At what cost?

Times Staff Writer

Terri MATTHEWS, a teacher’s aide in East Palo Alto, spends $613 a month for her family’s health insurance -- 24% of her take-home pay. Rather than go without coverage, she skimps on other needs; her heat has been turned off twice in the last year and she recently had to drop her car insurance.

Peggy McPhee, a 52-year-old bridal dressmaker in Santa Rosa, spends more than a quarter of her salary on health insurance. She’s recently given up her cellphone, buys clothing only at garage sales and no longer turns on her heat in the winter.

Ron Dybas, of Los Banos, chose to close his lumber company two months ago after 17 years in business. He says he took a job with a company that offers benefits after he no longer could afford to spend nearly a third of his income insuring his family.


Such sacrifices for health insurance are far from rare. As employees continue to absorb more of their healthcare costs, an increasing number of people -- even healthy ones -- are drastically altering their lives simply to hold on to their insurance. They are delaying homeownership, putting off saving for their children’s education, or otherwise sacrificing their financial security to guard against a catastrophic medical bill.

Many people, especially lower- and middle-class workers and the chronically ill, are beginning to spend a once-unimaginable share of their income on health coverage. In some cases, health costs have become the single biggest expense in family budgets.

Between 2000 and 2004, the number of people spending more than 25% of their earnings on healthcare -- a figure normally associated with homeownership -- rose by nearly a fourth to 14.3 million people, according to Washington, D.C.-based Families USA, a healthcare advocacy group. Over the same period, according to the Kaiser Family Foundation, health premiums rose an average of 59%; federal data show the average employee’s earnings rose 12.4%.

“Healthcare has always been expensive. But it’s become more than that now,” says Glenn Melnick, a Rand Corp. economist and a USC professor of healthcare finance. “How much of someone’s income is too much to spend on healthcare? 10%? 30%?”

“More people are nearing a tipping point,” says Mark Goldberg, senior vice president for policy at the National Coalition on Health Care, an organization of businesses, provider groups and pension funds that advocates for affordable healthcare. “Eventually, something has to give.”

Like the house-rich, cash-poor who stretch their finances to pay for housing, those who are barely holding on to their coverage are increasingly known as the “insured poor.” Eventually, many probably will lose the battle, joining the 45 million Americans without medical coverage.

The strain on employees and their families isn’t likely to abate any time soon. Estimates are that health expenses will continue to increase three to four times as fast as salaries over the next several years. In California, costs are rising faster than in the rest of the country. In 2003, they jumped 15.8% compared with 13.9% nationally.

More employers also are capping the amount they spend on health costs, meaning they’re no longer increasing what they contribute to an employee’s plan. In that case, employees pay for all future rate increases. A small but growing number of companies, mostly smaller firms, have started dropping employee health insurance altogether.

Asking workers to pay more of their health bills is essential to reducing demand and lowering overall health costs, economists and policymakers say. But the increased cost-shifting is coming at the same time as a number of other financial pressures. The economy is stagnant. The stock market has been lackluster. And the prices of basic essentials such as real estate and gas are rising at startling clips.


An economic reversal

Most Americans are feeling the pressure, but lower paid and middle-class workers are experiencing a disproportionate pinch. Increases in health insurance premiums and out-of-pocket expenses are often the same across the board -- no matter how much an employee makes -- so already-strapped workers are struggling ever harder to make ends meet.

After years of progress, Matthews, 46, believes she’s sliding back down the economic ladder.

In 1992, after a series of low-paying jobs -- in the stock room at Toys R Us, a security guard at San Francisco airport, an assistant manager at Kentucky Fried Chicken -- she landed her current teacher’s aide spot at an East Palo Alto public school. It paid $14,400 a year -- not a huge amount of money but it offered rich benefits.

The family stopped receiving public assistance and moved into a three-bedroom apartment. They bought a car, and as Matthew’s salary kept rising to its current level of $30,864 a year, added extras that emulated the middle class. Although still living paycheck to paycheck, Matthews was able to afford family vacations to Los Angeles and weekend trips to local amusement parks. The family ate at more-expensive restaurants and began shopping at stores such as Macy’s and the Gap.

For the first time, she began dreaming of one day buying her own home. “I always wanted a big backyard with my own garden,” she says.

