Executive Summary: High Turnover and the Coverage Cliff: What Happens to Workers Who Churn Through Level Funded
LFP-06.08 — The Populations#
Industries with high employee turnover are structurally incompatible with the plan-year assumptions of level funded design. The plan year runs 12 months. Leisure and hospitality turns over the majority of its workforce annually. Home health care runs annual turnover rates that frequently exceed 60%. The mathematics do not reconcile.
The BLS Job Openings and Labor Turnover Survey documents the scale. Leisure and hospitality total annual separation rates have approached 70% to 80% in recent years, running at approximately double the all-private-industry rate of 3.3% per month. PHI National documented annual turnover among home health aides at 77% nationally in 2021. A worker employed for four months and subject to a 60-day waiting period has two months of coverage. The KFF 2024 Employer Health Benefits Survey shows that 27% of small employers impose waiting periods of 31 to 60 days and 15% impose 61 to 90 days.
After separation, COBRA continuation coverage is available at full premium cost — both employer and employee shares combined, plus a 2% administrative fee. The KFF 2024 EHBS reports the average total annual premium for employer-sponsored single coverage at $8,951. For a worker previously contributing $150 to $200 per month, COBRA premiums of $750 to $800 monthly represent a fourfold increase. For a worker earning $30,000 annually, monthly take-home pay is approximately $2,100 after taxes; COBRA for single coverage would consume 36% of that. DOL data suggests COBRA election rates of 20% to 25% in typical years, substantially lower among low-wage workers. The workers churning through level funded plans in high-turnover industries largely cannot pay the premium.
Coverage gaps produce measurable health consequences. National Center for Health Statistics data shows that adults reporting a coverage gap in the prior 12 months have substantially higher emergency department visit rates than continuously covered adults. Prescription adherence deteriorates when coverage lapses, and nonadherence produces preventable hospitalizations visible in the claims of the next plan that covers the worker. Those costs are externalized to the hospital system through uncompensated care and to subsequent employers’ plans through conditions that progressed during the gap. The level funded plan that covered the worker for two months and then terminated the coverage has externalized those consequences to systems outside the plan’s accounting.
Staffing agencies illustrate the structural character most clearly. Level funded adoption among staffing agencies is growing because the agency controls the group and can purchase coverage across placements. But when an assignment ends, employment terminates. Systematic coverage gaps are a feature of the staffing model, not an administrative failure. The plan document cannot fix what the employment structure produces.