Income Growth Not Keeping Pace with Rising Out-of-Pocket Costs

A new report finds that employee contributions to health insurance premiums and deductibles are growing slowly, but individuals have been using a larger portion of their incomes to do so.

Between 2010 and 2015, contributions to premiums and deductibles grew more slowly in a majority of states compared with previous growth rates. Despite decreased growth, many Americans are spending more out-of-pocket than ever before, likely because incomes are not keeping up with rising healthcare costs.

In the study conducted by the Commonwealth Fund, families spent an average of 10.1% ($6422) of their income on these costs in 2015, but some spent as much as 14.7% in states like Mississippi. In other locations, such as the Washington DC and Massachusetts, families spent an average of 6.8% and 7.3% of their annual income, respectively.

“The good news is that premiums in employer plans are growing more slowly on average, as is the amount employees are being asked to contribute,” said lead study author Sara Collins. “Unfortunately, many employees with moderate incomes aren’t feeling the benefits of these slowdowns, because they haven’t yet experienced the sustained growth in their income needed to keep up with health costs.”

Investigators examined total premium costs that both the employer and employee paid, which showed that premium growth rates slowed in 33 states and the District of Columbia since 2010. Louisiana’s average premium increase fell significantly, from 7.8% per year from 2006 to 2010 to only 2.4% from 2010 to 2015, according to the study.

Premiums in Alaska, Hawaii, Idaho, Kentucky, Maryland, New Hampshire, New York, and Utah increased by at least 5% per year. The decreasing premiums is likely due to the Affordable Care Act, and the general slowdown in healthcare costs that began in 2009.

According to the report, the Affordable Care Act provisions that allow for preventative care without cost-sharing, and that allow children to remain on plans until 26-years-old, has not increased premiums.

However, premiums and deductible contributions still comprise a large portion of household incomes. In 2006, the average family spent 6.5% of their income on these costs, but this increased to 10.1% in 2015. The investigators noted that employee contributions for premiums alone increased from 4.2% in 2006 to 5.8% in 2015.

In states where the premium costs and employee contributions are high, individuals are more at-risk of going without needed medical care due to financial strains. Additional gains in income, like those seen recently, will likely allow more individuals to afford healthcare without spending a large portion of their income on those costs.

A health plan design that encourages individuals to seek care would also be greatly beneficial, according to the study.

“The vast majority of people under age 65 in the US, 154 million, get their health insurance through an employer, and many of them struggle to pay for it,” said Commonwealth Fund President David Blumenthal, MD. “It would help if employers designed health plans that help their workers afford timely care. But since employer health insurance costs are driven by overall health care costs, it is also crucial to implement provider payment reform and quality improvement initiatives that keep health care costs down while improving patient outcomes.”