Premiums and Deductibles Account for 11.5% of Median Income

Employee payments for health insurance exceeded wage growth between 2008 to 2018, according to the Commonwealth Fund.

Middle class families spent 11.5% of their income on premiums and deductible costs in 2018, according to a Commonwealth Fund study released Thursday morning.

Additionally, health insurance payments grew at an average annual rate exceeding 4% between 2008 and 2018, well above wage growth over the same period.

The study found wide cost variation across the country, as the average total cost of premium contributions and deductible spending hit $7,388 last year. This ranged from $5,815 in Washington, D.C., to well over $8,000 in nine states.

Researchers concluded that high deductibles relative to median income leave workers vulnerable to high out-of-pocket costs, increase the risk of being "underinsured," and prompt many to avoid medical treatment.

The report is in line with a Commonwealth Fund report released in May that found 13.3 million Americans spent more than 10% of their income on premiums between 2016 to 2017.

David Blumenthal, MD, president of the Commonwealth Fund, told HealthLeaders that these trends will be "unfortunate for hospital finances" because of continued low utilization and the addition of bad debt to the bottom line.

"When people with high deductibles use their healthcare, they go home with unpaid bills which have to be collected and often they can't be afforded by the individuals who incurred them," Blumenthal said. "Though the Affordable Care Act (ACA) generally reduced uncompensated care for hospitals, this trend threatens to, at least in part, reverse that relief that the ACA provided."

Blumenthal added that hospitals, especially those with excess capacity, have struggled with dwindling utilization for inpatient services. The response was to raise prices, he said, which has created "public relations vulnerabilities" for providers but also shown that there is an indirect link between deductibles and hospital finances.

Sara Collins, vice president for health care coverage at the Commonwealth Fund, told HealthLeaders that primary driver for healthcare costs are provider prices and commercial-based health plans.

"So, to the extent that hospital prices are rising, that drives premium costs and deductible costs," Collins said. "People are facing higher deductibles [and] that reduces their incentive to get care from the very providers that are, on average, the source of the growth in their insurance costs."

Another complicating trend is that worker premium contributions accounted for 7% of median income in 2018, up from 5% in 2008.

The average annual employee premium contribution for family coverage was $5,431 in 2018, while the average premium contribution for single plans was $1,427.

The Commonwealth Fund also found that southern states have been the most adversely affected by high deductibles.

Using North Carolina as an example, Collins said that premium contributions are generally higher, on average, across the South.

Though this dynamic depends on what employers ask their employees to contribute for premiums, when coupled with lower median income, Collins said states like North Carolina carry a larger cost burden relative to other states like Massachusetts.

Jack O'Brien is the Content Team Lead and Finance Editor at HealthLeaders, an HCPro brand.