The impact of medical costs on family budgets
June 7, 2024
Portion of non-food budget spent on health care
Source: Shashikumar, et al JAMA Internal Medicine May 29, 2024 LINK
We’ve long known that high medical costs are especially damaging to workers with low incomes. Research published last week in JAMA Internal Medicine shows that health care costs represent over a quarter of income after the cost of food for families with income under 200% of the federal poverty level (just over $50,000 in 2019 for a family of four.) The researchers removed anticipated cost of food, but not the cost of rent, transportation, utilities or communication when assessing the portion of income required to cover medical expenses.
The researchers used data from the Medical Expenditure Panel Survey and restricted their analysis to only those under age 65 covered by private health insurance. The sample size is large, with over 13,000 families during each year. All charges were adjusted for inflation, and the portion of the population categorized as low income was under 14%.
Below is another way to visualize this, demonstrating that cost has increased for both low and higher income families (those earning twice or more the federal poverty level). However, the share of total income that is absorbed by medical costs is very high among low wage workers and helps explain why health care costs so often lead to medical debt and bankruptcies. This looks at the portion of non-food budget dedicated to health care for the average employee, but does not consider the potential burden for employees who have severe illness in their families during the plan year.
Source: Shashikumar, et al JAMA Internal Medicine May 29, 2024 LINK
WTW’s Best Practices in Healthcare Survey found that almost half of employers were evaluating affordability (48%), a quarter (25%) offered plans with different contributions for lower wage workers (either by salary or job class), and an eighth (12%) offered a $0 premium health plan.
Source: WTW’s 2023 Best Practices in Healthcare Survey LINK
Implications for employers:
Both the cost of premiums and the cost of out-of-pocket expenses create financial insecurity for those with lower wages.
Employers can charge lower premiums for low wage workers to help them afford coverage, although this requires either higher premium contribution for higher wage workers or more company contribution to the health plan.
Employers can offer an affordable plan without a high deductible, as low wage workers are less likely to be able to afford medical care that is subject to the deductible before coverage.