We often find ideas for blog posts in group emails sent by colleagues looking for help with an issue raised by a client. This one from a few weeks ago seemed pretty typical: “My client is looking for strategies to make health care more affordable for low-income employees. If you have examples, please share.” What wasn’t typical was the volume of responses. More than a dozen busy consultants took the time to reply, usually beginning with some variation of the line, “This is a really important issue for my client too.” We’ll be summarizing what was shared in these emails in a series of posts over the next few weeks.
But first, to help frame the issue, we went to our National Survey database to see what we could learn about the financial burden that health insurance and healthcare expenses place on low-wage employees. We divided the survey respondents into quartiles (four roughly equal groups) based on average employee pay. In the bottom quartile, the average salary for full-time employees was less than $48,000 in 2016; in the top quartile, the average salary was $80,000 or more. Turnover is significantly higher in the low-wage group (34% vs. 13%), which includes more employers in retail, hospitality, and other industries characterized by low pay and high turnover. (See below for more detail about the groups.)
Here are some of the key differences in health benefits between the two groups. In the low-wage group:
- Average PPO deductibles are nearly double those in the high-wage group: about $1,200 vs. $600 for an individual, and about $2,650 vs. $1,350 for a family.
- HSA-eligible plans are less common (48% of employers offer one, vs. 83% in the high-wage group) and enrollment is lower (21% of covered employees are enrolled in an HSA plan, vs. 33% in the high-wage group)
- Average HSA plan deductibles are higher: about $2,300 vs. $1,700 for individuals and $4,600 vs. $3,600 for families. Employer account contributions are somewhat less common in the low-wage group (76% compared to 84%), although the median amount of the employer account contribution is the same ($500 per individual for both groups).
- Despite higher out-of-pocket costs, employees in the low-wage group do not have lower paycheck deductions for coverage. In fact, for family coverage, premium contribution requirements are significantly higher. Average monthly PPO contributions for individual and family coverage in the low-wage group are $142 and $483, vs. $143 and $460 in the high-wage group, and HSA plan contributions for individual and family coverage are $91 and $336 in the low-wage group and $83 and $291 in the high-wage group.
- Plan cost is lower: average total health plan cost is $11,014 per employee vs. $14,655 in the high-wage group. An important contributing factor is that employees in the low-wage group are less likely to cover dependents (on average, 43% elect dependent coverage, compared to 60% in the high-wage group). In calculating per-employee cost, cost for covered employees and dependents is divided by the number of covered employees.
Employers in the low-wage group have taken steps to address the issue of healthcare affordability for their workers, while operating within business and budget realities. These employers are more likely than employers in the high-wage group to offer voluntary benefits to fill coverage gaps, such as critical illness or hospital indemnity coverage. They are slightly more likely to provide an onsite medical clinic, which can make accessing primary care more affordable as well as more convenient. They are also more likely to offer health coaching and targeted programs for diabetes management.
But clearly, as the email conversation among our colleagues showed, employers want to do more. We’ll be back with some ideas to share that could help your organization tackle this difficult but critical challenge.
About the analysis
An important caveat: In this analysis, organizations were grouped and compared based on average pay. However, virtually all organizations have a range of pay levels, meaning that there will be some low-wage employees at companies with high average pay and some highly paid employees at companies with low average pay. The analysis thus does not represent the experience of all low-paid or all high-paid employees. It illustrates the general relationship between benefit levels and compensation on an organizational level.
To minimize differences due to organization size, we limited the analysis to employers with 500 or more employees. Organizations with a low average salaries tend to be larger (average number of employees is about 14,000, compared to about 7,000 for the high-income group). There were demographic differences as well: employees in the low-wage group are younger (average age of 41 vs 44), more likely to be female (52% vs 40%) and more likely to be in a union (on average, 12% of employees are collectively bargained among employers in the low-wage group vs 6% of those in the high-wage group).