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An In-Depth View on Employer-Sponsored Health Insurance Plans

financial planning economy retirement

An In-Depth View on Employer-Sponsored Health Insurance Plans

This month for our Investing Basic Series, I thought it would be timely to discuss Employer-Sponsored Health Insurance because the news is filled with data on how health care costs are rapidly outpacing wage growth. We’ll discuss the reasons why the costs are increasing so rapidly for both employers and employees … and how it is silently determining the nation’s priorities. 

Job-based health insurance is the single largest source of health care coverage in America. It covers about 150 million workers and their dependents. Medicaid is the second-largest source of health care coverage in America, covering 70 million people. Medicare is the third-largest source, covering 50 million people, and the Affordable Care Act comes in fourth, covering 17 million people. 

Employer-sponsored health insurance has become increasingly unaffordable over the past decade. The average cost of family health insurance offered by employers increased 5% this year alone, exceeding $20,000 for the first time, according to an annual survey conducted by the Kaiser Family Foundation. 

Not only are workers paying more in monthly premiums, but employers are also raising average deductibles which cause workers to pay for more of their care out of pocket later into the year. This leaves many working families across the country with the sense they are spending more of their income on the insurance that doesn’t protect them as much as it used to. 

The Commonwealth Fund reported in 2016 that about 25% of all working-age adults with job-based coverage had such high out of pocket costs and deductibles relative to their income that they were effectively underinsured. This percentage has more than doubled since 2003. 

You are considered underinsured if you:

1. Spend more than 10% of your income, excluding premiums, on health care

2. Spend more than 5% if you are considered low income

3. Have a deductible that exceeds 5% of your income 

Historically, large firms have offered more comprehensive coverage than smaller firms; however, firms with 100+ employees were just as likely as the smaller firms to be underinsured. Commonwealth Fund also reported that underinsured adults reported health care access and medical bill problems at nearly the same rates as adults who lacked health insurance!

Major Contributors to Declining Generosity of Employer-Sponsored Insurance:

  1. Rising Health Costs

Deductibles have risen 162% from 2009 to 2019, while workers’ earnings have increased by 26% from 2009 to 2019and only increasing by 3% over the past 3 years.

Money once reserved for wage increases is now being put towards employer-provided health insurance. According to a recent study conducted by the New York Times, the bottom 60% of U.S. workers’ wage gains have been completely wiped out by contributions to health insurance.

According to a private survey from Willis Towers Watson, employers’ health insurance contributions averaged 30-35% of companies’ total compensation packages for the bottom 50% of workers. Concurrently, companies increased the premiums that workers must pay in order to get coverage. This means that higher health-care costs fall heaviest on lower-paid workers because insurance coverage is a bigger part of their total compensation. 

This might be acceptable if the medical system were delivering better care for all of the extra spendings, but according to Willis Towers Watson, there is considerable evidence that Americans are receiving lower quality health care overall and from every perspective.

  1. Many Employers are Not Sharing Cost Savings/Wealth with Employees

According to Deutsche Bank research, productivity growth has vastly outstripped real wage growth since the 1970s even though employees are working harder and smarter. At the same time, corporations own a record share of the national wealth. 

There is also the current trend of well-paid baby boomers retiring and being replaced by lower-paid Millennials. The Millennials justifiably have trepidations about pressing for sizable wage increases to cover their medical coverage outlays … and the employing companies are leery of providing them after the Great Recession of 2008. 

  1. The Inability of Most Employers to Stem the Rising Costs of Health Care Services

Employers are the largest purchasers of health care service, so you would think they wield a lot of power in the health care world; however, most large employers wield little bargaining power because their workforces only account for a small portion of the local providers’ markets. 

Couple this with the fact that the overwhelming majority of employers lack the staff and expertise to manage the intricacies of health care markets.

Nor do most employers work together to increase their leverage with providers because they are focused on their own businesses. 

Because of these structural handicaps, employers try to limit their exposure to health care costs and fall back on a simple strategy: shifting more and more of those costs to their employees. This in turn leads to an ever-increasing number of Americans with employer-sponsored health plans as underinsured. 

This is crucially important because it not only impacts individuals but affects the entire economy on a larger scale. This affects how, when, and if people buy houses; save for retirement; raise and educate their children; assist with elderly family members, and how we navigate life. 

I do not want to take away from the many excellent things that have come out of today’s health care system. The technological and scientific advances our health care system has made are incredible. The people our health care system has helped should not be minimized. However, the main flaw is that it is silently determining the nation’s priorities without anyone actively assigning it that role. 

I want to leave you with a few ways you can make a difference. 

  1. If you have questions about your current employer-sponsored health insurance coverage, schedule a meeting with HFP. We would love to assist you!
  1. Here are some valuable resources for you to get more informed:
    1. The Kaiser Family Foundation 
      1. KFF is a nonprofit group that focuses on health care issues in the U.S.
    2. The Commonwealth Fund
      1. CF is a private foundation that promotes improvements in the health care system
    3. AARP
      1. This is a nonprofit organization focused on the concerns for people who are over the age of 50
    4. PolitiFact
      1. This is a site run by the St. Petersburg Times that evaluates the accuracy of political statements about health care (and other topics.)
    5. HealthCare.gov
      1. A site from the Department of Health and Human Services

If you want professionals to review your employer-sponsored insurance coverage, advice on health insurance, or other financial services, schedule a Get Acquainted Meeting today at HFP, we love hearing from you!

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