Health Insurance and You!

Readers, how much of your income would you be willing to spend on employer-sponsored health insurance? As health reform takes effect and insurers sort through the details of how to make coverage affordable for as many people as possible, the question had to arise sooner or later: at what price point is coverage “affordable”? What proportion of income can a person reasonably be expected to spend on health?

According to a report released last month by the Government Accountability Office (GAO), the Treasury Department has suggested that that proportion should be 9.5%. “Under the proposed affordability standard, employer-sponsored insurance is considered affordable if the cost of a self-only plan—meaning a plan that covers only the employee—does not exceed 9.5 percent of household income. Under the proposed standard, if one family member has access to affordable self-only employer-sponsored insurance, all other family members who are eligible to enroll in the employee’s plan are also considered to have access to affordable insurance and are therefore ineligible for the premium tax credit,” the report says.

In other words, explains Julie Appleby in a blog post for Kaiser Health News, affordability of a health plan depends on the worker’s premiums, not that of covering spouses and dependents. In fact, the report authors clarify that in the very next sentence. “In this manner, the proposed rule applied the same standard to all family members eligible for the employee’s plan, even if the cost of enrolling the family as a whole exceeds the 9.5 percent threshold,” they write. This definition of affordability has not yet been finalized.

Statistics show that when spouses and dependents are added to an employer-sponsored plan, the costs can quickly add up. According to the Kaiser Family Foundation’s (KFF) 2011 survey on employer health benefits, the average premium for single coverage was $5,429 per year. When others were added to the plan, its price nearly tripled; family premiums in 2011 averaged $15,073 per year. Costs were slightly lower for workers enrolled in high-deductible plans, which have been growing in popularity in recent years, at $4,793 for single coverage and $13,704 for families.

These numbers and the proposed rule have led to some concern about whether coverage for workers with families would truly be affordable, and the GAO has recommended that the Secretary of the Treasury consider an “alternative approach,” Ms. Appleby writes. In fact, a worker’s enrollment in a plan that meets the 9.5% standard for single coverage, but raises prices for spouse and dependent coverage, could actually impede his or her family’s access to health insurance, since the family would be shut out from government subsidies.

What if that 9.5% standard was applied to family coverage, then, rather than single coverage? A commenter on Ms. Appleby’s post points out that this would present a serious challenge for employers. Using KFF’s numbers, employers would suddenly be on the hook for an average of $10,000 more per year for each worker who opted in to family coverage. While employers want to attract and retain the best workers by providing high-quality, affordable insurance, in this scenario, they may not have the finances to do so, and may instead choose to not offer coverage at all and pay a fine.

Do you believe that spending 9.5% of income on health insurance is affordable to most individuals? To most families? How would you define affordable health insurance?