Ask HN: How do you offer your startup employees 100% health insurance? | Hacker News Reader

Ask HN: How do you offer your startup employees 100% health insurance?

35 pointsadntigger71084 comments

Hey all!

Coming from one startup to another and trying to assist with growth and recruiting. We really would like to offer 100% paid health insurance (100% employee, and possibly couple/family, but likely a percentage of couple/family.) When speaking to brokers/PEO's I've been advised that if we offer 100% it becomes a non-contributory plan, and ALL employees must enroll. We were planning on offering a salary stipend if they didn't need it, but seems with 100% that's not possible. Has anyone run into this? How do you offer your employees 100% insurance without redundantly paying for it for those who don't actually need it (i.e. on spouses' plan, etc.) Thanks so much!

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Be careful. Insurance premiums have been rising at a crazy rate. I own my own company, so I see the all-in cost. It's a "gold plan", so at the high end, but the cost for one employee plus their family has risen from $1200/month to $2200/month over a span of 6 years. Not kidding...$2200/month. I was well into my mid 20's before I even grossed $2200/month, total.

You might be better off stating the fixed amount you will contribute for each "class" (employee only, employee + spouse, employee + family). That will give you some leeway in the future if costs get out of control.

In a company of about 40 we saw the same. Costs went up when ACA was expected to pass and has been going up pretty rapidly since. Insurance rep mentioned ACA legislation as the reason. Whether true or not I haven't verified.

This predates the ACA, for what it's worth: in a third of the 10 years prior to ACA, California's small group market saw double-digit increases.

Yes, but in that time "double-digit" meant 1X%. Now it has been 3X% growth year-over-year.

Based on a bit of casual research, my sense is that you are drastically overstating the post-ACA cost growth, and significantly understating the pre-ACA growth. And, putting that aside, when looking at pre-ACA coverage you have to factor in actuarial value (insurers could quietly reduce the value of their insurance while holding premiums constant; part of the post-ACA cost increase is that there's now a floor on actuarial value, so premiums most more closely reflect value).

It's difficult to get good statistics, because the cost is rising primarily for those that don't get subsidies via the ACA. When you mix costs to those that get subsidies with costs for those that don't, you get mud. Similarly, they will show "employer costs" over time, when they know well that some employers are passing increased costs down to employees.

In short, it's the usual situation for statistics. You can show pretty much any story you want. My story of $1200/month to $2200/month (over 6 years) is real, with apples-for-apples coverage. Of course, it's just one data point.

Insurance in the small group market isn't subsidized; it's employer-provided. So subsidies can't be confounding those statistics, can they?†

I'm not disputing that you experienced a barely-tenable increase in insurance premiums since 2011. But if your premiums had been increasing 30% YOY since Obamacare went into effect, you'd be paying something closer to $5000/mo, not $2200/mo. What you experienced instead looks closer to 13% YOY.

The distinction is important because:

* The California small-group market, which like most group markets was guaranteed-issue prior to ACA, was already experiencing increases at that scale before ACA.

* Not only was that happening, but further cost increases were easily hidden by terms and conditions that reduced actuarial value for policies at the same premium. The ACA prohibits that practice; if the broader narrative about ACA was true, you'd expect even steeper price increases because insurers have fewer ways of hiding them. But we don't see that.

So to me, you're telling a story about broad dysfunction in the health care marketplace that is orthogonal to ACA. I find that narrative very easy to believe! Either way, though: I might be wrong (and would love to hear about it if I am), but these issues aren't unknowable.

† This is one of several reasons you know you're in trouble when you read an analysis of the ACA that insists on comparing the pre-ACA and post-ACA individual markets, or suggests that comparisons based on the small group market is somehow shenanigans: in addition to being the insurance market most of us startup founders actually participate in, the small group market is the closest we have to an apples/apples comparison: an unsubsidized guaranteed-issue marketplace for small numbers of people in both eras.

That's the thing though... I don't have access to statistics that are solely for small group coverage. I don't happen to be in the California market either.

Edit: I'm in the Texas market. And, if you're looking up statistics, be sure to watch out for:

- Only the employer's costs being shown, versus also showing what's passed down to employees. We pay 100% of the premium. It's common for employers to pay around 40-60%, and of course, shift that percentage as costs go up...hiding actual cost hikes in the stats.

- Mixing in employers that get the signficant ACA tax break if the average annual wages are below $50,000 per FTE. Not common in small developer centric companies.

