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Analysis

13.3M Americans Spent More than 10% of Income on Premiums

By Jack O'Brien  
   May 23, 2019

Almost 24 million Americans with employer-sponsored coverage spent a large portion of their income on healthcare costs.

Despite having health insurance through their employer, 23.6 million Americans spent a significant amount of their personal income on healthcare costs, according to a study from the Commonwealth Fund released Thursday morning.

During 2016 and 2017, 13.3 million Americans spent more than 10% of their income on premiums, 6.2 million spent more than 10% on out-of-pocket costs, and 4.1 million spent more than 10% on both high premiums and high out-of-pocket costs.

On average, households spent $2,200 annually on premiums, while median out-of-pocket costs were $800, with the median spending amount for both combined metrics totalling $3,700 per year.

Related: Rising Prices Lead to All-Time High Healthcare Spending

On the high end of the spending range, families spent more than $8,000 on premiums and more than $5,000 on out-of-pocket costs, with some households spending more than $12,000 per year on premiums and out-of-pocket costs combined.

The Commonwealth Fund report details how maintaining health coverage has become a dilemma for families across the country given the rise in prices among other affordability challenges.

The report also comes two weeks after a RAND Corp. study found that private insurers paid hospitals twice as much as Medicare did in 2017.

Sara Collins, study coauthor and Commonwealth Fund vice president for healthcare coverage and access, told HealthLeaders that healthcare costs are the main driver of healthcare premiums and that there's a link between what people pay under their respective employer health plans and what the cost of that care is.

"We know people who are under-insured are much more likely to report not getting needed healthcare because of the cost," Collins said. "They're also more likely to have problems paying their medical bills. So on the care side, those higher costs are translating into plan design and affect people's decisions about whether to get healthcare and whether they are able to pay their copays or a trip to the emergency room with a high deductible that they may not have the money for."

Related: Private Insurance Accounted for Nearly Half of Prescription Drug Spending in 2017

The study also found a noticeable amount of variation in terms of premiums and out-of-pocket costs across the country, with overall healthcare costs higher in the northeast and out-of-pocket costs relative to income being higher in the south and west.

In the south, it is not uncommon to find large premium contributions relative to household income, according to the study, with five states reporting between 14% to 17.4% of income spent on premiums.

The Commonwealth Fund offers a handful of potential legislative solutions Congress could pursue to alleviate these problems, including a raise to the "minimum value standard," which is the average percentage of medical costs that employer plans must cover, and requiring plans to expand and standardize services exempt from deductibles.

Additionally, the report suggests Congress offer a refundable tax credit to Americans who have out-of-pocket spending that exceeds a certain percentage under their employer plans.

Despite the opportunity for Congress and state legislatures to act on making healthcare more affordable for individuals with employer-sponsored health coverage, the report urges systemwide reforms to "rein in the cost of healthcare."

"There is growing evidence that the prices paid to providers by private insurance are driving the growth that we're seeing," Collins said. "Prices seem to be the main source of growth as opposed to utilization. So in order to ensure that people are able to make sound decisions about their healthcare, we need to look at what the source of that cost is."

Related: 7 Steps to Hold Cost-of-Care Conversations With Your Patients

Collins added that employers are paying "quite a bit" for their health plans, which might force them to go to the source of the cost pressures and urge their insurers to enhance rate negotiations with providers. 

On the other hand, Collins said health system and hospital executives should view the study as further evidence that there is a direct relationship between the cost drivers in the system and the healthcare decisions that patients are making. 

"Healthcare is not like other markets, [because] in other markets the cost drives the price and is linkable to the costs," Collins said. "In healthcare, it's the opposite since prices are driving costs. [Consumers] make decisions about the prices we pay and that drives our overall costs. This feeds through the system into higher premiums, out-of-pocket cost exposure, and decisions people make about whether to have insurance and what kind of healthcare they're going to get."

Collins continued, saying this conundrum filters throughout the system and is a "universal issue that needs to be looked at frankly."

Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.


KEY TAKEAWAYS

4.1 million Americans spent more than 10% on both high premiums and high out-of-pocket costs in 2016 and 2017.

The median spending amount for both combined metrics totalled $3,700 per year.

Sara Collins, a coauthor of the study, said it's a systemwide issue that "needs to be looked at frankly."


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