While the number of uninsured adults in the US has fallen substantially in the two years that the public health exchanges have been operational, a new report based on findings from the Commonwealth Fund Biennial Health Insurance Survey suggests that what’s not improving is the percentage of adults with coverage who are underinsured. In each of the past three years, the report states, 22% to 23% of all covered adults have been underinsured.
What does “underinsured” mean, exactly? The measure used in the analysis looks at an insured adult’s reported annual out-of-pocket costs (not including premiums) as well as their health plan deductible. A person’s actual expenditures and potential expenditures — represented by the deductible — are compared with household income, and he or she is considered underinsured if either:
- Actual annual out-of-pocket costs (not counting premiums) are equal to 10% or more of household income (or 5% or more if household income is under 200% of the federal poverty level); or
- The deductible is 5% or more of household income.
For example, an employee with a household income of $30,000 who is covered in a plan with a deductible of $1,500 or higher would be considered underinsured. The report authors consider this to be a conservative measure of underinsurance because it doesn’t look at other design elements that could result in uncovered costs, such as copayments and exclusion of certain services.
This is an issue for employers as much as policymakers. Because if you look at just adults covered in employer-sponsored plans, the numbers improve a little, but not much: 20% were underinsured in 2014, up from 17% in 2010 and 12% in 2005. If you’ve been wondering how to assess whether your health plan provides adequate financial protection for all employees, this definition could serve as a helpful guideline.
As employers have wrestled with rising health benefit costs over the past decade, the clear trend in employee cost-sharing has been to keep the cost of coverage as low as possible but to allow for higher out-of-pocket costs by raising deductibles, coinsurance, and copays. The average employee contribution as a percent of premium has remained virtually unchanged since 2005, in some years even dipping slightly when enough employers chose to absorb some of the employee’s share of premium increases. However, deductibles have risen substantially during that period, in some years faster than the overall increase in health benefit cost. Mercer’s National Survey of Employer-Sponsored Health Plans found that in-network individual PPO deductibles among small employers (those with 10–499 employees) averaged $1,681 in 2014, up from $782 in 2005, 10 years ago, while among larger employers the average individual deductible has risen to $785 in 2014 from $413 in 2005.
While underinsurance is currently a bigger problem among small employers (the report estimates that 27% of covered employees in organizations with fewer than 100 employees are underinsured, compared to 14% of those working for larger organizations), the excise tax on high-cost plan slated to go into effect in 2018 is putting new pressure on employers of all sizes to hold health plan costs below the tax threshold. The easiest way to reduce cost is to raise deductibles, but that also increases the potential for underinsurance. This is a serious concern for employers because financial health is an important component of employee well-being — and medical expenses are a leading cause of financial problems. Employers pursuing a consumerism strategy with high-deductible health plan often face a dilemma: While some of their employees may welcome the trade-off of higher deductibles for lower paycheck deductions and a tax-advantaged health savings account, for others, a high-deductible plan can put a serious strain on family finances.
Offering multiple plans, so that employees can select level of coverage they need, is one solution. Private exchanges like Mercer Marketplace™ are making that easier to do; the medical plans available through Mercer Marketplace range in actuarial value from about 60% to 95%. Other ways to help employees manage higher potential out-of-pocket costs include telemedicine, which provides a low-cost alternative to office visits for low-acuity care. Transparency tools help employees find less expensive service providers. Voluntary benefits like a hospital indemnity plan or critical care insurance can fill gaps in coverage.
Any of these solutions, however, requires a commitment to employee communication and education. Survey results show that consumer-directed health plan sponsors that have invested in extensive employee communication report higher enrollment levels and greater employee satisfaction. It can take time and creativity, but it’s the key to making employees true partners in controlling health care cost.