Sick of Paying Your Employer to Cover Your Health Insurance?
Employer-sponsored health insurance is a big deal. On the surface, it provides you with the peace of mind in knowing that your family will be covered should anything happen. However, it's important to weigh the pros and cons before deciding whether or not you should stay on your employer's health insurance plan. If you don't have a good understanding of the economics behind employer-sponsored health insurance, or if you're not aware of the alternatives out there, then you could be making the wrong decision. This article will help to present some of those costs and benefits.
I should note that this article is written specifically for the American market. In other countries, employer-sponsored health insurance is rendered unnecessary by government-sponsored systems like Canadian Medicare and British NICE. Even in parts of America where government-provided healthcare is not an option, such as California, there are alternative options available such as Kaiser Permanente and HMOs. However, in most parts of America, employer-sponsored health insurance still makes up a significant chunk of our healthcare costs.
Employer-sponsored health insurance is actually a subsidy, not a contract
If you purchase something from Walmart for the purpose of using it at your home, you pay for it yourself. For example, if you buy an Apple computer from Walmart and want to use it in your home office or as a media console in your living room, you don't get reimbursed for those costs by Walmart. That's because they're paying for themselves with the money that they've taken out of your paycheck each month.
The same concept applies to employer-sponsored health insurance. Your monthly premium is deducted from your paycheck, and yet it's not for your own use. You're paying for someone else to use that benefit, who would otherwise have to buy it on his or her own. In other words, it's a subsidy paid by you to allow your employer or you to deduct the cost of a product for their own household.
In the case of Walmart employees, the product being bought is health insurance. The reason why we call it "insurance" in this case is because that's how companies want you to think of it — as an expense that would protect against something bad happening. In reality, it's not insurance at all. It's a subsidy.
You may not care much about how your employer-sponsored health insurance policy was priced
Imagine that you're shopping for a new health insurance policy with two options: a $100,000 per year plan and a $200,000 per year plan. If you were to ask the employee benefits department of whichever company you worked for how much each plan costs, they would tell you that the $100,000 policy costs $1000 per month and the $200,000 policy costs $2000 per month. This is how most people think about health insurance: as a monthly expenditure.
The problem is that in the world of employer-sponsored health insurance, these plans don't actually cost $1000 or $2000 per month. They cost a whopping $784 per month. That's because this is what your employer spends to purchase the product for you to use. It's not how much you pay each month out of pocket for your own use, but it will definitely dwarf your monthly payments in order to save on the costs incurred by covering you and your family.
If you're a Walmart employee, the cost will be even higher because Walmart owns their employees' health insurance — that is, they own these policies rather than buying them from another company like most employers do. In this case, the true cost of the $100,000 per year plan is $864.77 per month and the true cost of the $200,000 per year plan is $1678.78. This means that your employer-sponsored health insurance costs you an extra 33% for the privilege of allowing Walmart to give you a discount on their own product.
As a side note, this doesn't mean that there's necessarily something wrong with Walmart's employee health insurance plan as it's being priced correctly for what it is — and that is a subsidised product for their employees to use at home. The problem here is that the employee is not purchasing that insurance directly. Instead, the employee is paying for it through his or her employer and getting big discounts. Furthermore, from a legal standpoint, you're not actually "buying" health insurance if you're not given all of the information about how much everything really costs — which is why most states have some sort of regulation about disclosing this information to employees.
You may be paying more than your fair share of the cost
It's important to know what you're actually paying per month when it comes to employer-sponsored health insurance. It's not $1000 or $2000 per month — it's closer to $784.77 or $1678.78 per month. However, we've seen in the examples above that the true cost of a policy can be many times more than what you pay out of pocket for your own use.
For example, let's say that after we look at the true cost of these policies, we see that you're paying about $300 per month for your employer-sponsored health insurance plan — or about 33% below what is actually being spend. So in this case, it's actually a pretty good deal from Walmart's perspective and from your perspective as well because you're paying less than 33%.
However, if you compare the true cost of Walmart's health insurance policies to what they actually spend, we see that it's $864.77 per month but the actual cost is $784 per month — meaning that you're paying 33% more in order to get a 33% discount. That is a pretty big difference and something to think about when determining whether or not it is a good deal for your employer.
Now let's look at another example for a different family of four. You and your spouse have two children (let's say they're age 3 and 5) and you're not working for Walmart. Instead, you're a customer at Walmart who earns $20,000 per year — so roughly 33% less than what the average Walmart employee makes. If health insurance is subsidised by the employer, we would expect to see it subsidised at a similar rate as healthcare costs tend to rise about 3% annually. In this case, we might expect your family's health insurance policy for next year to be priced at about $1500 per month.
However, after examining the true cost of Walmart's health insurance policies, we see that it's actually priced like this:
Type of Health Plan Number of People Monthly Cost $2000/$400 Deductible Per Person* Annual Deductible Family Plan 2 $1678.
Conclusion
We can tell you that Walmart employees are paying a lot more in order to get a 33% discount on Walmart's health insurance policy. We also know that everyone is being subsidised by the employer, which is why Walmart's health insurance policies are priced so inexpensively.
Those of you who work for Walmart are not cheating or getting an unfair deal in any way — it's just an issue of transparency where the true cost of your employer-sponsored health insurance is not being told to you. It makes sense from a financial or business perspective because you're purchasing something that would otherwise cost money by your own hand, and also because if things don't work out, you still have job security.