With the implementation of the Affordable Care Act, more Americans now have access to major medical insurance. However, results from the 2015 Aflac WorkForces Report released today by Aflac, the leading provider of voluntary insurance at the work site in the United States, reveal wide disparities between higher- and lower-income households in terms of financial preparedness, knowledge about health insurance and benefits enrollment. For example, 55 percent of employees in lower-income households (less than $50,000 in household income per year) are not prepared to pay for costs associated with an unanticipated serious illness or accident not covered by major medical insurance, compared with only 20 percent of employees in higher-income households (more than $100,000 in household income per year). This lack of readiness may present economic and health risks for households already walking a financial tightrope without a safety net to cope with increased medical costs.

The online study, conducted by Research Now on behalf of Aflac between January and February 2015, surveyed 1,977 employers and 5,337 employees at small, medium and large U.S. companies, shedding light on how employees at different ends of the household income spectrum are responding to the continued high cost of health care and the shift to greater consumer control over, and responsibility for, medical expenses.

Families are spending a larger portion of their income on health care today. Out-of-pocket health care costs, which include insurance premiums and deductibles, accounted for 9.6 percent of median income in 2013, almost doubling from 5.3 percent 10 years ago1 and increasing faster than the rate of inflation and average raises during those years.

"With wage increases failing to keep pace with rising health care costs, many employees, especially those in lower-income households, are one serious medical event away from financial hardship," said Matthew Owenby, senior vice president, Chief Human Resources Officer, Aflac. "This not only has an effect on employees' health and financial well-being, but it can also reduce their company's productivity through increased absences and employees who are distracted on the job."

According to a 2014 Society for Human Resource Management study, 7 out of 10 HR professionals indicated that personal financial challenges have a large or some impact on their employees' performance. One-half of the respondents reported that employee stress (50 percent) and the ability to focus on work (47 percent) are the aspects of employee performance most negatively affected by personal financial challenges.2

Varying degrees of financial preparation

The Aflac study shows that 78 percent of employees in lower-income households have less than $1,000 for out-of-pocket costs associated with unexpected serious illnesses or accidents compared with 19 percent of employees in higher-income households. Almost half (49 percent) of employees in lower-income households have less than $500 for those out-of-pocket costs, seven times the rate of employees in higher-income households (7 percent), who have less than $500 for out-of-pocket costs.

As an indication of the impact unforeseen medical costs could have, nearly twice as many (41 percent) employees in lower-income households agree they would be unable to adjust to the large financial cost associated with a serious injury or illness, compared to 21 percent of employees in higher-income households.

"Year after year, the Aflac WorkForces Report consistently shows that lower-income households remain on the brink of financial chaos in the event of an unforeseen debilitating injury or illness," Owenby said. "It would be difficult, if not impossible, to dismiss that this quality-of-life issue impacts individuals and employers in a negative way. Whether a family has major medical coverage or not, the majority of respondents are unprepared for the financial burdens that can result from unexpected medical situations."

Less protected by benefits

Employees with lower household income are less likely to take advantage of job-based health benefits offered through their employers, leaving them more vulnerable to the adverse impact of medical costs if faced with a health crisis. For example, the Aflac study indicates that only 65 percent of employees in lower-income households who are offered employee benefits are enrolled in major medical insurance, compared with 81 percent of employees in higher-income households. In addition, only 1 in 4 employees in lower-income households are enrolled in disability insurance, compared with 56 percent of employees in higher-income households.

Lack of benefits knowledge

The 2015 Aflac study finds that lower-income employees, who are the least protected against the financial costs of unexpected medical expenses, may not be taking every step they can to safeguard their health and financial security. These employees spend less time researching their options – half spend less than 30 minutes – which could lead them to make hasty benefits decisions and costly mistakes. As a result, they may have less understanding of how their major medical insurance works, including newer plan options that are rapidly being adopted by employers.

• Only 19 percent of those in lower-income households say they are extremely or very knowledgeable about high deductible health plans, compared to 37 percent of those in high-income households. 
• Only 20 percent of employees in lower-income households say they are extremely or very knowledgeable about flexible spending accounts, compared to 51 percent of those in higher-income households.

Bridging the health literacy gap

The continued shift of health care costs and control over medical plans and decisions to employees must be balanced and supported by access to benefits options, education and resources. One of the key ways to tackle employees' lack of knowledge about health insurance, fragile financial conditions and gaps in enrollment is for employers to improve their benefits communications. By developing clear, easy-to-understand communications about their benefits offerings, employers can gain a better understanding of how to increase employee engagement and help bridge the health literacy gap in the workplace.

"The Aflac WorkForces Report provides strong evidence that employees, particularly those in lower-income households, can do more to protect their financial futures by actively educating themselves to make sound health benefits decisions," said Owenby. "At the same time, employers also have significant opportunities to help close employees' health literacy gaps by providing them with benefits options that meet their needs and arming them with the necessary tools to understand and take advantage of the health care choices available to them."

To learn more about the 2015 Aflac WorkForces, visit AflacWorkForcesReport.com or follow @aflac on Twitter.