The Most Important Signal

In a sea of experiences, AI, and new solutions claiming to make us healthier, when it comes to employer-sponsored healthcare, for most employees, what matters most is the almighty dollar. The cash we pay is king.

Payroll contributions. That’s the critical number. Independent of insurance structure, whose logo is on your insurance card, network types, step-trackers, special networks, questionnaires, demands for your blood, feel-good online coaching, and brochures about healthy living are mostly noise. What matters the most to most employees is what comes out of their paycheck.

  • On average, 60% of a benefit’s package direct value to an employee is in payroll contributions (from an analysis of 1,000 firms*).
  • An insurance plan’s structure and cost-sharing matters too but one extra deductible dollar is worth a 25 cents of premium: a $1,000 difference in deductible is only worth about $200-$300 in premium for a single person. $1,000 in extra annual payroll contributions hits everyone, 1-for-1.
  • One large midwestern manufacturer’s data showed that over 3 years, 2/3 of employees spent more on payroll contributions than in out-of-pocket medical costs; only 2% reached an out-of-pocket max 3 years in a row. Mean reversion exists in areas beyond Tesla’s stock price. 
  • Over 5-10 years, most people will pay more in their portion of the premiums than in care. That’s one reason choosing the highest deductible offered and saving and investing the difference in premiums makes so much sense.

Employers’ and employees’ interests are often opposed but they most engage in a dance. Employees want simplicity, minimal worries, and peace of mind–some enterprising ones will want to know how their benefits stack up. For most employers, it’s often about being good enough. Employers hold the cards and have information advantages and levers to tilt the board in their favor. Their behavior shows. Corporate platitudes aside, only 1/8 of large service firms are in the top quartile of benefits generosity for both single and family coverage**.

Payroll contributions are the biggest and heaviest lever. 32 point font, while the rest, deductibles, apps, hidden solution number 12 are 10 point font or smaller. A close second, and a door to a better path of care: a long-term relationship with a direct primary care doctor (an insurance-free monthly membership). Money and the basics. Signals in a world full of noise.


*All premiums were adjusted to reflect platinum level coverage, or the top 10% most generous coverage.

**Analysis of over 1,000 employers from the 2019 Kaiser Employer Benefits underlying survey data. 

Disclosures: my personal healthcare coverage is a $5,000 deductible cost-sharing plan (not ACA compliant). Healthcare investments: long CI, HQY; short (via long puts): LVGO. My HSA account is with Lively.

Photo by ah.life on Unsplash

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