Free medical coverage: Myth or new trend? 

Is free medical a myth?

For many years, when we’ve looked across all the industries and employer size groups represented in Mercer’s annual survey of employer-sponsored health plans, non-contributory medical options have been barely noticeable. In 2021, more than 90% of all large employers (those with 500 or more employees) require contributions for employee-only coverage in the largest plan offered of each type (e.g., PPO, HSA-eligible and HMO), and at least 95% require contributions for family coverage. These numbers do dip down slightly in certain industries, such as healthcare.

Or is it a new trend?

But lately we’re seeing evidence that some employers are willing to buck the status quo. In a custom survey that included both mature and emerging high-tech employers, roughly half offered at least one plan in 2021 in which employee-only coverage is non-contributory, and around 10% offered a non-contributory plan for all levels of coverage. This is important information for employers that may not be cool high-tech companies but still need to hire, or hang onto, talent with much-needed high-tech skills to support their business growth.

While it’s too soon to say if non-contributory medical coverage is a true emerging trend, we’re seeing examples of employers outside the high-tech world adopting this strategy as well. Examples include trucking companies and other businesses where demand for skilled labor is high but supply is low. Recruiting advertisements can prominently mention free medical coverage to attract candidates, even if “free” only applies to self-only coverage in the lowest-cost plan. Research suggests medical benefits are as important as pay to many workers (or almost as important); it’s not surprising that free coverage is an attention-getter.

Strategic considerations

When an employer decides to make one plan non-contributory, what we see most often is that the free plan is a network-only plan (e.g., HMO or EPO) or an HSA-eligible high-deductible health plan with a very high deductible and out-of-pocket maximum. Both plans are low cost, but for different reasons – a limited network vs. a low actuarial value. Keep in mind that these offer two very different value propositions to the employee or potential employee.

Whether or not you should consider this strategy depends on your current business situation. If you’d like to explore the idea, here are some considerations:

• Do you know what current employees – or the employees you want to attract – value most? Is “free medical” a top priority or are there other changes that would better differentiate your value proposition, like richer time-off benefits or 401(k) match?
• Is this a smart investment in your people? Consider the cost of open positions in terms of lost production, unfilled orders, or whatever metrics you use to quantify their impact on business. How does that lost revenue compare to the cost to enhance your medical plan subsidy?
• Which plan will you make non-contributory: An existing plan or a new plan option? Will it be a limited network or a very low-value plan design?
• How would this change impact your budget? Consider how many current enrollees who now pay for coverage would be likely to take the free option. And will employees not currently enrolled in your medical plan sign up if it is free – even if they now have other coverage?
• Will you offer “free medical” to all eligible employees or a group of employees (perhaps based on business unit or geography)? Nondiscrimination rules and other compliance concerns may apply depending on your decision.

I’ll just mention one other factor that might support a trend toward free medical coverage. State and local laws are raising the bar on transparency in pay practices. California, Connecticut, Maryland, Nevada, Rhode Island and Washington require employers to disclose salary ranges upon request or before an offer is made (whichever comes first). Starting in November, New York City employers must include a maximum and minimum salary or hourly wage in all job postings where the job will be performed entirely or partly in the city. This includes jobs in the field and work from home. It’s not a stretch to think some employers might decide to tout non-wage related compensation, such as their 401(k) match or a free medical plan option, alongside pay information.

Still think offering free medical coverage seems like a crazy idea? Low unemployment and a competitive job market are a breeding ground for creativity. The war for talent is real – so give careful consideration to what you need in your arsenal to support your people and your business.