America’s lower-middle class near retirement faces worsening health

America's lower-middle class near retirement faces worsening health

The Middle-Class Squeeze: A Tale of Financial Pressure and Poor Health


The American middle class, once a symbol of stability and prosperity, is now facing a growing crisis. A recent study reveals that the middle class has split into two distinct groups, with those in the lower-middle class experiencing financial pressure and poor health as they approach retirement age. This phenomenon has led researchers to dub this group the “forgotten middle.”

Lead researcher Jack Chapel, a doctoral candidate in economics at the University of Southern California, explains, “We see that the middle class is hollowing out a little bit and separating out into this lower-middle and upper-middle. People in this lower-middle group compared to people in the upper-middle group are going to be living longer lives, but living a longer proportion of their life with worse health.”

To understand the implications of this divide, researchers analyzed federal survey data and used computer simulations to estimate future life expectancy and disability for individuals in their 50s between 1994 and 2018. The results were striking. While quality-adjusted life expectancy increased by 5% for those in the upper-middle economic status group, their lower-middle counterparts experienced stagnation. Although they will live longer, they will also suffer more in their old age.

For instance, an average 60-year-old woman in the lower-middle class in 2018 can expect to live until 84. However, nearly 40% of her remaining years will be lived with a disability. Furthermore, the combined value of wealth and resources for the lower-middle class grew only 3% after the age of 60, compared to a 13% increase for the upper-middle class.

Dr. John Rowe, a professor of health policy at Columbia University, emphasizes the precarious situation faced by the lower-middle class. He states, “They are not making any progress. They are perhaps even getting worse, and they have the precarious situation of being too wealthy to qualify for any of the traditional safety net programs — Medicaid, low-income housing, food stamps — and too poor to afford the out-of-pocket costs for health care and housing that they’re going to experience.”

One of the contributing factors to this predicament is the decline in affordable insurance coverage. Chapel and Rowe note that in 1994, the lower-middle class had high health insurance rates, similar to the upper-middle class, at around 90%. However, by 2012, this figure had dropped to 71%, primarily due to significant decreases in employer-sponsored health insurance.

While the Affordable Care Act has provided some relief, the increase in out-of-pocket costs has made it challenging for the lower-middle class to access adequate healthcare. Approximately 26% of 50- to 64-year-olds covered by employer-sponsored health plans are underinsured, meaning that their out-of-pocket costs relative to their income prevent them from fully utilizing the healthcare they need.

This situation creates a vicious cycle where individuals in the lower-middle class struggle to address their health problems effectively. Chapel explains, “If you don’t have health insurance throughout most of your midlife and you’re not seeing a doctor as much, you’re not able to identify chronic diseases earlier. Then health can affect your ability to participate in the labor force or have gainful employment. Your health impacts your work ability, which further impacts your ability to maintain your health.”

Another significant factor contributing to the economic pressure faced by the lower-middle class is the reduction in home ownership. Traditionally, individuals relied on the value of their homes as a source of equity for retirement. However, there has been a significant reduction in homeownership among the lower-middle class, and the value of their homes has not increased as it did for previous generations.

To address this growing crisis, there is a need for a fundamental rethinking of how American policymakers consider the class structure in the United States. Rowe suggests that policies should go beyond focusing solely on the poor and instead provide support for the middle class. He states, “The bottom line is that if you look at someone who’s age 60, if they are in the upper class, the proportion of their future life that they are going to spend healthy without disability has been increasing steadily. Whereas if you look at someone in the lower-middle class, that proportion is actually getting smaller.”

The researchers propose relatively simple policies that could alleviate the middle-class squeeze. Increasing premium subsidies under the Affordable Care Act to cover those in the lower-middle class would significantly help them afford coverage. They highlight that such an increase has already occurred as part of the Inflation Reduction Act passed under the Biden administration, resulting in historic highs in enrollment.

Additionally, encouraging individuals to save more for retirement could provide relief. Rowe suggests implementing incentives such as tax incentives to encourage higher contributions to 401Ks and increasing employer matching rates. Restructuring 401K plans to automatically enroll individuals, with the option to opt-out, could also significantly increase the number of people saving for retirement.

The middle-class squeeze is a pressing issue that requires immediate attention. By implementing targeted policies and addressing the underlying causes, we can strive to create a society where financial stability and good health are not exclusive privileges but accessible to all.