Executive Summary: Low-Wage Workers in Level Funded Industries: Cost Shifting Dressed as Coverage
LFP-06.04 — The Populations#
A level funded plan with a $2,575 deductible provides nominal coverage to a home health aide earning $34,900 annually. The deductible alone consumes 7.4% of her gross income. The Commonwealth Fund’s 2024 Biennial Health Insurance Survey classifies a deductible equal to 5% or more of household income as a condition of clinical underinsurance. She is enrolled. She is underinsured. These are not contradictory facts.
The structural problem is not level funded specifically — the same plan design from a fully insured carrier produces the same access barrier. The problem is that the industries where level funded adoption is growing employ large numbers of workers at income levels where standard small-employer plan design functions as catastrophic-only coverage in practice.
The BLS Occupational Employment and Wage Statistics for May 2024 establishes the income floor. Home health and personal care aides — 4.0 million workers, the largest single occupation in the country — had a median annual wage of $34,900. Landscaping workers averaged $40,880. Food preparation workers averaged $33,380. BLS Quarterly Census of Employment and Wages confirms the industry picture: average weekly wages in home health care services (NAICS 6216) were $669 in 2023, or $34,788 annually; in food services and drinking places (NAICS 722), $474 per week, or $24,648 annually.
Against these wages, the KFF 2024 Employer Health Benefits Survey documents concentrated financial exposure. Workers at small firms faced an average annual deductible of $2,575, versus $1,538 at large firms. Adding average annual employee contributions of $1,368 for single coverage, a worker earning $34,900 faces $3,943 in premium-plus-deductible exposure before a single coinsurance charge — 11.3% of gross income. The Commonwealth Fund 2024 Biennial found that 23% of insured adults are underinsured by clinical definition, with 66% holding employer coverage and 57% reporting they had forgone needed care due to cost.
The causal relationship is documented, not speculative. The RAND Health Insurance Experiment established that cost sharing reduces utilization of both necessary and unnecessary care, with larger effects for low-income participants facing identical plan design as higher-income participants. Wharam and colleagues’ 2017 study in JAMA Internal Medicine found that low-income diabetic patients transitioning to high-deductible plans experienced 24 additional emergency department complication visits per 1,000 members — a 53% relative increase — as primary care became unaffordable and conditions escalated to acute presentation.
The compliance framework asks whether coverage is offered, not whether it can be used. The employer meets its legal obligation. The deferred care reappears as emergency department utilization and disease progression, costs externalized to the hospital system and to subsequent employers’ plans.
The solution is plan design calibrated to the actual income distribution of the covered population: income-adjusted HRAs, low-deductible options for the lower-wage portion of mixed-income workforces, and first-dollar coverage for preventive and primary care. These are achievable mechanisms — what they require is an employer and TPA willing to design against the real workforce rather than the assumed one.