May 183 min read

The Unexpected Financial Crisis in America: The Overwhelming Burden of Health Insurance Premiums

When we think about financial crises, our minds often drift to stock market crashes, bursting property bubbles, recessions, or perhaps even personal debt due to poor lifestyle choices. However, there's an under-discussed and often misunderstood source of financial strain that is increasing its impact across America, and its source might surprise you: health insurance premiums.

Health Insurance Premiums: Consuming the American Paycheck

For countless Americans, health insurance isn't just a line item in their monthly budgets; it's the line item often equal to/or greater cost for some families than their rent or mortgage! Both employers and employees are finding a significant portion of their financial resources gobbled up by health insurance premiums. When so much of their financial resource is consumed by just one thing, health insurance premiums, it leaves a glaring financial gap, making it challenging for individuals and families to manage other essential aspects of their lives.

The Domino Effect

Imagine the financial trajectory of an average American family. Their monthly paycheck, ideally, should cater to housing, food, utilities, transportation, education, savings, and other miscellaneous expenses. But with health insurance premiums skyrocketing that is very often not the case and it results in:

Reduced Savings: There's little to no money left for savings at the end of the month, jeopardizing future financial security. In fact, almost 60% of Americans do not have even $1,000 saved should there be an unexpected life event or emergency that is non-medical in nature.
Neglect of Non-health Priorities: Vital life events or needs that aren't health-related are often postponed or neglected. This can range from necessary home repairs to providing improved educational opportunities.
Inability to Handle Emergencies: Unanticipated events such as a car breakdown or sudden repairs, can throw the family's finances into disarray. In fact, 29% of car owners actually did take on debt over the past two years in the course of paying for a car repair. And 6% of vehicle owners said a car repair bill caused them to default on an auto loan over the past three years.

Deeper in the Hole

The subsequent steps taken by individuals and families to bridge this financial gap only lead them deeper into the hole, often to the point of no return:

High-Interest Credit Card Debt: With no savings to fall back on, many turn to credit cards, which come with soaring interest rates, leading to ballooning debt.
Mortgaging and Re-mortgaging: Homes, for many, are their largest assets. To meet financial demands, people often take out second or third mortgages, placing this valuable asset at risk.
Tapping into Retirement Accounts: Borrowing from 401k and other retirement accounts becomes a tempting but perilous option. While it offers immediate relief, there are stiff penalties and the long-term ramifications for one's retirement can be dire.

The Disproportionate Burden on American Workers

The crux of the matter lies in the disproportionate financial responsibility shouldered by American workers. While their earnings continue to be stagnant or witness minimal growth, health insurance premiums have seen an unfettered rise. Essentially, a larger slice of the same (or smaller) paycheck is being consumed solely for health coverage.

Reimagining a Balanced Financial Ecosystem

Addressing this issue requires a multi-pronged approach:

Focused Financial Wellness Benefits and Solutions: There are new financial wellness benefits in the marketplace specifically designed to help employees set aside money for unexpected life events or emergencies. These are benefits that employers can introduce to help reduce the stress and productivity impacts financial health is having on American workers.
Policy Interventions: Healthcare reforms that focus on making insurance more affordable are paramount. Legislation has passed going back to 2020 that allows for taxed-advantaged individual health insurance through employers who install an ICHRA plan. Additionally, there is new legislation in Congress sponsored by Ted Cruz that will enable even greater financial savings
Investments in Financial Literacy: Equipping individuals with knowledge and tools to make informed financial decisions can help alleviate the burden.

In Conclusion

While health insurance is undoubtedly crucial the financing model is broken and it's clear that a systemic change is imperative. Employers should be seeking alternative options and models that give optimal savings to employees as the cost of securing health coverage threatens the financial stability of their workforce. Recognizing the unexpected financial crisis being caused by ever-rising health insurance premiums is the first step towards crafting solutions that ensure not only physical health but total health (emotional, mental and financial) for all Americans.