- Keeping in mind the average could look flatter than it actually is, as some companies raise deductibles or drop the percent of in/out patient covered specifically to keep costs flat.

In short, it's very hard to see the actual cost for a specific policy over time in any kind of large scale.

Ok, let's find out. What state are you in?

---

The Texas small group marketplace saw double-digit increases in 36% of the 10 years prior to ACA (and a whopping 55% if your firm had between 25-99 employees) --- higher than that of California.

Of the statistical concerns you expressed:

1. The percentage of premiums passed to employers is orthogonal to the comparison we're making and so doesn't impact the statistics.

2. Tax breaks on employers are also orthogonal to this comparison, but I'll add that they'd work against the overall argument about ACA driving costs, because those tax breaks are a feature of the ACA, not of the pre-ACA regime.

3. Deductibles and network sizes would affect statistics, and what we're looking at here is an overall average. So yes, keep that in mind.

The percentage isn't orthoganol when the employer can raise or lower it...assuming the stats show employer cost only. Which some stats I have seen do.

Edit: some of the available statistics are employers reporting solely their costs, not the part of the premium they pass down. You haven't specified a source, so I have no idea where your numbers are coming from.

I'm not following. I'm not looking at consumer costs, but rather average total premiums. This includes both the employer and employee's costs; it's based on the raw cost of the plan.

I'm not sure how anyone could sanely collect statistics on employee cost for health insurance, since every company handles that differently. But that doesn't matter for this discussion.

> Not only was that happening, but further cost increases were easily hidden by terms and conditions that reduced actuarial value for policies at the same premium. The ACA prohibits that practice; if the broader narrative about ACA was true, you'd expect even steeper price increases because insurers have fewer ways of hiding them. But we don't see that.

We are seeing higher deductibles instead.

That's not what you said. You said that since the ACA, we'd been seeing 3x%+ premium increases.

They aren't at odds, really. You see the 3x%+ increase for your existing plan, and downgrade because of it.

But the data does not show those increases. And again: 30% YOY is enormous; any plan you'd purchased prior to the ACA that had experienced that kind of growth would be absurdly expensive today. What's the most expensive plan on your local exchange now?

$1500/mo. It was $440/mo five years ago for them same plan but with 1/3 the deductible.

Which plan?

You have this habit of quoting what the data says, without showing a source. Then, when challenged, you reveal some new nuance to the data. I agree that it's not a sustained 30% YoY increase for several years. I would believe double-digit plus at least one year with 30+%. But, as I mentioned earlier, it's hard to get facts.

The data is flawed in a few ways, mentioned earlier, with the flaws depending on the source. There are sources of many types...not just the one you're using. The stats I've looked at hide things, not on purpose, but mostly because businesses aren't dumb...they will find ways to stem the insanity.

I don't understand what's so hard about the data here. You raised concerns about tax credits, employee share, and subsidies. But none of these have anything to do with the raw insurance premiums charged by insurers.

If you've found that there was a year in which premiums grew by 30+%, say so. I'm not saying I think the data will say things; I'm saying: the data says things.

They are issues with some sources of data. Perhaps not your source. I stated the issues, then you found one source that did not have some of the issues. There are sources that, for example, are based on employer reported costs/expenditures, not premium.

And, your source does have issues. One example is that it wouldn't show a plan downgrade..only the end premium. So a radical plan downgrade looks like "flat year over year".

> Of course, it's just one data point.

And mine is another :\ FWIW it is really implausible to be a tech worker in the SF bay area and qualify for subsidies.

At the very least, the ACA was billed as being the antidote to cost increases. Of course, they also said "if you like your doctor, you can keep your doctor" and many other untrue things.

Everyone that I know is paying significantly more for significantly less coverage than before.

Very healthy individuals who had could get access to insurance before the ACA are paying more.(because of the very popular pre-existing conditions part of the ACA)

Are you sure they are paying for less coverage? Pretty much all individual health plans pre-ACA paid out more in the median case, and less in the average case, a whole lot less in the worst case. Basically they would pay for check ups, but totally skip town if you got cancer.

As one example, a neighbor works for the state gov't. The state gov't pushed all their employees onto the exchange. They now pay quite a bit more in premiums and their deductibles are way higher. They've had to go from a good PPO plan to an HMO plan with greatly diminished value. They're completely against the wall because of this.

Which state is this, that kicked all its employees off group health insurance and into the (very expensive) individual coverage market?

Maryland. The group plan prices aren't much different than the exchange. I see the full cost of my group plan with my employer. This year that price is better than the exchange and the plan is better, but not last year.

