Low-Wage Workers Feel the Pinch on Health Insurance

This was published as a Wall Street Journal Think Tank column on September 18, 2014.

We did not see big changes in employer-based coverage in the Kaiser-HRET annual Employer Health Benefit Survey released last week. Mostly this is good news, particularly on the cost side where premiums increased just 3%.

But one long-term trend that is not so good is how this market works for firms with relatively large shares of lower-wage workers (which we define as firms where at least 35% of employees earn less than $23,000). These low-wage firms often do not offer health benefits at all. And, as the chart below shows, when they do offer coverage, it has lower premiums on average (likely meaning skimpier coverage) and requires workers to pay more for it. Workers in low-wage firms pay an average of $6,472 for family coverage, compared with $4,693 for workers in higher wage firms.

This is a group that receives little help from the Affordable Care Act (ACA). If the coverage offered by their employer meets certain minimum requirements, low-wage workers cannot choose to buy insurance in one of the new insurance marketplaces and receive a tax credit. Tax credits are available only to low- and middle-income who are not offered employer coverage.

Over time, this may end up encouraging some low-wage employers who now offer health benefits to drop them. This may sound like a bad outcome. But, assuming the amounts these employers now contribute to health insurance are plowed back into wages, the low-wage workers themselves could end up better off.