The 1942 Stabilization Act, designed to control prices and prevent inflation, had the unintended effect of encouraging employers to use employer-sponsored healthcare plans to compete for employees. The tradition has continued today with companies touting benefit packages to attract and retain the best and brightest talent.
Today, we are seeing a monumental shift in the world of work. In the 1940s, employers turned to benefits as an incentive because the Stabilization Act did not give them the freedom to compete on pay. In 2022, employees are jumping ship, often in less than a year, for higher compensation. Today, employees are also leaving jobs for new companies that enable them to increase the amount of time and resources they have to devote to the non-work components of their lives. Saving time and increasing convenience is quickly becoming a top priority for all talent.
As such, benefits are an important part of your overall talent strategy. Today, particularly when it comes to health insurance, employees are demanding more. In the wake of the pandemic, there is greater demand for more flexible health options such as telemedicine, mental health services and proactive wellness services. The flexibility provided by new health options should result in employees’ lives becoming more convenient so they can maximize time spent on the things they love to do.
4 Ways to Control Healthcare Costs
- Don’t ignore employee contributions to healthcare plans.
- Track your employees’ disposable income.
- Consider remote-friendly benefits packages.
- Implement a direct primary care (DPC) approach.
The Price of Benefits
As you search for competitive and sustainable benefits that will satisfy workers, don’t miss a key component that can truly set you apart in the marketplace: maximizing convenience and disposable income for employees. Employer cost is important, but companies often fail to consider what insurance costs your employees.
How do employee contributions and any other cost-sharing impact your workers’ disposable income? The amount of disposable income they have is an important metric to understand and track.
For example, in Hawaii, the average annual mean wage is $59,760. According to the Kaiser Family Foundation, the average employee contribution to healthcare is $5,240. In South Dakota, however, the average wage is $46,810 and the average employee contribution is $6,135. These examples show that employees in states with lower incomes may face higher healthcare costs, which means their disposable income is lower than households in states with higher average incomes and higher cost of living
These examples conform to what I found in a deeper dive. I divided the states and the District of Columbia into three groups based on the average cost of health insurance premiums. Each group had 17 states. I compiled average household income, employee healthcare contribution for a family and added rent for a two-bedroom apartment to normalize the final disposable income figure.
Although this wasn’t a scientific study, my research showed that healthcare costs violate normal economic principles with an interesting twist. States that have higher health insurance premiums on average also had more hospital beds per capita, lower unemployment rates, and lower labor force participation rates. What does this all mean?
Unsurprisingly, states with higher health insurance premiums have more hospital beds, which drives up costs for employers. Lower unemployment rates mean more competition for qualified labor in high-cost insurance states, which is further exacerbated by lower labor force participation. Combined, this all means that there are fewer people looking for work and fewer people willing to work on average in states with high premiums and high cost-sharing. This environment heightens the need for employers to innovate when it comes to attracting and retaining talent via the benefits package.
Accounting and Accountability
The cost of healthcare is a problem, but employers can’t pass the baton of responsibility to insurers or the government. To be an employer of choice, you must consider the actual impact healthcare cost sharing has on your employees’ disposable income.
Further, as the workforce becomes more distributed, you can no longer focus on locally competitive wages and benefits. Remote work and digital nomad-friendly policies have risen in popularity during the past three years. Many employees have moved to regions with a lower cost of living to enjoy more disposable income. This trend illuminates the importance of considering how your benefits affect your talent’s bottom line. If people are willing to move their entire lives for more spending cash, they’re likely willing to switch jobs as well.
As you seek talent nationally, your benefits strategy must also be competitive nationally. This means being aware that, if you’re in a state with high health insurance premiums, it is likely that your employees’ disposable income after healthcare cost sharing is lower than employees in states with lower health insurance premiums, even after adjusting for cost of living.
Employers will have to take action by implementing strategies that lower premium costs while subsequently reducing employee contributions in line with average wages and cost of living in a local market.
One solution is the direct primary care (DPC) approach. When you implement a DPC program with vendors that charge fees below $25 per employee per month with no visit fees, you can lower employee out-of-pocket costs immediately upon implementation. This change instantly increases your employees’ disposable income. This type of program can also immediately reduce health insurance premiums if employers and their consultants are able to jointly pressure insurance carriers to recognize the positive impact of this meaningful, alternative model.
The work landscape is extremely competitive, and it is critical to maximize every advantage to recruit and retain talent. Take the steps to ensure that your benefits support your goal and are not diminishing the value that you are working so hard to deliver.