My point would be that the ACA is a fail on this basis alone. They need to end the Depression era idea of employer provided health insurance (introduced to work around the wage controls imposed by FDR) and just let people buy it on their own. They need to move the tax writeoff from the employer to the employee. This whole notion that splitting up the single group that is the US market into smaller 'groups', and that this somehow increases buying power - it's ridiculous. We've been going down this path for 70 years - it's time to try something different.

You know you can just look up the Maryland public employee health benefits package and see that they directly offer both Blue Cross and United PPOs and do not in fact require their employees to buy insurance on the exchanges in the individual marketplace, right?

Is there a chart or other representation available which shows comparable insurance plan cost over time?

I am not asking you to prove your point (as I disdain "citation needed" responses), but would be interested to take a look at a chart if someone has it handy.

From the Covered California rate sheet[1]. Year over year increases in region 4 (SF) for the for-profit plans is anywhere from 8% to 25%. Kaiser (whom I despise, but is a not-for-profit org) raised their rates between 1% and 8%.

1: https://www.coveredca.com/news/PDFs/CoveredCA-2017-rate-book...

A lot of them said that at the time. They added a clause that said you couldn't blame the ACA unless you could prove it was the ACA's fault, and they all quit blaming it.

Total irony fail

That's not entirely surprising. The ACA mandated more meaningful (less profitable) coverage.

Contributing a fixed amount will control healthcare costs but it's going to make you less attractive to employees since all you are doing is passing the uncertainty on to them.

Personally, I think it's more honest than promising 100%, then raising deductibles or lowering percentage covered later. You state the fixed amount, and then you have the option to raise that amount, discuss options with employees, etc.

I can agree it's honest but being honest doesn't suddenly make it good from the employee's perspective.

I'm not saying a fixed contribution is a terrible decision that will ruin all hope of hiring/keeping good employees. But it is something that is clearly in the company's best interest at the direct expense of the employee so it's going to be a factor just like everything else is.

Small companies really get screwed in terms of benefits, not just health insurance. Megacorps will almost always have far more attractive benefits (health, retirement, wellness, etc.). And... all small companies are pretty much equally screwed, so I personally wouldn't really care one way or another when evaluating a prospective small employer.

That number should be pretty surprising to me, but isn't. I was just looking at the Cover California estimated premiums[1] for 2017. Gold plans for a 40 year old (no family) run $500-$700/mo. Not too surprising that the not-for-profit org (Kaiser) is significantly lower in cost than Anthem.

1: https://www.coveredca.com/news/PDFs/CoveredCA-2017-rate-book...

One way to do this is to setup an HRA (Health Reimbursement Arrangement). The most common way to do this is to buy cheap high-deductible insurance plans, then setup a tax-advantaged account with which you can reimburse employees for eligible medical expenses out of (in your case, you could choose to pay out 100% of expenses before they hit the insurance deductible). There are a lot of different ways to do this, but the way to set it up is to contact a third party administrator to do the administration for you (depending on the size of your company it's usually somewhere in the range of $5-$15 / employee / month to manage the administration). I believe there are significant tax advantages to this approach as well, but I'm less familiar with that area.

If you PM me your general location, I can probably give you a few companies to contact in your area who do this sort of arrangement.

Access to a free/dirt-cheap universal healthcare service is one of the relatively few upsides of launching a company in a country other than the US. Or to phrase that as a somewhat flippant answer to the question, "we did it by being in Australia".

You pay higher taxes in Australia which probably offsets the cost of the "free" health insurance you receive.

Isn't the cost of healthcare (whoever ends up paying for it, whether it's tax, national insurance, medical aid, self pay) is cheaper in any country compared to the US?

Yes. It's what I call the "corporate tax" in the States, and here I'm not referring to the taxes corporations pay. I'm referring to the non-tax tax imposed on citizens of the United States which are effectively taxes, but which are paid to private companies, e.g. private health insurance costs. If you factor in all kinds of these infrastructure costs which are dumped on people in with actual gummint taxes, you'll see that living in the States is a hell of a lot more expensive than people want you to believe.

Yes. Americans pay the most of any first world country, with worse outcomes. [1] [2] [3]

[1] http://www.slate.com/articles/health_and_science/new_scienti...

[2] http://www.pbs.org/newshour/rundown/health-costs-how-the-us-...

[3] http://www.cnbc.com/2015/10/08/us-health-care-spending-is-hi...

