner, Nowak, and Liu, Hillary Clinton’s Health Care, 2016.
12. Chapin White and Christopher Whaley, Prices Paid to Hospitals by Private Health Plans Are High Relative to Medicare and Vary Widely: Findings form an Employer-Led Transparency Initiative (RAND Corporation, May 2019); Health Care Cost Institute, 2017 Health Care Cost and Utilization Report (HCCI, Feb. 2019); Zack Cooper et al., “Variation in Health Spending Growth for the Privately Insured from 2007 to 2014,” Health Affairs 38, no. 2 (Feb. 2019): 230–36; Gerard. F. Anderson, Peter S. Hussey, and Varduhi Petrosyan, “It’s Still the Prices Stupid: Why the U.S. Spends So Much on Health Care, and a Tribute to Uwe Reinhardt,” Health Affairs 38, no. 1 (Jan. 2019): 87–95; and Christopher F. Koller, “Health Care Costs — Mapping the Forest and Finding a Path,” The View from Here (blog), Milbank Memorial Fund, Feb. 21, 2019.