Health Insurance Benefits: The Real Impact
Health insurance premiums are critical to workforce success.
In order to succeed with recruitment and retention in the current labor market, employers need to look carefully at the needs of their workforce and consider how all components of compensation effect employees’ financial wellbeing. Health insurance is one benefit that can be easily correlated with compensation, and the cost of it represents one of the largest household expenses, particularly for lower-income employees.
While health insurance was fully paid by employers in the distant past, requiring employees to contribute to health insurance premiums is now commonplace. Typical organizations take one of the following approaches to sharing health insurance premium costs with employees:
- Employees are required to contribute an across-the-board percentage (e.g., 20 to 25 percent) of the company health insurance plan premiums
- Employees pay nothing (zero percent) toward their own health insurance premiums, and a higher percentage (e.g., 50 percent) for a spouse or dependents
The problem with both of these options is that it places a disproportionate expense on the lowest paid employees. Employers need to be aware of the extent of this burden if they want to recruit and retain frontline and hourly workers.
For example, let’s take a somewhat typical plan with a $2,500 individual deductible and a $5,000 family deductible, with a $30 office visit co-pay. In a recent ElementOne survey we found that premiums for this type of plan were approximately:
- $550 for an individual
- $1,250 for an “employee plus one”
- $1,500 for full family coverage
If an employee is required to contribute 20 percent of the plan premiums, that means each employee would pay $1,300 per year for individual coverage or $3,600 per year for full-family coverage before insurance pays anything to them. This is a staggering cost for the lowest paid workers.
While senior managers won’t even notice the deductions from their paychecks, someone making $15 per hour will. In fact, a $15 per hour single parent trying to cover the cost of full family coverage would spend about 12 percent of their work hours and pay (or six weeks of full-time work) just paying for the privilege of perhaps getting a benefit at some point during the year. This price is even steeper if the premium contributions come out after tax.
It’s very likely that people in this situation will decline coverage and take the risk, or hope that some government program will cover them, or that they can just go to the emergency room rather than get quality preventative care. And that’s not good for anyone because when employees do not have their basic needs met it’s nearly impossible for them to be engaged, efficient team members. You cannot contribute meaningfully to your job when you’re struggling to survive.
So what can employers do about this? Consider a new structure to health insurance premium sharing.
While having all employees pay the same percentage of premiums might sound fair, it has a disproportionate impact on lower-wage employees. In this job market, lower-wage employees are the hardest to recruit and retain, so employers should pay close attention to taking care of them financially.
Instead of an across-the-board policy, employers should consider establishing a graduated scale for premium contributions based on income, so that lower paid employees pay nothing, or at least much less. This would both encourage employees and their dependents to sign up for health care benefits and put much-needed cash into their pockets, meaning their health and their finances will be much better cared for. In fact, reducing the burden of health insurance costs for lower-wage workers may have a greater effect on their quality of life than simply raising their hourly wage.
If employers want to recruit and retain good employees, and create an environment where those employees can contribute meaningfully to their work, health insurance cost burdens are a critical component of compensation to assess.