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Employer Sponsored Health Plans

Employer-sponsored health plans can reduce spending on direct medical costs, disability claims, and recruitment and retention, leading to a positive return on investment.

July 01, 2022 – Employer-sponsored health plans will generate a 47 percent return on investment (ROI) for employers in 2022, mainly driven by reduced direct medical costs, higher productivity, and tax benefits, according to a study from Avalere Health.

The study, commissioned by the US Chamber of Commerce on behalf of the Protecting Americans’ Coverage Together (PACT) campaign, reflects data from employers with 100 or more employees. Researchers used publicly available data from the Bureau of Labor Statistics and Congressional Budget Office to estimate ROI and plan benefits.

In 2021, around 155 million nonelderly individuals received employer-sponsored health coverage in the US. The researchers defined ROI as the benefit value for each dollar employers invest in healthcare coverage, encompassing premiums, wellness programs, direct medical expenses, administrative costs, and other associated costs.

Dig Deeper

The analysis estimated that employer-sponsored health plans will provide a 47 percent ROI to employers in 2022 and a 52 percent ROI in 2026.

Improved employee productivity, reduced direct medical costs, and tax benefits were the primary aspects that generated benefits for employer-sponsored health plans.

Employee productivity reflects the reductions in absenteeism and presenteeism after receiving employer-sponsored coverage. These productivity increases contributed an estimated $275.6 billion in employer benefits in 2022, or 53.3 percent of all benefits. By 2026, this is expected to rise to $346.6 billion or 55.9 percent of total ROI.

Employers who offered employer-sponsored health coverage and wellness programs had healthier employees and spent less on direct medical costs, Avalare found.

The analysis estimated around $101 billion in ROI due to reduced direct medical costs in 2022 and $108 billion in 2026. The share of benefits that direct medical costs comprise declined from 19.5 percent in 2022 to 17.4 percent in 2026.

Tax benefits accounted for 23 percent of ROI in 2022 and 22.5 percent in 2026, according to the analysis. Employers receive federal and state income tax deductions for providing employer-sponsored health coverage. Employers are estimated to generate $119 billion in tax benefits in 2022 and $140 billion in 2026.

Employee recruitment and retention also contributed to positive ROI, though they had smaller impacts than the other areas.

Employer-sponsored health plan offerings may incentivize employees to join a company, which can help reduce recruitment and vacancy costs. Avalere estimated that employers gained $141 million in benefits in 2022 (0.03 percent of ROI) and will receive $167 million in 2026.

Similarly, employer-sponsored health coverage helps companies retain employees and reduce turnover. As a result, employers spend less on recruitment, onboarding, and training. Improved retention generated an estimated $20.3 billion in employer benefits in 2022 and $24.3 billion in 2026.

Finally, offering employer-sponsored health coverage decreased costs for short- and long-term disability by reducing claim volumes. Reductions in disability claims generated $1.3 billion in benefits in 2022 and $1.4 billion in 2026. However, these reductions only accounted for 0.2 percent of total ROI in 2022 and 2026.

The study found that employers who invested more in employer-sponsored health plans saw a more substantial ROI. Lower investments, wages, and employee participation in plans were associated with lower ROI.

“Employee-sponsored health insurance is a win-win for employers and employees,” Katie Mahoney, vice president of health policy at the US Chamber of Commerce, said in a press release. “We know employees place a high value on quality health insurance in the workplace, and now we have more evidence that employers benefit significantly from investing in these programs as well.”

“Employer-provided coverage is the backbone of the American healthcare system, and this report reinforces that any reforms should build off this model that is good for workers and companies alike.” 

By Victoria Bailey – Health Payer Intelligence