Health Insurance: Can Californians Afford It?

Rising health insurance costs hit chronically ill and low-wage workers hardest

For minimum-wage workers and the chronically ill, the cost of health insurance is increasingly unaffordable and may not be providing the financial protection for which it is intended, according to Health Insurance: Can Californians Afford It?, a new analysis from the California HealthCare Foundation (CHCF).

The snapshot of health insurance costs reveals, however, that the issue of affordability is not isolated to those groups.

“We have to consider that these worrisome affordability figures may be a sign of things to come for a greater number of Californians,” said Mark D. Smith, M.D., M.B.A., president and CEO of CHCF.

The snapshot compares health insurance premiums and out-of-pocket expenses to hourly wages and household spending across California and within six local markets: Fresno, Los Angeles, Sacramento, San Diego, San Francisco, and Shasta. The results show the significant financial pressure health care costs are putting on insured Californians.

Using a series of slides, the report focuses on the small business and individual insurance markets, where the greatest number of uninsured Californians would get their insurance if they thought they could afford it.

“The first week in May is a time when we in health care focus our attention on the uninsured through Cover the Uninsured Week,” said Dr. Smith. “But we should recognize that even for those Californians who are insured, it can be a struggle to pay their share of premiums and out-of-pocket expenses. If health insurance becomes unaffordable, this will increase the numbers of uninsured Californians.”

The report shows that average employee health insurance premiums for a minimum-wage worker can represent a quarter to nearly half of wages. “The burden of affording health care is greatest for low-wage workers, particularly for those who have a chronic illness,” said Marian Mulkey, senior program officer for CHCF’s Health Insurance Program.

According to the snapshot report:

  • A chronically ill individual earning $29,458 (average per capita, after-tax disposable California income) with a limited PPO plan could end up facing costs that amount to nearly 40 percent of his or her income.
  • Depending on their benefit levels, healthy workers and chronically ill workers may face very different out-of-pocket costs. For small business employees enrolled in a PPO plan with moderate benefits, a healthy worker might spend $370 in annual out-of-pocket costs, while an employee with a chronic condition might face over $5,000 in annual out-of-pocket costs.
  • A median California household spends $49,765 annually; the greatest share of which is spent on necessities such as housing, transportation, and food. If serious health problems arise—even for an insured family—coverage and out-of-pocket costs could account for a significant portion of annual spending.
  • Even lower-priced products available in California can cost $1.62 per hour worked, or 11 percent of the state’s median wage.

“Comparing the cost of insurance to the wages and incomes of average workers in California leaves little doubt that premium costs can impact hiring decisions, wage levels, and insurance offerings in small businesses,” said Mulkey. “While this analysis focuses on individual purchasers and consumers who obtain coverage through small businesses, even Californians insured through larger businesses may find it hard to afford their share of health care costs.”

Background and Methodology

Health Insurance: Can Californians Afford It? is based on information for people covered by insurance plans in the small group and individual insurance markets. Most of the data for this report were collected through CHCF’s “Small Group and Individual Health Insurance Tracking Study.” Premium rates for the report are based on January 1, 2005, data and reflect an individual aged 40 with 0.8 dependents. Wage figures assume full-time work of 2,080 hours per year and a median hourly California wage of $15.38. The report includes information on low, median, and high benefit plans that have different deductibles, co-insurance, out-of-pocket, and drug copay levels.

Additional details are included in the report, which can be found online through the link below.

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About the California Health Care Foundation

The California Health Care Foundation is dedicated to advancing meaningful, measurable improvements in the way the health care delivery system provides care to the people of California, particularly those with low incomes and those whose needs are not well served by the status quo. We work to ensure that people have access to the care they need, when they need it, at a price they can afford.