How affordability of health care varies by income among people with employer coverage

The affordability of health insurance and health care continue to be key public concerns.  While recent policy discussions have largely focused on the adequacy of financial assistance for those covered in ACA marketplaces and the nongroup market, millions of people with low incomes get their coverage through a workplace, where there are fewer protections from high costs. 

Lower income people with employer coverage spend a higher share of their income on premiums and out-of-pocket medical costs Click To Tweet In this brief, we use information from the Current Population Survey to look at the average amounts and the shares of family income people in working families with employer-based coverage pay out-of-pocket toward their premiums and direct payments for medical care. We find that lower income families spend a greater share of their income on health costs than those with higher incomes, and that health status of family members is associated with higher out-of-pocket expenses. 

The Annual Social and Economic Supplement (ASEC) to the Current Population Survey provides information about employment, income, health coverage and demographic characteristics of people living outside of institutions in the US.  Beginning in 2011, the ASEC began collecting information from respondents on the amounts they pay out-of-pocket for health insurance premiums and medical care, which we use to measure average out-of-pocket spending by people at different levels of poverty.  We focus on working families by limiting the analysis to non-elderly people with employer-based coverage living with one or more family members who are full-time workers and have employer-based coverage through their own job.  We exclude people who report other types of coverage. This represents more than 101 million non-elderly people with job-based coverage, including more than 8 million with family incomes of less than twice poverty and almost 29 million with incomes between 200 and 400 percent of poverty.  

People with lower incomes spend a significantly higher share of their family income towards premium contributions and out-of-pocket medical expenses

Among people with employer-based coverage, the shares of family incomes going to health insurance premium contributions and payments for medical care vary considerably by income.  For those in families with incomes below twice the poverty level, the average family payments for health insurance premiums and medical care, combined, average about 14% of family income.  

Among families with employer-based coverage, combined premium contributions and out-of-pocket payments are higher, on average, for those with a sick family member than for those without a family member in worse health. This is the case across all income categories.  

Families with at least one member in worse health spend a more significant share on their income on premium contributions and out-of-pocket expenses

Living with someone in fair or poor health adds significantly to family health care spending, even for people with employer-based coverage.  Compared to people who have, or live with people who have, better health, the share of family income going to premium contributions and medical expenses for people in, or living with someone in, fair or poor health is roughly 30% to 60% higher.

Out-of-pocket medical costs are higher for sick people across all incomes 

Average out-of-pocket payments for premium contributions and medical care, by poverty and health status, 2017
 

Premium

(employee contribution)

Out-of-pocket

payments for medical care

Combined

(premium contribution + out-of-pocket payments for medical care)

Poverty Category (FPL) Better Health Worse Health Better Health Worse Health Better Health Worse Health
199% or less $2,601 $3,227 $1,403 $2,307 $4,004 $5,534
200-399% $3,192 $4,103 $1,732 $3,950 $4,923 $8,053
400% or more $3,893 $4,470 $2,511 $5,390 $6,404 $9,859
  Source: KFF analysis of Current Population Survey data

Within poverty levels, premiums are relatively consistent for families who receive health insurance through an employer, regardless of health status. However, medical costs show variation in expenditure levels depending on the health of family members. 

Discussion 

Employer-based coverage is by far the largest source of health insurance for the nonelderly, but its degree of financial protection varies considerably across the income scale.  People in lower-income families (below twice poverty) have out-of-pocket costs of almost 14% of their income, on average, compared to 8% for people in families with incomes between 200% and 400% of poverty, and 5% for people with incomes of 400% of poverty or more.  While federal law has significant financial protections for lower-income people enrolled in subsidized health plans in the Affordable Care Act (ACA) marketplace or in Medicaid, there are no similar subsidies that apply to employer-based plans, which may expose low and moderate-income families to many thousands of dollars for premium contributions and cost sharing.   

Under the Affordable Care Act (ACA), employers with more than 50 employees must offer full-time workers coverage that meets standards for affordability and comprehensiveness or face a tax penalty. Coverage is considered affordable to the employee (and to the employee’s family members) if the contribution required for employee-only coverage is less than 9.86% of family income (employers can use the employee’s wage as a safe harbor). The test for single-only coverage is applied even if the employee chooses family coverage with a contribution that is a much higher share of income (something known as the “family glitch”). In addition, the comprehensiveness standard, which governs the share of claims that the plan must pay on average, permits plans with significant deductibles and out-of-pocket limits: for example, a plan with a $6,000 deductible for single coverage or $12,000 for family coverage would be permitted. It is apparent that a family with income at 200% of poverty (just over $50,000 for a family of four) could quite easily spend more than 20% of pre-tax income for premium contributions and cost sharing if a family member experienced a serious illness or needed costly treatment.

The issue arises in part because the employer-based plans tend to have similar provisions and similar costs for people across the income spectrum. While a few employers reduce premium contributions for their lower-paid employees, this is not generally the case.  Out-of-pocket costs that may be manageable for families with higher incomes (more than one-half of enrollees in employer-based plans have incomes above 400% of the poverty level) may be very difficult to manage for those with fewer resources. Not surprisingly, over time as the cost of coverage has risen, the shares people with employer-based coverage has fallen among those with lower and moderate incomes, but has remained fairly stable for people with incomes above 400 percent of poverty.

While the ACA helped to improve health care affordability for many low-income people without access to employer coverage, it did little to provide relief to the much larger group of people offered health benefits at work. That may be part of what is fueling interest in proposals like Medicare-for-all and options for employers and/or workers to buy into Medicare. 

Methods

These findings are representative of more than 101 million non-elderly people with job-based coverage, including more than 8 million with family incomes of less than twice poverty and another almost 29 million with incomes between 200 and 400 percent of poverty. A “family” is related people living in the same household.  Subfamilies are considered part of one family.  In looking at the shares of family income spent on premium contributions or medical care, families with income of $0 or less and no spending toward premium contributions and/or medical care are considered to spend zero percent of their income in the relevant category.  For families with incomes of less than $5,000 and spending on premium contributions and/or medical spending of $5,000 or more,  their ratio of spending on premium contributions or medical care to income is capped at 1.  We did not include out-of-pocket spending on over-the-counter items as spending for medical care.  The analysis does not consider potential tax deductions that may be available for premium contributions or out-of-pocket medical spending.  

Appendix

Average out-of-pocket payments for premium contributions and medical care, by poverty, 2017
 
Single
                                      Family

Poverty Category (FPL)

Premium (employee contribution)

Out-of-pocket payments for medical care

Combined (premium contributions + out-of-pocket payments for medical care)

Premium (employee contribution)

Out-of-pocket payments for medical care

Combined (premium contribution + out-of-pocket payments for medical care)

199% or less $1,385 $672 $2,057 $3,026 $1,732 $4,758
200-399% $1,399 $660 $2,059 $3,833 $2,295 $6,128
400% or more $1,667 $975 $2,642 $4,286 $2,958 $7,243
   Source: KFF analysis of Current Population Survey data