By Matthew McCormick, Partnership Executive, MMS Analytics, Inc.
According to MetLife’s most recent Employee Benefit Trends Study, “the most important benefits to employees have two things in common: 1) they play a central role in helping them achieve their personal and work-related goals, and 2) they address their main stressors, particularly around personal finances, retirement, and their family’s health — which overlap considerably.”
That they do.
Today, personal finance and family health are more intertwined than ever before, and it’s essential that employees understand how healthcare and health insurance can ultimately affect total compensation. The issue is that, to understand, they need to pay attention. That’s where you come in.
Note: the numbers I mention below are leveraged from Peterson – KFF Household Health Spending Calculator.
Plain and simple, health insurance is getting more expensive. Annual health insurance premium costs reached new highs in 2019, totaling $7,188 for individual plans and $20,576 for family plans. With figures that enormous, it’s not surprising that annual health benefit expenses are second only to payroll on many employers’ profit and loss statements.
Breaking it down further, a non-elderly individual of “average health” on employer coverage spends $1,350 on their contributions to annual insurance premiums, with a typical family on employer coverage averaging contributions upwards of $4,400 per year. That equates to $112 per month and $370 per month, respectively. In other words, based on the average income of individuals and families on employer-sponsored insurance coverage, almost 3% of employees’ income can be attributed to health insurance premiums alone.
Is that enough to make employees care?
Using the same parameters as above (typical, non-elderly, employer coverage, average health) a single person spends $800 annually on out-of-pocket costs, with the typical family spending upwards of $3200. That equates to $67 per month and $267 per month, respectively. So almost an additional 2% of employee income can be attributed to out-of-pocket healthcare costs.
Is that enough to make employees care?
Combining the employees’ share of health insurance costs and healthcare out-of-pockets, employees can see their income impacted by 5%.
Is that enough to make employees care?
That said, there are costs paid by employees which are beyond control, including state and federal healthcare taxes. This is an additional $2,650 and $11,150 for single and family coverage, respectively. If you add these costs; premium, out-of-pocket expenses, state and federal taxes, these figures total 10% and 12% of the average income for single and family employees.
Read that again: healthcare-related costs total more than 10% for individuals and families.
Is that enough to make employees care? Before you answer, consider that over 80% of the employer coverage costs are withdrawn before the employee sees it in their bank account.
From a behavioral economics standpoint, that certainly presents a challenge. But what does this look like from the employer’s perspective? How many additional dollars are spent by the employer?
It’s estimated that employers contribute an additional $5,500 to annual health insurance premiums, on top of $650 in Medicare payroll taxes. Factoring in both an individual’s average healthcare spend and the money spent by their employer on their behalf, and now you’re looking at $10,950, or 24% of an employee’s income.
And what about costs to families? Estimates show employers contribute an additional $13,050 to health insurance premiums for premiums, as well as $2,300 in Medicare payroll taxes. Using the same formula above, you’re looking at $34,100, or 22% of the employee’s income.
24% and 22% of single and family income, respectively. Is that enough to make employees care?
Over the past decade, the percentages have increased by double-digits. And again, economists generally believe that employer contributions offset wages. So, wages may have grown 26% over the past 10 years, but the employee’s share toward medical care has increased by 67%. Talk about offsetting.
And therein lies the reason employees should care: because they’ve been robbed. And employers, as they desire to provide a holistic experience for their employees, should care—and care enough to do something about it.
It’s time to take back control. Employers, alongside their innovative broker partners, must empower employees as healthcare consumers, providing critical information when they need it. As expertly said by Suzanne Delbanco, executive director of Catalyst for Payment Reform, “At the end of the day, employers have to put their hands on the steering wheel as purchasers of healthcare,” Delbanco said. “They have to. Otherwise they’ll be passive recipients of whatever comes their way.”
And what will keep coming their way, are stressed, financially-strapped employees distracted and overwhelmed by the three things most important to them: family, health, and finance.