It sure is! The US even outmatches Switzerland, the most crazy-expensive country in Europe![1] We're #1! Go America!

[1] Well, ok, maybe Luxembourg or Monaco are more crazy-expensive, but those are freak countries.

Australians pay a 2% payroll tax to fund Medicare (which provides universal coverage). I'm betting you (or your employer) pay more than 2% for health insurance...

Here's a good primer on Australia's healthcare system:

https://www.youtube.com/watch?v=ylsO0VVy29U

The Medicare levy in Australia is effectively an extra 2% income tax. Of course that levy doesn't cover all the costs of the public health system; the vast majority of the rest of the cost comes from state budgets which is largely funded by GST (VAT or sales tax as it called in other places).

Somewhere around 20% of the cost (the total cost, not just the cost leftover after the levy) is covered by fees paid for services.

Regardless of funding source, the US spends dramatically more per capita on healthcare than the rest of the developed world.

Australian healthcare costs half of what American healthcare does - $4,420/person in 2015 versus $9,451 in the US. Given that we don't see substantially better outcomes for that doubling of costs, we're getting absolutely hosed.

https://en.wikipedia.org/wiki/List_of_countries_by_total_hea...

The taxes are not higher than CA or NY or similar states. Why do Americans think their taxes are low? You also pay a shitload of property tax in most states of the US.

Oh, bonus, if you're not employed you still get to receive medical care!

And most Australians carry private cover anyways. It's better, easier to use and still so much cheaper than US insurance.

Someone living in California making $100k pays:

Federal income tax: $18,047 State income tax: $6,288 Payroll tax: $7,650 Total tax: $31,985

Someone living in Australia making $100k pays:

Income tax: $24,632 Medicare levy: $2,000 Medicare levy surcharge (?): $1,000 Total tax: $27,632

Unless I've missed a tax (I looked at payroll tax rates too but it looks like those are only paid by the employer?), it seems like the Australian actually pays less tax unless you live in the US in an income tax-free state. But then once you add in the cost of health care, Australia ends up cheaper again...

Are there no provincial or city income taxes?

It's the CA income tax that distorts the comparison. Had you chosen TX or WA (for example), they are lower than Australia.

There are no state or municipal income taxes on individuals. The major state taxes are on property conveyance, payroll, automobiles, gambling.

Note that a direct comparison by salary at $100k is potentially misleading due to exchange rates, differences in wage distribution, cost of living &c.

I think it's better interpreted as comparing effective tax rates, i.e. 27.6% vs 31.9% of gross income. You're right that the salaries not directly comparable for the reasons you listed, but it's also pretty clear that they're not that far apart. Certainly not enough to conclude that Australians are "paying higher taxes to offset the cost of health care". By examining the numbers it's pretty clear that we're paying more for health care in the US and getting less for it.

As far as I can tell, there's no state income tax in Australia. Not sure about city taxes.

I did mention that even if you live in a tax-free state in the US, the tax savings is essentially wiped out by having to pay for your own health care. Especially if you have a spouse and kids, between monthly health care premiums and deductibles that's probably another $10-$15k out of pocket, if not more.

Edit: Just ran a family of 4 (30 year old parents, 5 year old kids) through an ACA calculator. A silver plan runs around $800/month, with a total out-of-pocket max of $14,300. So, up to $25k/year in extra health care costs. It's absurd.

> Are there no provincial or city income taxes?

no. there are "rates" paid to city/town for garbage collection, etc, but that would be on the order of $2000 more, for home owners only, for the nicest parts of cities.

The VAT in Australia is 10% while the average sales tax in the US is 5%, so that's an extra $5,000 in your example. Also, the payroll tax is over 5%, no matter who pays it (taxes are paid by people, not "employers"), so that's another $2,000. So Australians pay roughly 10% more in taxes.

If you're going to count the employer side of the payroll tax, you have to do so for the US too. Total payroll tax in the US is 15.3% (of which the employee pays half and the employer pays half). So go ahead and double that payroll tax to $15,300.

VAT is based on spending, so you can't assume that $5k is actually being spent on VAT. Besides, many cities in the US tack on their own sales tax and it gets close to 10% anyway (Seattle is 9.6%, Los Angeles is 9.5%, San Francisco is 8.75%)

Hah, that's why I want to start a small business in Australia not the US. I can't pay for it for my own family ($20k/yr) let alone my employees. Megacorps and VC-backed startups don't care I guess, but they're playing with funny money, I'm playing with cashflow.

