Wed, Jul

High-Deductible Health Plans Make Income Inequality Worse


WELLNESS - Anyone holding a high-deductible health plan understands the dynamic:

When it costs more for people to access health care, they’re going to think twice before using it. It’s a system designed to hold down costs by discouraging service.

But there’s something even more insidious about such plans. For lower income California families already living paycheck to paycheck, a single medical need can sink them deeper into financial peril. This type of health care keeps poor people poor. 

That is precisely what worries Malissa Sanchez, whose employer in Los Angeles essentially forced a high deductible health plan (HDHP) on her in April when it eliminated a direct-payment system that previously allowed her to buy her own coverage.

“The new plan just isn’t as good,” said Sanchez, 30. “I’m very concerned that they’re implementing this now, when we can least afford it. I go back and forth between being worried and angry.”

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Across California as around the nation, HDHPs have been steadily gaining popularity among employers. Whether offered alone or as one of several choices for covered workers, an HDHP requires patients to pay 100% of their medical costs up to a set limit before any “insurance” actually kicks in, no matter what they contribute to the plan’s premiums. The IRS defines a high deductible plan as one that costs an individual $1,400 or more annually ($2,800 for a family) before an insurer begins picking up any of the tab.

That is almost certainly not the end of a patient’s cost, though. Once a deductible is met, workers in most company health plans are still responsible for a percentage of their bills going forward (euphemistically dubbed “coinsurance”) until an annual limit — often $3,000 or more for an individual or twice that for a family — has been reached.

Because high deductible plans generally carry lower monthly premiums, they are touted as affordable options for cash strapped workers — and they can be, for those who rarely or never use them and can afford huge and sudden payments if they do. In the main, though, companies are the ones who save, paying some or all of the reduced premiums and then watching employees absorb the upfront cost of actually receiving health care.
That cost can be staggering. In its 2021 employer health benefits survey, the Kaiser Family Foundation (KFF) found that the average annual deductible for a single covered worker is $1,699 — a figure that has increased by 68% over the past decade. For those working at smaller companies, the bite is even bigger: $2,379 in deductible paid out before any insurance kicks in. In most cases, that’s in addition to monthly premiums, copays and coinsurance.

“What companies can tell their employees is, ‘Look, we can offer you a lower premium if you take the high-deductible health plan,’” Atul Gupta, a Wharton School health care management professor, said of the trend a couple of years ago. “And if you’re relatively healthy, you’ll also be better off. But if you expect to use a reasonable amount of care, these plans get pretty expensive.”

Industry experts told Capital & Main that it has become common for workers to be covered under plans with annual deductibles of $3,000 or more for an individual and perhaps twice that for a family. Those are unsustainable numbers for many Americans, but they would almost immediately bankrupt a low income earner.

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For several years, Malissa Sanchez had found a way to keep going. A food service worker for airline catering giant LSG Sky Chefs at the Los Angeles International Airport, Sanchez relied on a city rule and the Affordable Care Act to get by.

Under a living wage ordinance set by the city of Los Angeles, which approves contractors to do business at LAX, airport workers must be paid a specific hourly rate plus enough money to buy health insurance if the employer does not offer a no-premium plan. In 2022, the hourly wage is $17, plus a $5.67 per hour health care differential. The ordinance requires employers to either spend all of the $5.67 — per worker, per hour — directly on a no-premium plan, or pay the workers that amount and let them buy their own.

For Sanchez, the health care differential amounted to an additional $900-plus per month in income. Using the Covered California exchange, she said she was able to buy subsidized coverage for herself and her husband for $168 per month, with their young daughter covered by Medi-Cal. The difference, she said, allowed her to afford much of the $800 per month she spends on day care while she works.

In April, though, Sky Chefs implemented a new company plan, under which employees pay no premiums for themselves but up to $600 per month if they want to include their families. They’re also on the hook for a $1,500 individual and $3,000 family deductible, plus 20% coinsurance and copays.

In so doing, Sky Chefs rescinded its $5.67 hourly health care payment to its workers — more than $10,000 per year in income. There is no longer an option for workers to buy their own plans with a wage differential. 

“I have not seen another employer do this, and I’m not sure why any employer would want to do it, because it’s the kind of move that is very worker-unpopular,” said James Elmendorf, a policy director at the Los Angeles Alliance for a New Economy. “It’s rare for an employer to raise wages and then lower them.”

In response to a series of questions posed by Capital & Main, Sky Chefs provided a statement through a public relations firm that read in part, “We are pleased to provide all our LAX employees health care coverage with a zero-premium supplement. This co-pay health care plan will allow our associates to have access to a qualified health care plan without having to worry about paying any premiums … Since we are providing zero-premium coverage to all our LAX employees, we discontinued the hourly supplement.”

Asked a second time to respond to specific questions, the PR firm reiterated that the new plan complied with the living wage ordinance and said Sky Chefs would have no further comment.

Sanchez’s union, UNITE HERE Local 11, has protested the sudden shift in policy, in part because it was not collectively bargained. Union leaders note that most of their Sky Chefs workers at LAX had been taking the additional $5.67 per hour and buying their own insurance. (Disclosure: UNITE HERE Local 11 is a financial supporter of Capital & Main.)

A fair question is what Sky Chefs is getting for its money. “That is an astronomical amount for a company to spend on a health plan that is not a good one, or has a high deductible or co-pay,” Elmendorf said. “That’s the whole reason for the $5.67 figure: It is deemed to be roughly the amount per hour, per worker, that it would take to pay for a really good, family-free health plan.”

“I don’t know why they’re putting in place a plan that clearly is not free family insurance if they’re no longer paying the (workers), and it’s not the intent of the ordinance,” Elmendorf added. “The city would be right to be asking about it, and maybe specifically asking if all of the $5.67 is being spent on health care. I have no idea whether it is or it isn’t, but that’s a question worth asking.”

There is no indication that Los Angeles officials are questioning the new plan.

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This sort of rapidly escalating, worker-borne cost is deepening income inequality. In a 2018 study published in the American Journal of Public Health, researchers found that medical spending had effectively driven millions of Americans into — or further into — poverty. Included in the study were 7 million people who made at least 150% of the federal poverty line yet were pushed below that line once their medical costs were factored in.

Nevertheless, companies and health insurance behemoths love HDHPs — and one only has to look at the pandemic to see why. During the worst of COVID’s early waves in 2020, mass numbers of Americans stayed away from hospitals, doctors and dental offices, many of them worried about contracting the virus. Result: Insurance companies racked up huge profits. When companies collect premiums but patients avoid using the system — for any reason — the insurers win.

The number of private businesses that feature HDHPs roughly tripled in less than a decade, from 15% in 2010 to 45% in 2018, according to the Bureau of Labor Statistics. Various reports now put that figure at between 50% and 53%. The KFF survey, meanwhile, found that nearly 30% of company-covered workers are currently enrolled in a plan with an annual deductible of at least $2,000.

For so many lower-income workers, it is a razor’s edge. Malissa Sanchez and her family fall into the 35% of Americans who, according to the Federal Reserve, cannot cover a $400 emergency of any kind without going into debt or selling something. In other words, she now holds a company health plan that she won’t want to use.

“It’s going to hurt us a lot,” she said. “It’s just ridiculous. We’ve been loyal to them, but they don’t care about working families. What they care about is business.”

(Mark Kreidler is a California-based writer and broadcaster, and the author of three books, including Four Days to Glory. He is a contributor to Capital & Main where this story was featured.)


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