Have Health Insurance Costs for Working Americans Outgrown Wage Increases?

Health Letter, May 2015

By Azza AbuDagga, M.H.A., Ph.D.

In the November 2014 Health Letter, Public Citizen’s Health Research Group wrote about the U.S. health care system’s abysmal rankings in population health as well as health care access, efficiency, equity and quality compared to those of 10 other major industrialized countries.[1] In this article, we report results of a recent study comparing the costs of the U.S. employer-sponsored health insurance system relative to employee income. This comparison is critical because it affects most working Americans under 65.

The evidence for this comparison comes from a December 2014 report published by the Commonwealth Fund foundation. The report covered the period from 2003 to 2013 and found that the costs of health insurance have skyrocketed in recent years compared with average income.[2]

benefits
Image: zimmytws/Shutterstock.com

An unintended system

More than 150 million people — or approximately 60 percent of non-elderly Americans — receive their health insurance through their employers.[3] Interestingly, no other industrialized country in the world has a similar arrangement for providing health insurance.[4]

But in the U.S., employer-sponsored health insurance was not the product of a painstakingly designed health policy. It was a byproduct of federally imposed wage and price controls that prohibited employers from raising wages during World War II.[5] Because fringe benefits — such as health insurance and sick leave — did not count as wages under the cost control laws, employers began to offer health insurance to attract workers.[6] In 1943, the federal government permitted tax deductions for employer-sponsored health care, providing an additional incentive to perpetuate this unintended system.[7]

Today, these plans offer a common feature: premium-sharing. Employers contribute fixed percentages of the total premium (regular monthly fee) costs, up to certain dollar maximums, rendering employees responsible for the remaining costs.[8] For example, under the Federal Employees Health Benefits Program, the federal government subsidizes only 75 percent of the health plan premiums up to a dollar amount cap for federal workers.[9] This large employee contribution to health insurance premiums is also commonplace among private employers — both small and large.

Cost of employer health insurance and wages

Family coverage and incomes

The new Commonwealth Fund report found that the average health insurance premiums for employer-sponsored family coverage grew by 73 percent over the recent decade — from approximately $9,200 to $16,000 from 2003 to 2013, respectively. On the other hand, median family income rose only 16 percent over the same time period.

As a result, total premiums (including employer and employee shares) relative to income have continued to rise: Average annual family premiums were 23 percent of median family income in 2013, compared with just 15 percent in 2003 (see right panel of figure, below).

Single-person coverage and incomes The trend of disparity seen for family coverage also held for single-person coverage: Average health insurance premiums increased from approximately $3,500 in 2003 to $5,600 in 2013 (a 60 percent increase), while the corresponding median income for single-person households grew only 11 percent.

As a result, average annual health insurance premiums relative to median income for individuals increased from 14 percent in 2003 to 21 percent in 2013 (see left panel of figure, below).

Image: The Commonwealth Fund

Employee premium contributions

The report found that employers have passed a majority of the increases in health insurance costs to their employees over the past decade: Employees contributed 21 percent of the total premium for single-person coverage in 2013 — an increase from 17 percent in 2003. The actual average amount that employees contributed toward premiums almost doubled from approximately $600 in 2003 to $1,170 in 2013.

Deductibles more than doubled

To add insult to injury, over the past decade, employees paid increasingly larger premiums for plans that provided less financial protection. Partly responsible was the increased presence of deductibles (the out-of-pocket costs a patient pays before a health insurance company covers costs) and copayments (the fixed fees a patient pays with every use of a covered medical service, such as an office visit or prescription-drug purchase). For example, in 2013, 81 percent of employees were enrolled in a health plan with a deductible, compared to only 52 percent in 2003.

Additionally, the size of deductibles spiked dramatically. Average deductibles for a single person in employer health plans more than doubled — climbing from approximately $520 in 2003 to approximately $1,270 by 2013. The percent of median single-person income spent on the average deductible rose to 5 percent in 2013 from only 2 percent in 2003.

Taken together, the wages spent on employee premium contributions and deductibles for individual coverage amounted to 9 percent of median income by 2013, compared to 5 percent in 2003.

Trends after health care law

The report notes that the rising costs of employer-sponsored health insurance premiums and cost-sharing has slowed down a little since the enactment of the health care law known as the Affordable Care Act (ACA).

In the years before the ACA (from 2003 to 2009), premiums for single-person plans grew at an average annual rate of 5 percent. Growth slowed to 4 percent per year in the three years since the ACA was enacted (from 2010 to 2013). Likewise, the average annual rate of growth in deductibles exceeded 10 percent in the years prior to the ACA but slowed to 7.5 percent since the ACA.

Conclusion

Over the past decade, the growth in the costs of health insurance premiums outpaced wages for the American population covered by employer-sponsored health insurance. And too many employers opted to deal with the escalating premiums by passing on increasingly larger shares of insurance costs to their employees.

Although the slight slowing of the growth in premium and deductible rates after the ACA’s enactment is promising, it does not appear to translate into a substantial respite for employees.

These findings demonstrate the dramatic increase in costs of, and erosion of benefits provided by, employer-sponsored private health insurance to the under-65 workforce population. Moreover, health care reforms such as the ACA have done little to address the serious deficiencies in the current structure of the American health care system. Public Citizen continues to fight for the implementation of a single-payer national health care system, which would guarantee an equitable and affordable health care coverage to all U.S. workers and non-workers alike.


References

[1] Carome M. Dead last: U.S. health care system continues to rank behind other major countries. Health Letter. November 2014. https://www.citizen.org/our-work/health-and-safety/articles/dead-last-us-health-care-system-continues-rank-behind-other. Accessed March 26, 2015.

[2] Collins S, Schoen C, Beutel S. National trends in the cost of employer health insurance coverage, 2003-2013. Issue Brief. 2014;32(December):1-9. http://www.commonwealthfund.org/~/media/files/publications/issue-brief/2014/dec/1793_collins_nat_premium_trends_2003_2013.pdf. Accessed March 26, 2015.

[3] Ibid.

[4] Reinhardt UE. Is employer-based health insurance worth saving? New York Times. May 22, 2009. http://economix.blogs.nytimes.com/2009/05/22/is-employer-based-health-insurance-worth-saving/?_r=0 Accessed March 27, 2015.

[5] Buchmueller TC, Monheit AC. Employer-sponsored health insurance and the promise of health insurance reform. Inquiry. 2009;46(2):187-202.

[6] Ibid.

[7] Burman L. The Tax Treatment of Employment-Based Health Insurance. Washington, D.C.: Congress of the U.S. Congressional Budget Office; 1994. https://www.cbo.gov/publication/20021. Accessed March 27, 2015.

[8] Liu Y, Jin GZ. Employer contribution and premium growth in health insurance. J Health Econ. 2015;39:228-247. http://www.sciencedirect.com/science/article/pii/S0167629614001131. Accessed March 25, 2015.

[9] Florence CS, Thorpe KE. How does the employer contribution for the federal employees health benefits program influence plan selection? Health Aff. 2003;22(2):211-218. doi:10.1377/hlthaff.22.2.211.