Study: Sick workers have high out-of-pocket costs

The 161 million Americans with employer-sponsored health insurance are facing substantial increases in out-of-pocket costs, according to a study funded by the Commonwealth Fund.

The study, which appeared on the Health Affairs web site, is authored by researchers from the National Opinion Research Center and Watson Wyatt Worldwide. It examines trends in the comprehensiveness of employer-sponsored insurance from 2004 to 2007, and finds rising rates of underinsurance and un-affordability, particularly for poorer and sicker people.

In 2007, adults with employer coverage faced an average of $729 annually in OOP costs for medical services, including deductibles and other forms of cost sharing such as copayments and coinsurance. That represents a 34 percent increase from 2004, when the average OOP burden was $545. Health plans covered a slightly smaller percentage of overall expenses in 2007 than 2004, but growth in overall health spending was the chief cause behind rising out-of-pocket costs.

“Historically, employees have been asked to shoulder even more of the cost-sharing burden during difficult economic times such as the United States is now experiencing,” said lead author Jon Gabel, a senior fellow at NORC in Bethesda, Md. “Hence, it is imperative that healthcare reform include constraints on health spending, or else health insurance will become unaffordable for low- and middle-income Americans and reform itself will be unsustainable.”

The study updates earlier studies on ESI and out-of-pocket costs published in 1997, 2000 and 2004. Researchers used simulated bill paying for a standard population of people with employer-based insurance, as if that standard population were enrolled in each insurance plan from a representative sample of employer-based plans.

According to the study, out-of-pocket spending varied widely among low-cost and high-cost workers. The average OOP expense for the 50 percent of workers with the lowest health spending was $85 in 2007, whereas for the highest-spending 1 percent and 10 percent of employees it was $8,703 and $3,364, respectively. Health plans paid for a greater share of spending by adults with chronic conditions, but these individuals also had relatively higher out-of-pocket costs.

While most of the increase in OOP costs for workers was due to the underlying growth in healthcare spending, the actuarial value of ESI declined slightly from 2004 to 2007. Overall, ESI paid 81.4 percent of medical bills for all workers in 2004 and 80.1 percent in 2007.

This resulted from increases in the percentage of plans with deductibles and in average deductible levels, reflecting the emergence of consumer-directed health plans, the decline in market share for health maintenance organizations and point-of-service plans and the increased use of deductibles by preferred provider organizations.

The study deemed individuals “underinsured” if they would be expected to spend more than 5 percent of their income out of pocket for medical services (excluding premiums). For people with family incomes at 200 percent of the federal poverty level, about 20.3 percent of those with ESI exceeded this threshold in 2007, up from 16.5 percent in 2004. If the threshold were set at 10 percent of income, 8.7 percent of those with family incomes at 200 percent of the FPL would have been underinsured in 2007, up from 5.8 percent in 2004.

“In the United States, if you are sick and earn a modest income, then you are probably underinsured - even if you have employer-based health coverage,” the researchers wrote. In 2007, among those with family incomes at 200 percent of poverty who were among the top 25 percent in healthcare spending, the underinsurance rate was 71 percent.

Of the increase in total OOP payments for workers between 2004 and 2007, the study found that about 57 percent was attributable to higher cost sharing for medical services and 43 percent to higher premium contributions.

“As the nation debates health reform, these findings highlight the need to ensure that workers and their families will have access to affordable health insurance coverage that protects them from high out-of-pocket spending regardless of whether they are healthy or sick,” said Commonwealth Fund President Karen Davis.

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