Insurance & Middle Class Health Squeeze

People in the middle class feel squeezed because of health costs. The cost conundrum is a leading driver of the federal health care debate. The reasons why people feel squeezed are complicated, but insurance costs are a big piece of the puzzle. In Colorado, costs have gone up most for people buying individual insurance, though many have had help with those costs because of the Affordable Care Act (ACA). People getting health insurance through their employers have been more insulated from increased costs. Still, out of pocket costs have gone up for most people.

At last month’s Hot Issues in Health Care, sponsored by the Colorado Health Institute (CHI), I attended a deep dive into the issues of health care and affordability for the middle class. We discussed what’s working for Colorado’s middle class, what isn’t, and what’s at stake should the ACA be repealed by federal lawmakers.

Here are some of my key takeaways, peppered with other pertinent research. (Be sure to check out the full slide deck here, called The Middle on the Edge.)

In over a third of Colorado’s counties, the “middle class,” by ACA definition, makes up over 43.7 percent of the population

There are many ways to categorize someone as “middle class.” In fact, in a show of hands, most people attending the session identified themselves as part of this group. In ACA-speak, being in the middle class translates to those who have annual incomes between $16,394 and $97,200, depending on family size (or between 139 and 400 percent of the federal poverty level). By this definition, about 38 percent of our state population is considered middle class. Because of the ACA, these Coloradans have been eligible to receive federal subsidies to help offset the cost of buying health insurance on our exchange, Connect for Health Colorado (C4HCO). There is quite a bit of geographical variation in where these Coloradans live. (The Kaiser Family Foundation also put together a helpful map that shows where exchange enrollees live, sorted by congressional district.)

ACA subsidies have given crucial support to Colorado’s middle class

As CHI analyst Edmond Toy noted, while exchange-based health insurance premiums have increased over time, federal subsidies have “shielded” the middle class from large premium increases. About 1 out of every 10 Coloradans buy insurance on the individual market. The chart below shows the total average cost of the most commonly purchased type of plan for a single person buying on the exchange.

Data show the average premium on these plans has risen by 40 percent in just two years. Most of that cost increase has been cushioned by increased subsidies (for those that qualify to receive them). In 2014 and 2015, those subsidies amounted to $180,000 million in help for the middle class. According to Connect for Health Colorado, the average monthly premium tax credit was $306 last year in 2016. Also of note: Over 144,000 Coloradans have already enrolled in 2017 plans, 18 percent higher than the same time last year.

Most of Colorado’s middle class, nearly two-thirds, are insured through their employers

Their premiums also have grown, but at a slower rate than premiums in the individual market. The ACA’s architects have pointed out trends like these demonstrate that the law has not hurt those who receive insurance through an employer. This CHI slide shows that total premiums for employer-sponsored insurance in Colorado have ticked steadily, but slowly, upward.

The employee share of the premium has grown about 2.4 percent per year in the last five years. This Medical Expenditure Panel Survey data tracks closely with 2016 national data from the Kaiser Family Foundation (KFF), which found for the fifth year in a row, the average family premium rose by only 3 percent. For employees who bought insurance just for themselves and not their spouses and children, the increase was so small it was “not statistically significant.” The Kaiser report also noted “the continuing implementation of the ACA does not appear to be causing major disruptions in the employer market,” in part because many plans offered before the ACA were grandfathered into the law.

CHI’s data show ACA reforms gave significant help to the middle class, but the squeeze is real and complicated

Health expenditure growth is outpacing income growth. Deductibles and other out-of-pocket costs have risen in Colorado, both for people getting insurance through the exchange and those getting it through employers. Much like the rest of the country, Coloradans have seen their annual deductible amounts more than double in the past ten years. A Commonwealth Fund study found that growth in median family incomes has lagged health insurance cost growth. In 2015, health costs for Coloradans represented 9.5 percent of median household income, up from 6.2 percent eleven years earlier. According to the Centers for Medicare and Medicaid Services (CMS), in the next decade health spending is projected to grow at an average rate of 5.8 percent per year. This is faster than the Congressional Budget Office’s projected annual growth in wages and salaries over the same time period.

Coloradans with employer-based insurance are struggling with increased out-of-pocket costs, but research finds some employers offset this in other ways, such as contributions to health savings accounts or increased wages. Those buying insurance in the individual market who aren’t eligible for federal financial help are faring worse than those who receive subsidies. While there is no doubt that subsidies have helped, they are not a panacea. For example, they do not factor in cost of living. Those with incomes above 400 percent FPL ($96,000 annually for a family of four), receive no subsidy. In some Colorado counties, like those in the mountains, $96,000 does not stretch as far as it does in others.

The squeeze demands real policy solutions. Colorado has rolled up its sleeves to problem solve in ways that make sense for our state. Leaders like Lt. Gov. Donna Lynne, Division of Insurance Commissioner Marguerite Salazar, and several legislators from mountain communities have been brainstorming Colorado solutions that could alleviate some of these regional disparities and lower health costs. Our bipartisan Colorado Commission on Affordable Health Care is offering insights and ideas as well.

Yet the big question remains, how will federal changes to our health care system affect Colorado’s middle class? Kaiser Family Foundation recently conducted a national survey found that 2 out of 3 Americans are feeling squeezed by high health costs. A top priority for them is reducing individual costs for health care. Without a firm replacement plan in hand, all policy wonks can do is speculate on how federal changes might make health care more or less affordable.

Meanwhile, multiple studies released since Election Day show how an ACA repeal will hurt. The Congressional Budget Office, the federal government’s bipartisan budget referee, released alarming statistics this week. If the ACA’s reforms stay in place but the law’s penalties for not having insurance and subsidies are repealed, it estimates 32 million more uninsured Americans by 2026, major premium increases in the individual market in the first new plan year after enactment and the “destabilization” of individual marketplaces, which would worsen over time.

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