Health Spending as it Relates to Income

Posted by Brandon Conroy | September 26, 2018 | Thought-Leadership

The dominant healthcare coverage these days are plans that have a deductible, meaning employees must pay for first dollar coverage. According to the Kaiser Family Foundation, more than:

  • 80% of covered workers have a plan with a deductible.
  • 50% of covered workers have a deductible equal to or above $1,000.

Plans with deductibles have gained popularity because employers could not sustain the increases to healthcare costs and have had to push the costs on to the employees. This is not necessarily a bad thing. Employees need to have skin in the game, forcing employees to be consumers of healthcare. It also deters over utilization.

As a health consultant in my previous life, I believed I was contrarian when I thought high deductible health plans (HDHPs) have a hidden downside. In the long term, HDHPs could be detrimental to employees’ health, and in turn detrimental to employers’ cash flow. This is especially true of lower income employees. If an employee is cash strapped, are they going to spend $500 on a CT scan, or will they kick the can down the road? The lack of care causes the ticking time bombs. Should our amount of disposable income dictate our health?

Along with the lack of disposable income, low wage workers have multiple barriers to good health.

  • The high cost of eating healthy and the ability to lead a healthy lifestyle
  • Fewer paid days off to appropriately care for themselves or dependents
  • Possible lack of understanding of health benefits and healthcare
  • Social determinants of health, including:
    • Lack of transportation
    • Lack of access to providers
    • Affordable housing.

A study published in Health Affairs  supports my contrarian thoughts about HDHPs. The study examines the association of wages and use of specific types of healthcare services, adjusting for differences in benefits and employee demographic and health status attributes. In the study, wages were broken into five categories:

< $24,000
$24,001 – $30,000
$30,001 – $44,000
$44,001 – $70,000

Employees were placed in the appropriate income bracket, then the researchers analyzed claims utilization across brackets.

The proportion of employees who received any medical or prescription service is higher relative to wage level. In other workers in the highest wage group were significantly more likely to have a medical or prescription claim.

The following chart provides details around utilization of emergency department visits, inpatient admissions, avoidable inpatient admissions, and days supply of prescriptions.

One particularly telling observation from the chart shows that low wage earners had an emergency utilization rate that was more than 3x the rate of higher earning employees.



As in shown in the following exhibit, preventive service use is directly related to wages.



The following chart is interesting in that the visualization doesn’t tell the story. The chart depicts healthcare spending by wage bracket. As you can see, the amount of healthcare spend is not much different between the lowest wage earners and the highest wage earners. But analyzing the data shows that lower wage earners spend more for hospitalizations and emergency room department visits. The highest wage earners have costs driven by outpatient medical services and prescriptions.



The study and corresponding exhibits show that delaying healthcare results in higher costing consumers down the road, as well as an unhealthier member cohort. This ties to a previous blog as well.

Income and income levels give us another data source to analyze, creating additional insight into correlations and causes of care costs and overall health.

Brandon Conroy
About The Author

Brandon Conroy

Brandon Conroy, ASA, FCA, MAAA, is a leader in developing and implementing new tools and strategies that reduce client risk. He’s developed and implemented an interactive healthcare cost projection model, underwriting templates, renewal presentations, IBNR tools, a health plan chooser tool, and financial wellness education models. Leveraging his actuarial consulting expertise in both health and retirement practices, he is leading Innovu’s efforts to build a Retirement Analytics solution to assess the financial preparedness of client populations.

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