The Real Costs of Employer-Sponsored Health Insurance

The majority of Americans hate health insurance companies. They blame them for all that is wrong with the health care system in the country, but mainly its costs. But insurers do not deserve all, or even most of the blame for what ills American healthcare. There are other culprits including the medical, pharmaceutical, and medical device maker industries, politicians, policymakers and regulators. Employers and the American public are also to blame.

If health insurance companies are an extra cost layer in the health care cake, than so too are employers. They add costs to the health care system that receives little or no notice. Sure we talk about some of the costs of workplace health insurance, like the hundreds of millions of dollars in loss tax revenue due to the favorable tax treatment of these plans. And how these employer and government-subsidized plans leave workers with little skin in the game and no appreciation of the real cost of health care. But there are other costs that employers add to the country’s total health care bill that, if eliminated, could save a lot of money.

The Problem(s) With Employer-Sponsored Health Insurance

Employer-provided health insurance provides complexity to the health care system and, therefore, increases its costs. Because of the legislative and tax status of these plans, they require a regulatory system to monitor their compliance. The government hires attorneys and other specialists to perform these tasks. Also, because of their need to comply with government regulations, plan sponsors (employers) hire lawyers, consultants, brokers and other technical specialists to keep their plans in compliance and meet reporting and testing requirements. Employers also hire internal staff to work with the lawyers, consultants, brokers, etc.

There are also the costs of communicating and educating workers about employer-provided health plans. Some employers hire outside consultants to perform these tasks, some rely on their internal staff to do this work, and some employers take both approaches. These costs include the development of tons of marketing materials including the creation of pamphlets, brochures, websites, blogs, social media pages, intranets and more. These efforts are worth the costs if they actually work, but many do not.
Survey after survey reveals just how little Americans understand health insurance.

Which leads to the biggest costs of employer-provided health insurance—a disengaged an uneducated public when it comes to health insurance matters.

Most people only see the “benefits” of employer-provided health insurance:

  • Tax savings
  • Easy payroll deduction
  • Large group purchasing power
  • Employer-provided premium subsidies
  • Pre-selected (by the employer) plans
They do not see the harmful effects of adding an unnecessary layer of complexity that serves as a barrier to understanding how health insurance does and does not work. When employers serve as interpreters of the health insurance buying process, workers feel no need to learn about health insurance issues on their own. A system that requires individuals to navigate the health insurance system without the “help” of employers may remedy the indifference that communication and education programs have not.


A single payer, public health insurance system will eliminate the need for employer-sponsored health insurance and the large regulatory structure and cadre of specialists required to manage it. It will also force insurers and providers to share information that employers either never demanded or cared to have. And, it may be just the push Americans need to learn more about health insurance in general.
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