Goodman Explains Employer Paid Health Insurance

By Laura Lorenzetti 

March 31, 2016


This Workplace Perk Is Slowly Going Extinct

Company-paid health insurance is on its way out — and may not be such a bad thing.

The best workplaces are full of perks from ping pong tables to nap pods to unlimited vacation days. The employers on Fortune’s 100 Best Companies to Work For list are always looking for innovative ways to keep employees engaged and happy. However, there’s one perk that’s slowly fading away: employer-paid health insurance.

The share of Fortune’s best companies that still pay for 100% of employee’s healthcare has dropped to 9% this year from a peak of 34% in 2001. (Read: These 9 Companies Offer 100% Healthcare Coverage) That big drop represents a broader workplace trend — employees are covering more of their health insurance premiums than in previous years. Workers with employer-sponsored health plans now contribute an average of 18% of the premium for single coverage and 29% of the premium for family coverage, according to a study by the Henry J. Kaiser Family Foundation.

Part of the move away from plush health benefits is due to the rising cost of medical care, which becomes a burden on a corporations’ bottom lines. Premiums for singles and families jumped an average of 4% last year, continuing a decade-long period of ongoing growth. But, ditching fully-paid health insurance also allows employers to tailor overall benefits to each employee better, said John Goodman, an economist and founder of the free-market minded Goodman Institute for Public Policy Research.

“Companies are trying to individualize their benefits,” Goodman told Fortune. “Instead of giving a benefit that’s really valuable to one person but not another, they’re really trying to narrow it in.”

Employer-paid health insurance is really a form of wages, explains Goodman, so cutting back on the share of an employee’s health premium ultimately isn’t about aggregate savings but about providing a different form of payment. That could be a higher salary or other more valuable benefits to a worker. Individualizing a worker’s pay package, including benefits, allows companies to link renumeration more closely to employee productivity, Goodman says.

It’s similar to the move away from employer-provided pensions toward defined-contribution retirement plans, i.e. 401(k)s. Employers are putting in a defined amount for each worker’s health care, essentially creating an even playing field for all workers. For example, a single person who uses less health services isn’t subsidizing the care of a co-worker with a family of four and much higher premiums.

“Like many 401(k) plans today, what you contribute and what you match is what goes in and nothing is being taken away from some other worker,” says Goodman. “Health is becoming more that way. The employer is putting up a fixed amount of money and the employee can decide what plan and how to put that money against it.”

This article was originally posted at Fortune on March 31, 2016. 

John C. Goodman is President of the Goodman Institute and Senior Fellow at The Independent Institute. His books include the soon-to-be-published updated edition of Priceless: Curing the Healthcare Crisis, the widely acclaimed A Better Choice: Healthcare Solutions for America, and New Way to Care: Social Protections that Put Families First. The Wall Street Journal and National Journal, among other media, have called him the “Father of Health Savings Accounts.”