States with highest employee healthcare costs are mostly rural, new report finds

The states with the highest employee costs from job-based coverage were mostly — but not exclusively — rural states.

A new, state-based comparison of employee premium contributions and deductibles, relative to state-wide median income, for 2023, by the Commonwealth Fund, found significant variation in costs across the country.

The states with the highest average employee share of premium plus deductible for family coverage were:

• Tennessee ($12,362)
• South Dakota ($12,266)
• Vermont ($12,119)
• Louisiana ($11,926)
• Maryland ($11,916)

Rural states have long had the highest healthcare costs, due to less insurance competition and higher provider costs in rural areas. Maryland is the exception among the top five highest-cost states for ESI family coverage. It is also a state many have looked to as an example of cost control efforts given its use since the 1970s of a unique state-wide rate-setting program where all payers use the same rates for hospital services.

Income-based affordability

Total 2023 annual premiums for single coverage ranged from an average of $7,243 in Mississippi to $9,662 in New Jersey, while the average annual amount workers contributed to their premiums for single-person coverage ranged from $1,060 in Hawaii to $2,145 in Vermont.

Relative to median income — for all state residents, not just those with ESI coverage — worker contributions for single coverage ranged from 2% of the median income in Washington D.C. to more than 5% of median income in Mississippi.

The study authors argued that the income comparison was important to understand how the burden of employees’ share of premium and deductibles has increased on workers in lower-income states. For example, Mississippi’s average premium contribution for single coverage was near the national average, but the lower median income made ESI premiums in Mississippi the least affordable.

The states with least affordable ESI family coverage — based on premium contribution share and deductibles, as a share of median income — included:

• Louisiana (14.9%)
• Oklahoma (13.5%)
• New Mexico (13.3%)
• Alabama (12.9%)
• Florida (12.6%)

Premium contributions and deductibles for family coverage together amounted to 10% or more of median income in 22 states in 2023. Those amounts do not include additional out-of-pocket costs that employees and their families may spend, such as copayments and coinsurance.

The size of the deductibles effectively makes a large share of ESI-covered people effectively underinsured, according to Commonwealth’s calculations. Those with ESI coverage were 66% of all underinsured identified by previous Commonwealth Fund research. Underinsurance is defined by Commonwealth as those with out-of-pocket costs, excluding premiums, of 10% or more of their income or 5% or more if they are low income or their deductible is 5% or more of their household income. 

“So, what is striking in these data is that in 24 states deductible costs for single coverage exceeded 5% of median incomes,” said Sara Collins, senior scholar and vice president of healthcare coverage and access and tracking health system performance at The Commonwealth Fund. “It means that when people think about getting healthcare, they are facing some pretty significant costs that really place them in the area of being underinsured.”

The Commonwealth Fund previously found higher rates of medical debt reported by the underinsured than among the uninsured.

“That’s primarily because people who are uninsured get a lot less healthcare,” Collins said.    

Affordable Care Act (ACA) regulations deem unaffordable ESI coverage that requires premium contributions equal to or greater than 9.02% of household income in 2025. Workers spending that on premiums could potentially qualify for marketplace premium tax credits.

Average annual spending on healthcare — including individuals and families — increased from $5,177 in 2020 to $6,159 in 2023, according to data from the Bureau of Labor Statistics.

Recent trend

However, overall affordability has improved in recent years. Slightly more than 10% of median household income consumed by both premium contributions and deductibles for family coverage nationally in 2023. That was a slight decrease from 10.8% of the average family income consumed in 2020.

“Even though there was some improvement, families in employer-based plans and individuals, which is where the majority of Americans get their coverage, still face about 10% of income, on average, for a combination of both their premiums and deductibles,” said Collins.

The authors of The Commonwealth Fund report attributed the improvement to inflation-driven income growth exceeding recent increases in ESI premiums and deductible. The $80,610 National median household income in 2023 was a 4% increase from 2022, and ranged from $49,600 for single-person households to $102,800 for families.

“The income increased between those intervening years, that had a small impact on the affordability of these costs,” said Kristen Kolb, research associate for The Commonwealth Fund.

The states where family ESI premium and deductible affordability worsened from 2020 to 2023 were:

• Alabama
• California
• Connecticut
• Louisiana
• Michigan
• New York
• Tennessee
• Vermont
• Virginia
• Washington

“There’s nothing in place that will lower the trajectory of what we have seen over time,” Collins said.

Over the years The Commonwealth Fund has examined ESI coverage affordability, it found that has sporadically improved due to slow growth in premiums and income growth. “But there is nothing in place that is going to improve the overall rate of growth and the driver, which is healthcare costs,” Collins said. “If we enter a recessionary period, where people’s income growth flattens or even falls, then people really are getting into a pretty significant affordability issue with their healthcare.”