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The important compensation metric that most employers ignore

Employers often forget how much disposable income employees will have after paying their health insurance contribution and how it compares to other markets. (Photo: Shutterstock)

Attracting and retaining talent have always been essential elements in organizations’ plans. In the era of the Great Resignation and the Great Return, it has become more important and more competitive to achieve this goal.

In the new world of work, you have designed a flexible workforce policy and offer competitive pay and benefits. You were able to attract and hire top performers for your job postings, but within a year they are jumping ship for higher compensation. Is this just a sign of the times or is there a key element missing in your talent management strategy?

Related: Premium costs and deductibles are a growing burden for American workers

Both large and small employers invest incredible amounts of time to ensure that the wages they pay are competitive in their markets to attract and retain employees. Likewise, employers are used to ensuring that the benefit packages they offer are attractive while being sustainable for their business, especially health insurance. What is often overlooked is the amount of disposable income your employees will have after paying their health insurance contribution and how it compares to other markets. This figure will continue to grow in importance as the workforce becomes more mobile and remote work becomes permanent.

Thompson Aderinkomi headshot
Thompson Aderinkomi is CEO and co-founder of Nice Healthcare, a company that solves systemic problems by bringing primary care directly to the patient with home visits, lab tests and x-rays.

Income under any other name

The key question then is which states have the highest average disposable income. First, we need to look at the states based on their health insurance cost. I found that states with the highest single employee insurance premiums correlate with states with the lowest household incomes. The methodology I used to make this assessment included dividing the states and DC into three groups based on average health insurance premium cost. I grouped the lowest priced states into one group, the middle into another group, and the highest into the last group, placing 17 states in each group.

Next, I compiled averages for household income, employee contribution for a family, and rent for a 2-bedroom apartment. The rent charge helps normalize the final disposable income figure so that the cost of living is taken into account.

You would think that in states with higher incomes and higher cost of living, the cost of health care would follow and be higher. This is not the case, in fact the opposite is true; states with higher income and higher cost of living had lower levels of employee health insurance premiums than states with high health insurance premiums in 2020. The cost of health care appears to violate the principles normal economic conditions with the devastating effect of crippling the financial prospects of average earning households.

The hidden costs of insurance premiums

So what is the real impact on your employees of high health care costs? In 2020, after paying for health insurance and rent, the average family in the top third of high-cost insurance premium states was $42,888 while in the bottom third, the remaining amount was $42,888. $59,357. This means that in states with the lowest cost of health insurance, the average family has an average of $16,469 in additional disposable income per year to spend on things like childcare, transportation, education and entertainment compared to the 17 states in the top-cost group.

If an employer simply focuses on locally competitive wages and a competitive benefits package, they will miss this critical nuance, especially when competing for talent nationally. Employers in states with high health insurance premiums should be aware that the ratio of employee premiums to income is significantly higher than in states with low health insurance premiums.

Ultimately, the problem with health care is price. The only solution is to implement strategies that lower the cost of insurance premiums and subsequently lower employee premiums based on the average wages and cost of living in a local market. To do this, employers need to invest time in strategies that reduce employee out-of-pocket expenses today, not 2-5 years from now. There are many programs touting these goals that fail to deliver.

However, one promising approach is the direct primary care (DPC) movement. This type of program, when implemented by providers who charge less than $25 per employee per month, with no visitation fees, has the ability to reduce direct employee expenses upon implementation. DPC can also immediately reduce health insurance premiums if employers and their consultants are able to jointly pressure insurance companies to recognize the positive impact of this significant alternative model.

In this highly competitive environment, there is little room for error in attracting and retaining talent. Make sure your benefits don’t diminish your value by making it difficult for your employees to live on the income left over after paying their share of health insurance. Lowering the cost of health care is not only the right thing to do, but can also help you become an employer of choice.


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