Over the last few years, though, the family’s financial situation deteriorated. The main reason: Her contribution to her health insurance premiums has risen from $146 to $613 a month in the last five years and she’s paid for that out of her $2,572 monthly paycheck. Her employer caps what it contributes to her HMO plan at $333 per month. To get by, Matthews has combed through her budget and sliced judiciously: $100 from her monthly grocery bill; no more meals outside of the house (she packs everyone’s lunch each day); the family has stopped going on summer trips and now only shops at Target or Wal-Mart. For work, she allots herself two new pairs of sneakers and one pair of jeans a year. Her 72-year-old father asked to help and now pays her $34-a-month cellphone bill. “It’s one step forward and three steps back lately,” she says.

When the family’s heat was turned off during an early cold spell in September, Matthews and her four children moved into her grandmother’s house until the following payday.

Such pressures can be particularly hard on the chronically ill. More than anyone, they are feeling the pain of rising out-of-pocket costs for doctors visits, hospital stays and drugs.

For McPhee, who suffers from depression, the biggest jump in her monthly premiums came in January 2004 when they rose from $300 to $490. Her first instinct was to picket her insurer, which she did with a homemade sign outside one of the company’s local offices. (The company later temporarily reduced her monthly premiums to $387. She now pays $426.)

The Santa Rosa resident has dramatically scaled back her spending. She got rid of her cellphone last year and went back to basic cable. She now buys her clothes at garage sales and has cut out dinners at restaurants with friends. When her grandmother died last year and the family chose an expensive restaurant after the service, she made up an excuse so she wouldn’t have to go. To save money, she avoided heating her house last winter.

“I eat whatever is on sale at the supermarket,” she says. “If chicken is on sale, I have chicken that week. If it’s pork, it’s pork.”

For the last three years, her insurer has included McPhee in a financial assistance program that pays for her medications and co-payments. But in January, the company sent a letter suggesting it may take her off the program as early as June. Paying for the drugs herself could add several hundred dollars a month to her expenses.

“I literally have no idea what I will do,” she says.

More Americans, even the comfortably middle class, could soon find themselves in a similar position.

Melnick, of USC, says he expects the profile of the uninsured to change over the next few years to include more middle-class families with stable jobs. The most recent census data shows that 14% of those without insurance now make between $25,000 and $50,000 a year. A recent California HealthCare Foundation survey found 17% of Californians could not pay one or more medical bills in the last year.

“The newly uninsured will be more mainstream,” he says. At some point, “more people will be willing to drop their insurance, roll the dice and hope they don’t get sick.”

Meanwhile, people who have lost the battle to pay for insurance are increasingly finding a smaller safety net to fall back on.

Under budget pressures of their own, several states are cutting back on services for the uninsured.

Last year, California cut all funding for outreach programs aimed at helping parents who don’t realize their children are eligible for Healthy Families coverage. As a result, the number of applications has fallen “significantly” this year, says a spokeswoman for the program.


No longer self-employed

It is against this backdrop that many people are making major life changes to stay insured.

Just a few months ago, Dybas, 49, was living exactly the life he dreamed: He worked for himself, made a decent living and his wife was able to stay home with their two teenagers. The most surprising thing about his financial situation over the last few years, he says, is how seemingly stable and secure his life is. “I’m 6’2. I’m balding, a little overweight and I’ve got two kids,” he says. “If you walk past me on the street you’d probably say, ‘That’s a normal guy.’ ”

Although the family has only minor medical problems -- his wife takes an antidepressant and he takes medication for his cholesterol and high blood pressure -- their health premium rose to $729 a month in January.

A few weeks later, he gave up the business he had worked more than 10 years to open and took a long-standing offer with a national wood distribution company. He now works part time from home and commutes two hours each way two days a week to Sacramento, where he works in an 8-by-6 cubicle. His new insurance bill is $185 a month.

“Part of me wants to apologize to my wife and my family,” he says. “It’s hard not to feel like I failed somehow.”



Where to go for assistance

People who are struggling to hold on to health insurance or who have recently lost coverage may be able to qualify for assistance. Here are some resources:

* California’s Healthy Families provides health coverage to low-income children younger than 19 who have limited or no health coverage. Go to

* The state’s Access for Infants and Mothers offers low-cost health insurance to some middle-income mothers and their newborns. Go to

* Medi-Cal provides health coverage to some low-income California residents. It covers families with children and pregnant women, medically needy people, the elderly and people with disabilities. Go to

* A federal tax credit is available to help certain dislocated workers and early retirees and their dependents buy health insurance coverage. Go to

* Most health plans provide limited assistance to both children and adults in low-income families. For additional information, contact individual plans.