Roughly half the population of the United States — about 160 million people — had insurance through employers just prior to the start of the coronavirus pandemic.1 The pandemic’s massive disruption to the economy resulted in a loss of coverage for an estimated 14.6 million workers and their dependents by June of this year.2 The crisis will likely lead to additional losses well into 2021. Millions who still have employer benefits have lost wages and income, making their insurance costs an increased burden on household budgets.
The Affordable Care Act provides a safety net for people who lose employer coverage by offering coverage through the individual market and the marketplaces or Medicaid. However, while people with unaffordable employer plans have some options through Medicaid and the marketplaces, these options are limited and eligibility rules are complex.
In this brief we focus on the extent to which people with moderate incomes in employer plans face high premium and deductible costs relative to their income. We examine trends in each state over 2010–2019, just before the pandemic hit, using the most recent data from the federal Medical Expenditure Panel Survey–Insurance Component, to inquire: How much were workers spending on premiums and deductibles? How do those costs compare to median income in each state? 3
- Premium contributions and deductibles in employer plans accounted for 11.5 percent of median household income in 2019, up from 9.1 percent a decade earlier.
- Premium contributions and deductibles were 10 percent or more of median income in 37 states in 2019, up from 10 states in 2010. Nine states have combined costs of 14 percent or more of median income.
- The total cost of premiums and potential spending on deductibles across single and family policies ranged from a low of $5,535 in Hawaii to a high of more than $8,500 in nine states.
- If premiums and deductibles do not fall this year, household income lost during the current economic crisis will increase cost burdens for middle-income families.
Premium contributions and deductibles in employer plans took up a growing share of worker’s incomes over the past decade. Those costs together accounted for 11.5 percent of median household income in 2019, up from 9.1 percent a decade earlier (Table 6).
On average, the employee share of premium amounted to 6.8 percent of median income in 2019. This was up from 5.8 percent in 2010 but has remained largely constant since 2015 (Table 6).
The average deductible for a middle-income household amounted to 4.7 percent of income in 2019 (Table 6). This was up from 3.3 percent in 2010.
Premium contributions and deductibles were 10 percent or more of median income in 37 states in 2019, up from 10 states in 2010. Nine states (Arkansas, Florida, Louisiana, Mississippi, New Mexico, Oklahoma, South Carolina, Tennessee, and Texas) have combined costs of 14 percent or more of median income (Table 6). Middle-income workers in New Mexico and Louisiana faced the highest potential costs relative to their income (17.4% and 17.2%, respectively).
Added together, the total cost of premiums and potential spending on deductibles across single and family policies climbed to $7,806 in 2019 (Table 5). This ranged from a low of $5,535 in Hawaii to a high of more than $8,500 in nine states (Florida, Louisiana, Missouri, New Hampshire, Oklahoma, South Carolina, South Dakota, Tennessee, and Texas).
Workers across the income spectrum have experienced steady growth in the combined cost of premiums and deductibles. But people living in states with lower median incomes are doubly burdened. On average, workers in states where the median income is lower than national median income face higher absolute costs compared to people in states with higher median incomes.
Looking at voting patterns in the 2020 presidential election, on average workers in states that President Trump won have higher premium and deductible burdens relative to median income than those who voted for President-elect Joe Biden.
U.S. workers in employer plans contributed about 21 percent of their overall premium for single plans and 28 percent for family plans in 2019. This has not changed over the decade (Table 2). In some states the share is much higher; workers were responsible for a third or more of their family-plan premium in 10 states (Arkansas, Delaware, Florida, Louisiana, Maryland, Mississippi, Missouri, New Mexico, South Carolina, and South Dakota).
Worker contributions to single-plan premiums averaged $1,489 in 2019. They ranged from a low of $718 in Hawaii to a high of $1,793 in Massachusetts (Table 3a). Contributions to family plans averaged $5,726 in 2019 and ranged from a low of $3,685 in Michigan to a high of $8,202 in South Carolina (Table 3b).
