Are Free Health Plans an Emerging Trend?
Noncontributory health plans are benefit plans where employers pay the entire premium for the workers.
Watts discusses how some industries are using these types of plans to attract and retain employees and which factors employers should consider before implementation.
We asked how many companies were planning to enhance their benefits in 2023 to attract, retain or better meet the needs of their employees over the next year. We were surprised to find out that 70% said they were planning to enhance their benefits in some way. Sixteen percent said they were not going to but only because they already did it in 2022. We asked if they were planning to prioritize any groups, and most [64%] said no, it would be an overall improvement. Of those that said they were targeting certain working groups, 20% said they would focus on hourly employees, 15% said low-wage workers, 14% said they would do it for highly skilled workers, and 13% said they would use benefits to attract or retain entry-level staff.
The biggest jump we saw was for employers wanting to offer health plans with low or no deductibles—41% said they were offering those. Last year we saw employers wanting to add more choices to their benefit plans. That seemed like the major theme, to bring more choice. Other trends we saw were 24% of respondents looking at narrow-network or high-performance-network-based plans to give low-cost sharing for employees; 16% of companies were already offering these. Another 17% were offering salary-banded plan contributions [premiums based on a percentage of salary, often with higher-salaried employers paying a larger percent than low-wage workers], and another 17% were offering telehealth coverage for people not on their benefits plan. And finally, 17% of respondents were offering onsite or near-site health services.
It’s a slightly different industry. It’s well funded because they are often startups. Those companies tend to have more financial support to put toward medical options. But when it comes to healthcare, the affordability issue is real. I think that’s true no matter how much money you make. Even just the fear of needing some kind of healthcare and not being able to afford it for your family—a lot of people have that fear. The pandemic raised the healthcare affordability fear issue with people; that has been a constant.
But there may be more playing into it as well. I think that cost fear has been included with the current war for talent. Everyone needs high-tech talent, not just specifically high-tech companies. Even a grocery store has a digital presence now to take online orders. Everyone needs some tech-savvy workforce, and there is lots of competition for it out there.
The high-tech industry has been known for having rich benefits, and it seems like, when talking with the people who work with that industry, we were seeing an increase in free health plans anecdotally.
We did a closed survey for high-tech employers, and they gave us permission to disclose some of the results. With this survey, we looked at a whole variety of benefit issues, and we found that about half of the employers offered at least one plan [in 2021] that was noncontributory for the employee; about 10% offered a noncontributory plan at all levels of coverage.
There is so much competition for high-tech talent, I thought it was something worth blogging about. Since my blog came out on the topic, I’ve had a manufacturing client contact me about it as well. They said there were two other trucking companies who were their competitors that were offering free medical benefits and that they recruited away some of their truck drivers. We are seeing companies do this that are in really competitive job classes.
Typically, we look at survey data from jumbo employers as a harbinger of what’s going to happen going forward. We are starting to see it a bit in the broader employer category; 11% said they currently offer a free medical plan today.
It has fluctuated. We had never asked before if they were planning to do it, and the fact that 11% said they were considering it as well, that’s a lot in terms of survey numbers. I looked back at three years of data to find a comparison. I looked at 2010 because it was the year the Affordable Care Act passed, 2018 because that was pre-pandemic, and 2021. What we found was that, for HMOs, in 2010, 13% had a plan that was noncontributory for employees only, 11% had one in 2018, and 8% had one in 2021. It will be interesting to see if that goes back up to pre-pandemic levels.
We are seeing that competition for truck drivers is intense, so we are seeing it a bit there—especially at companies where they are trying to recruit drivers for cross-country transport where they can work anywhere.
We are seeing a lot of competition for low-wage workers right now. Companies are having trouble attracting this group of workers. It’s the people working for minimum wage and thinking about their choices of places to work. They could work at a lower-level job in a hospital versus fast food versus Amazon. These companies could all pay almost the same, so employees are looking at benefits. Free insurance is a sweetener employers can mention to try and offer a bigger enticement. Some states, like California, Maryland and Washington, are starting to require employers to disclose salary ranges publicly. Some employers are adding that free medical is available—even if “free” only applies to self-only coverage in the lowest-cost plan.
Employers really need to think about how many people who are currently paying for their benefits would switch to a free plan and, on top of that, people who aren’t enrolled, if it’s free, would they take it and switch to your free plan? If a company has a really high opt-out rate today (on average, we see about 15% to 17% opt-out), would the plans be encouraging people to come back into the program, because that could drive costs up. Also, if you have a program where you default people into the plan, it could make costs go up; whereas, if people have to enroll, there might not be quite as much uptake.
Businesses should be very thoughtful about how to go about making that change. If you are offering it just to some groups, there may be nondiscrimination rules and other compliance concerns that could apply depending on your decision. Or if you have a plan today that charges $80 per month, do you really have to offer a free option, or could you offer one that is $25 per pay period? It might be that a company can make adjustments to their current low-cost plan or offer other, more affordable medical plan options.
Employers need to weigh and decide what they need most and whether they will get their return on investment. What if there is a whole shift they can’t staff, so they have lost production? They need to think about whatever metrics they use to quantify the impact on their business. Is the cost of noncontributory insurance less than the revenue they will be losing if they can’t staff shifts appropriately or if they are having to pay people overtime because of high turnover? A lot of companies know exactly how much it costs to hire one person.