Despite the wide availability of employer-sponsored health insurance, low-wage workers face particular challenges in getting adequate coverage. Employers could take 6 specific actions to address this: 1) Offer these employees higher subsidies or more cross-subsidization from higher-wage workers. 2) Provide them with a choice of at least one health plan with low out of pocket costs, and design health plans with low or no out of pocket cost for the highest value services. 3) Help them maximize potential outside subsidies, including government aid and subsidies from providers and pharmaceutical companies. 4) Offer plans with low out-of-pocket costs based on targeted narrow networks. 5) Carefully review incentives and subsidies. 6) Offer plans with robust navigation services and virtual visits. And 7) Continue to aggressively push for lower prices and lower overall costs.
Employer-sponsored health insurance historically offered access to affordable health care to many Americans of every social and economic class. Everyone from a janitor to the chief executive officer could access new advances in care. Even those with modest salaries could afford medical access for childbirth, hernia repairs, gall bladder removals, and children’s broken limbs. But low-wage workers face particular challenges in the current approach to health care financing. The good news is that there are specific actions employers and other health care purchasers can take to address the problem.
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The rising costs of employer-sponsored health insurance diminish workers’ pay and contribute to a host of other challenges, particularly for those with lower incomes. This problem is most pronounced for low wage workers for whom health insurance represents a larger share of total compensation. Researchers have found that the GINI coefficient, an indication of income inequality, is increased by employer-sponsored health insurance. Costs of health insurance and medical care pushed as many as 7 million individuals in low wage households into poverty.
Furthermore, the high cost of health insurance can make it more attractive for companies to eliminate low-skilled jobs through offshoring and automation. Financial insecurity due to health care costs can lead low-wage workers to delay getting necessary care, and medical costs can crowd out other necessities including housing and transportation. Worst of all, those with lower incomes suffer from more chronic illnesses and have higher overall medical utilization and cost. Low wage workers with unaddressed medical problems might be less able to concentrate fully on their work, which could lead to decreased opportunities for promotion and reduced productivity for employers.
To keep premiums down and better engage workers in their use of health care, employers have increasingly moved to high-deductible health plans, which increase the likelihood that lower wage workers will be underinsured. Willis Towers Watson research shows that employers have increased out-of-pocket cost sharing for health insurance plans for 13 years in a row.
Employers with more low wage workers tend to have higher family premiums and higher deductibles. Not surprisingly, low wage workers are more likely to decline employer-sponsored insurance coverage, and therefore to face financial hardship from unexpected health care bills because they are uninsured or underinsured. While some new insurance products promise to cut premiums by offering much higher out-of-pocket costs, these may be of little help to low-wage workers who often can’t afford an unexpected expense. Indeed, the Federal Reserve has reported that 41% of Americans would have to sell something to be able to afford an unexpended expense of over $400.
Given that health care costs are unlikely to fall in the foreseeable future, what can employers do for their low wage workers in the meantime?
1. Offer higher subsidies or more cross-subsidization from higher-wage workers. Employers with high margins or large cadres of high-wage workers can afford to offer higher subsidies to low-wage workers. Twenty-six percent of large employers currently vary employee health insurance premiums, while only 12% of small employers (less than 1,000 employees) offer this subsidy. However, many companies simply can’t afford to increase these subsidies, which effectively make it more expensive to hire low-wage workers.
2. Offer a choice of at least one health plan with low out of pocket costs, and design health plans with low or no out of pocket cost for the highest value services.
Low wage workers benefit from having a choice of health plans which include lower deductibles and lower variability in potential out of pocket liability. Willis Towers Watson research shows that lower paid employees are nearly 25% less likely than higher paid employees to enroll in an HSA (health savings account)-qualified medical plan when a lower out of pocket design is available. Further, studies have also found that lower cost sharing decreases racial and socioeconomic disparities in utilization of high-value health care, such as medications to prevent progressive heart disease in those who have had recent heart attacks.
3. Help them maximize potential outside subsidies, including government aid and subsidies from providers and pharmaceutical companies. Many companies eliminated coverage for part-time employees in 2014 and 2015 when the Affordable Care Act offered subsidized plans on the individual market. Part-time coverage usually came with high employee-paid premiums, and the majority of part-time employees were able to purchase a better health insurance plan for a lower premium on the exchange markets. Some employers offer programs through pharmacy benefit managers to capture pharmaceutical company coupons and subsidies, although these programs may exclude those with employer-sponsored health insurance, and pharmacy coupon programs in general raise the total cost of drugs.
4. Offer plans with low out-of-pocket costs based on targeted narrow networks. Narrow network plans have historically had lower premiums and more cost sharing — which make them most attractive to the young and healthy. This approach cannot lead to substantial cost savings, as health care costs are driven by the unwell who are the most frequent users of health care services. Today, only 16% of employers offer a high-performance network; but this could rise to nearly 50% by 2020. Modern highly tailored narrow network plans can offer more generous benefits made possible because of lower provider prices or lower provider-induced overutilization. This also makes such plans more attractive to low-wage workers and to those with significant illnesses.
5. Carefully review incentives and subsidies. Low-wage workers are often more likely to forego “wellness incentives,” which in many instances will raise their health insurance premium costs. Therefore, employers should design wellness incentives to be simple and straightforward so that they are less likely to penalize low wage workers. These employees are more likely to smoke, and many employers impose a tobacco surcharge averaging $600 a year. Employers should couple tobacco surcharges with robust and well-publicized tobacco cessation programs, and waive surcharges for employees who attempt to quit. Tobacco cessation will lower morbidity and mortality and costs from smoking-related illnesses, and will also improve family budgets by eliminating spending on tobacco.
6. Offer plans with robust navigation services and virtual visits. The U.S. health care system is difficult to navigate, and low wage workers, especially those for whom English is not the first language, can benefit from assistance in obtaining timely and appropriate high-value health care. Telemedicine services are nearly ubiquitous in employer-sponsored plans, and lower paid employees can benefit from lower costs and less time away from work if they know how to access virtual visits.
7. Continue to aggressively push for lower prices and lower overall costs. Employers should continue to pressure health plans and providers for lower prices because high prices are the primary cause of excessive U.S. health care costs.
The high cost of American health care continues to pose a substantial challenge to American businesses and disproportionately impacts the health and financial security of low-wage workers. The specific actions we recommend can help assure that health care coverage meets the needs of low-wage workers and bolsters employers’ and other payers’ diligent efforts to control health care costs overall.
Source: Harvard Business Review