Rising healthcare premiums are eating away at employees’ paychecks

As the cost of health insurance has risen in recent years, HR pros may have gotten accustomed to fielding questions from their employees about why they’re being asked to pay more for healthcare.

Coming up with satisfying answers to these questions can be tough, but new research may help HR departments better understand just how much rising health insurance premiums are affecting workers’ earnings.

From 1988 to 2019, US families receiving employer-sponsored insurance lost $125,340 on average as a result of increasingly expensive healthcare premiums, the analysis published in the Journal of the American Medical Association (JAMA) Network found.

“A lot of the price has gone up and it comes out of people’s salary, and this is a real problem,” said Ezekiel Emanuel, codirector at the University of Pennsylvania’s Healthcare Transformation Institute and a coauthor of the paper, of how healthcare inflation affects wages.

Disparate impacts. Emanuel and his colleagues used data from federal surveys including the Census Bureau’s Current Population Survey, as well as the Kaiser Employer Health Benefits Survey, to conduct the analysis.

During the 32-year period they examined, the percentage of workers’ total compensation going to health insurance rose to over 15%, up from under 8%. This means as of 2019, the average worker was spending about $9,000 more on health insurance annually than they did in the early ’90s.

“For the average American, that’s a huge amount of their household income,” Emanuel explained.

Healthcare inflation had a more serious effect on Black and Hispanic families, the paper found. Whereas white families with employer-sponsored health insurance lost 7.5% of their earnings as of 2019 due to increasing healthcare premiums, Black families lost 9.6% of their wages, and Hispanic families lost 9.3%. Emanuel suspects this is because minority workers typically earn lower wages than white workers: “If the employer is basically charging everyone the same amount of money regardless of income, it’s going to disadvantage people who have lower incomes.”

Such inequities can affect how workers utilize their benefits, a 2022 Center for American Progress report suggested, as health insurance uptake was reported to be lower in firms with a large number of low-wage workers (making less than $30,000 annually) than in ones with a large number of high-wage workers (making more than $70,000 annually).

Reassessing health benefits. In recent years, employers have tried to avoid passing on higher health costs to employees and instead focused on cost-management, targeting big drivers of cost like “complex care” and chronic medical conditions, Healthcare Brew reported last September.

Still, there are other measures HR can consider taking to lessen the financial burden workers bear in order to receive employer-sponsored healthcare. Emanuel recommended employers consider tying health insurance premiums to income, something General Electric (GE) has been doing for decades.

Under this model, employees may set different healthcare premiums based on salary bands. At GE, for example, an employee making between $37,500 and $49,999 in 2023 would’ve paid $1,668 for one health plan, whereas an employee making $150,000 or more would see $4,382 deducted from their payroll for the same plan. Other large employers like Pitney Bowes, News Corp., and JPMorgan Chase structure their healthcare benefits similarly. This approach remains fairly rare, with only an estimated 10% of large firms offering programs to help bring down premiums for lower-wage workers.