I receive 99% coverage and wife/kids get 50%. At 99% the cost to me is so minimal it doesn't matter.

Pay 99%, or whatever the maximum is. Then if you really want to, make up the difference with bonuses.

However: there isn't much of a difference between giving people the option of having the company pay 100% and taking the cash, and paying for the coverage themselves. The only real advantage is that the insurance premium is not subject to payroll taxes (but it still counts as taxable income so they still have to pay income tax on it -- EDIT: this turns out to be wrong. See child comments.)

"Health insurance is not taxable income, even if your employer pays for it"

Source: http://finance.zacks.com/health-insurance-benefits-considere...

You're right. I was looking at the IRS site:

https://www.irs.gov/businesses/small-businesses-self-employe...

but I didn't read it carefully enough. Health insurance is excluded. Sorry.

The stupid (or corrupt?) thing is that if a company (especially smaller ones) who want to avoid that administrative overhead of dealing with health insurance nonsense can't simply reimburse the employees some amount for their health insurance without it being subject to tax.

This gives larger employers an advantage over smaller ones, and quite frankly keeps up this stupid tradition of having your employer tied to your health care. The right way to conduct this healthcare subsidy experiment we're doing in the US is to have everyone purchase insurance through healthcare.gov and eliminate the pre tax benefits period so as to level the playing field and expose the costs more clearly.

Sources:

https://www.irs.gov/affordable-care-act/employer-health-care...

https://www.irs.gov/pub/irs-drop/n-13-54.pdf

I wasn't really aware this was an issue, but I guess in the US it is, seems like countries with free healthcare ( like where I am, New Zealand ) should have a Startup Visa program where people can come here and do a startup.

We do have an entrepreneur visa [0]. We also have the global impact visa [1], which is brand new.

[0]: https://www.newzealandnow.govt.nz/move-to-nz/new-zealand-vis...

[1]: https://www.immigration.govt.nz/new-zealand-visas/options/st...

the EV is a bit heavyweight for a startup, but that GIV looks promising!

Ask your proposed insurer about exemptions for demonstrating proof of primary insurance from another source. Most often, the 100% rule applies to "100% of participants eligible to receive coverage" and already receiving coverage from another source--like Medicare or an employer plan from a spouse--makes someone "ineligible."

(FWIW, the 100% rule is to avoid adverse selection where the employee will not sign up until becoming ill, so the plan receives no premiums from the employer. I've also heard that some insurers do it to avoid potential liability if a person does try to make a claim on the grounds that no reasonable individual would intentionally decline "free" insurance from his or her employer.)

We use Trinet (a PEO) and you can have different "classes" of plans that have different trigger points. For example, when you qualify (how many days later), how much % is contribution by the company vs the person and their dependents, etc.

I would be very cautious as once you offer 100% there is no going back. It may seem like a small cost when you have a small number of employees but as you grow the costs go up quickly and largely.

A high deductible health plan is usually optimal for the unattached 20s crowd that startups tend to attract. This caps an employee's annual health expenditure to the amount of the deductible. Employer contributions to an HSA will further lower their health care costs.

That is likely the most cost effective way to offer full health insurance. It is also competitive with what larger companies tend to offer their employees although larger companies tend to also offer an HMO option too.

Normal plan + reasonably allotted medical debit card to cover medical expenses is how some companies do it.

Find a broker that will help with your problem. We provide 100% coverage and as long as the employee has a waiver, we don't pay for them. A waiver could be spouse, their own insurance or parents insurance.

best small company insurance I had was when we were using ADP for everything (TotalSource, maybe?). I think my background checks and things even say "ADP" even though I was working for a regular small company.

We had regular big-company style plans (80% coinsurance and opt-in 100% coinsurance) with very reasonable rates and good coverge compared to what we've had after going self-insured.

I think they took a cut of everyone's pay.

Good that we're a startup with offices in Luxmenbourg, Switzerland and Spain.

In Europe it is unthinkable not to offer 100% health insurance.

Charge some token amount like $1

Move them to Australia

Or Canada. Or the UK. Or Ireland. Or Germany. Or .....

I don't understand why this comment was downvoted. Australia is by far not the only choice here. From what I've heard so far, the situation about health insurance in the US is so bad that it is not hard to find countries were the situation is hugely better.

The fasecious answer is to startup in a (edit)country with universal healthcare

Edit: before the downgotes get too wild, it is actually a valid solution that shouldn't be dismissed off the cuff. Do the math.

company or country?

An advantage of the French visa programme currently also being discussed on HN.

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