Map of US showing employee share of premiums for health insurance
North Carolina is in the top tier of how much of their income employees pay toward premiums. Map credit: Commonwealth Fund.

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By Yen Duong

North Carolinians spend a greater share of their money on health care costs than the national average.

A new report shows that in 2018, North Carolinians paid almost 14 percent of the state’s median income on employer-sponsored health plan premiums and deductibles, up from around 11 percent in 2008.

For comparison, in 2008, the average American spent just under 8 percent of median income on premiums and deductibles. By 2018, that rose to 11.5 percent.

About half of Americans get health insurance through their employers, according to the report published by the nonprofit research institute The Commonwealth Fund. Using federal data from a survey of over 40,000 American employers, the researchers concluded that premiums and deductibles have grown faster than income, which means they’re taking a higher percentage of family incomes.

The data did not consider copays, which means that people are likely spending even more of their income on health care costs.

“Health care and health insurance coverage are essential to people’s well-being and financial security,” said David Blumenthal, president of the Commonwealth Fund. “And yet employer health care coverage is leaving millions of families exposed to high and potentially unaffordable costs.”

Effects of high deductibles and premiums on N.C. families

Next year, the penalty for not having health insurance will be $0, effectively eliminating the individual mandate created by the Affordable Care Act. Not only do high premiums keep people from choosing insurance, but high deductibles can keep even insured folks from using health care, said the report authors.

“As your deductibles increase, you’re less likely to get needed healthcare, you’re less likely to fill prescriptions that you need, you’re less likely to go to the doctor when you’re sick,” said Sara Collins, the lead author of the report. “The fact that many people, particularly in the mid-range of the income distribution, don’t have that much savings does act as a disincentive to get needed healthcare.”

Despite having a lower than average median income, North Carolinians pay higher premiums on average for their family insurance plans. That means we pay a larger percentage of our income on premiums. Graph credit: Commonwealth Fund.

When deductibles add up to five percent or more of a family’s income, the Commonwealth Fund calls those families underinsured. Underinsured families are the norm in eighteen states, including North Carolina, where average deductibles are $3,325, or 5.7 percent of median income.

Many families fall into the ‘family coverage glitch.’ For single-person policies, employees qualify for marketplace subsidies if they spend more than 9.86 percent of their income on premiums. But that doesn’t work for family plans: in NC, families spend an average of 10.25 percent of their income on premiums, but don’t get the subsidies.

M. Hughes Waren, Jr. is the volunteer legislative chair for a North Carolina association of health insurance brokers and agents. Photo credit: EbenConcepts.

“If people are facing premium costs that high, at which point do they decide to not continue having insurance?” Collins asked.  “At what point does it become a matter of public policy to think about addressing that affordability issue?”

North Carolina is one of 14 states which has not expanded Medicaid, which would allow people who don’t qualify for Medicaid, but who earn less than 138 percent of the poverty level ($35,535 for a family of four) to pay little or no premiums for Medicaid coverage rather than buying their plans on the marketplace.

Why are costs so high?

All the costs that go into the Commonwealth Fund calculations are increasing: deductibles, premiums paid by employers and how much employees spend toward those premiums. In 2008, about 71 percent of employer-sponsored insurance plans included deductibles; by 2018 that number was 87 percent.

Employers with fewer than 50 employees use insurer-offered plans that meet mandates from  Affordable Care Act, explained Hughes Waren Jr. of the North Carolina Association of Health Underwriters. For example, the federal out of pocket limits for family plans are rising to $16,400 in 2020 versus $12,600 in 2014.

“Larger employers have greater control of trying to keep their benefit plan the same as it was the year prior,” said Waren, who has worked with businesses with 10 employees to those with more than 700 employees. “In the groups that are over 50, over 100, you don’t see much of their out of pocket limit or deductibles changing much over the last five, six years.”

Nationally, premiums and deductibles have eaten a greater share of employee incomes over the past decade. In each map, North Carolina is in the top tier of how much employees pay for these costs. Graphic credit: Commonwealth Fund.

The average premium in North Carolina for an employee-sponsored family plan was $18,211 in 2018, up from just over $12,000 in 2008. Employees in the state contribute about a third of that cost. North Carolina, Louisiana, Mississippi, Nevada and Virginia are the only five states where employees pay one-third or more of those premiums—many states pay between 20 and 25 percent of those costs.

Part of the problem is that employers aren’t motivated to lower employee contributions, the report said. David Radley, a co-author, used Massachusetts, with an average 26 percent employee contribution toward premiums, as an example: in that state, employers compete for employees by offering more generous benefits.

“The biggest source of increased costs in our healthcare system right now seems to be the increasing prices that are charged by provided by providers of care to commercial insurers and that are passed on to employers,” Radley said.

Waren, who has worked in health insurance since 1997, doesn’t think that North Carolina employers are passing the buck to employees, and attributes the higher percentage here to lower median income: $58,038 in 2018 versus a national average of $64,202.

“The issue, in my opinion, is not the insurance premium. The issue is the cost of care,” Waren said, referencing hospital mergers causing higher prices. “The higher the hospital costs are, the [more] insurance companies have to adjust their base for plans, to cover the cost of those rates.”

There’s a loop of rising costs in the system: hospitals charge more, which means insurance companies charge more, which means that people end up opting out of health care more. But with more empty beds, hospitals need to charge more to keep their doors open, and the cycle continues, Radley explained.

Size no advantage

Since many large employers are so scattered, they can’t negotiate lower prices, Radley said, citing Walmart, the nation’s largest employer, as an example.

“When they go to the local hospital and say, ‘Give us a better price,’ the local hospital says, ‘No thanks.’ They can live without that segment of the population,” Radley said. “And if that’s true for Walmart, it’s true for everybody.”

In addition, he noted that in 70 percent of hospital markets in the US, there’s no competition, so employers have limited negotiating power.

“The Walmarts of the world can’t say to the hospital that refuses to lower prices ‘Well, that’s okay. We’ll go to that hospital down the street,’” Radley said. “There is no hospital down the street.”

That effect isn’t limited to just the employer-sponsored health care plans which the report covered, Waren said. He offered an example of a self-employed individual looking for a policy on the marketplace.

“If you’re going to buy that policy in Wilmington but then you say, ‘Well, I’ve thinking about moving to Raleigh’ and you purchase that same policy in Raleigh versus Wilmington, it’s going to be nine to twelve percent lower,” said Waren, who lives in Wilmington. “[Rex and Wake Med] run advertisements on TV to get people to come to their hospital. Our hospital system doesn’t have to advertise, they’re the only game in town.”

Yen Duong

Yen Duong covers health care in Charlotte and the southern Piedmont for North Carolina Health News.