Health Care Marketplace | Income Gap Widening in Part Because of Increasing Health Care Costs, Insurance Premiums

by Lesley Politi on April 15, 2009

Health Care Marketplace

    Income Gap Widening in Part Because of Increasing Health Care Costs, Insurance Premiums

      Rising health insurance premiums are responsible for an unequal share of the lowest-paid workers’ total compensation compared with higher-income workers, which has contributed to income disparity in the U.S., according to a recent article by the McKinsey Global Institute, the Wall Street Journal‘s “Real Time Economics” reports. The article, written by McKinsey researchers Byron Auguste, Martha Laboissière and Lenny Mendonca, states that the portion of employer-paid health premiums of total compensation was 20% for insured people in the lowest-income group, whose income was $14,800 annually on average. However, just 22% of the lowest income group had coverage. The portion of employer-paid premiums to total compensation for the highest-income group, which averaged $210,000 annually, was 3.3%. Nine out of 10 people in this group were insured.

The article also looked at out-of-pocket costs for each group of workers. As the salaries of the highest earners increased over the years, their health benefits and types of services covered increased as well, meaning they paid very little out-of-pocket for health care, the report found. A similar trend was seen among the higher- and middle-income groups, but the rate of growth was slightly slower, meaning their out-of-pocket costs increased slightly. However, in the lowest-earning group, “incomes have been stagnant, and their employers are less likely to pay for their health insurance,” the researchers wrote, adding that this group “is finding any health care difficult, if not impossible, to afford.”

The researchers analyzed data from 1966 to 2005 and found that health insurance premiums grew by 5% annually. As premiums have increased, enrollment in employer-sponsored plans has dropped or remained unchanged, particularly among the middle class. According to the article, “Some employers are offering more comprehensive benefits to attract and retain better workers. At the same time, some companies have been prompted to withdraw the offer of employee health care benefits altogether; others have had to limit the number of employees eligible for benefits. … Put another way, employers are spending more on health care per employee but for fewer employees” (Murray, “Real Time Economics,” Wall Street Journal, 4/9).


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