In nine states (Arkansas, Florida, Georgia, Louisiana, Mississippi, New Mexico, Oklahoma, South Carolina, and Texas), premium contributions were 8 percent or more of median income, with a high of 10.7 percent in South Carolina (Table 6).
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. This a particular problem during the COVID-19 pandemic, when people with symptoms may delay care because of cost concerns.
In 2019, the average deductible for single-person policies was $1,931 (Table 4), with average deductibles ranging from $1,264 in Hawaii to $2,521 in Montana.
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 and paying medical bills than those who do not. We have defined someone with insurance as “underinsured” if their plan’s deductible equals 5 percent or more of income or if their out-of-pocket costs reach similar thresholds.4
Across the country, many people in employer plans are underinsured by this measure. Average deductibles relative to median income were 5 percent or more in 20 states and ranged as high as 7 percent in New Mexico (Table 6).
In this analysis, the burden of health care costs for U.S. workers with job-based health insurance is determined by three factors: median income, premium contributions, and deductibles. This cost burden has increased over the past decade because cumulative income growth over this period has lagged growth in premium contributions and deductibles. While our research indicates that the burden has not worsened significantly over the past couple years, it has not improved, either. A recent survey of employer benefits in the first half of 2020 reached a similar conclusion.5
But what impact will the coronavirus pandemic and the associated recession have on these variables? First, it is likely that the deep and prolonged recession will lower U.S. median income growth. While the recession initially had the greatest impact on industries most affected by the pandemic, those effects are now spilling over into other sectors.6 This means that even if premium contributions and deductibles do not change, they could take up a larger share of workers’ incomes in 2020 and 2021.
The pandemic’s effects on premium contributions and deductibles is uncertain. Both variables are driven by trends in health care costs. The past year has seen both spikes in health care spending from COVID-19 hospitalizations and deep declines in spending from drops in elective surgery and other nonurgent care. The net effect appears to be overall lower spending and higher profits for insurance companies. Because the Affordable Care Act (ACA) requires insurers to return excess profits to employers and their workers, this could mean lower premiums in 2021 if insurers anticipate these trends will continue. An analysis of rate filings in the ACA marketplaces for the 2021 plan year found that some insurers increased premiums in anticipation of higher COVID-19-related costs while others decreased premiums because they anticipate ongoing lower health care use.7 Just under half of plans that cited COVID-19 in their rate filings either viewed the countervailing effects on spending as a wash or noted the effects were too uncertain to have an impact on 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 higher.
Higher health insurance cost burdens will place people in a precarious spot. People with low and moderate incomes may decide to go without insurance if it competes with other expenses — for example, housing and food, which consumed 35 percent of average family income in 2019.8 People who are uninsured or underinsured may forgo getting tested for COVID-19, delay getting care if they fall ill, or delay getting vaccinated when that becomes possible.9
The ACA provides some cost protection to people with employer coverage in high-cost plans. First, people with low incomes — less than 138 percent of the federal poverty level (or $17,609 for an individual) — are eligible for Medicaid in the 38 states, as well as D.C., that have expanded eligibility under the ACA. This is true regardless of whether they are offered a plan through their job. People enrolled in Medicaid pay no premiums or cost-sharing or very limited costs. Second, people with employer premium expenses that exceed 9.83 percent of 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). But 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 if 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 was 10 percent or more of median income in eight states in 2019 (Tables 3b and 7).
President-elect Biden and members of Congress have proposed fixing the family coverage glitch or further easing ACA restrictions to give more people in employer plans a choice of enrolling in a plan offered through the marketplaces. They also would enhance marketplace premium and cost-sharing subsidies and extend them further up the income scale.10 The 12 states that have not yet expanded Medicaid are among those where workers are experiencing the highest cost burdens. Expanding Medicaid would provide relief. These changes have the potential to help millions of people struggling to afford their health care.