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How to Dilute the Value of a Dollar: A Frank Discussion on Offering Medical Insurance to Your Employees

Posted in: Truckstop Business, Human Resources


/// Guest post by contributor Jerry Leemkuil, Federated Insurance

Some employers are so tired of ever-increasing health insurance costs that they are ready to throw in the towel. The advent of the mandated Health Insurance Exchanges (Marketplaces) developed through passage of the Patient Protection and Affordable Care Act permit anyone to buy insurance, even if they are unhealthy.

This is causing some employers to consider eliminating health insurance as an employee benefit, and, instead, increase wages so employees can buy their own insurance. If you’ve been pondering this move, you need to carefully weigh the impact of that decision. Some things to think about:

  • You may have employees who currently decline enrollment in your company plan. What will you do for them if you decide to give extra money to employees who choose to enroll? Trying to keep things equitable by increasing everyone’s wages may cost you even more than you pay today.
  • If an employee’s income is low enough, he or she may qualify for a government subsidy to buy insurance. However, an increase in wages may decrease the amount of the subsidy the employee qualifies for.

The chart below* is a simplified example showing how the purchasing value of a dollar gets diluted when an employer chooses to go this route. For this example, we will assume the employee’s current wage is $30,000 annually, and the employer plans to give that person an additional $3,600 per year to replace the company’s previous annual contribution toward the employee’s health insurance.

Employer Cost


Additional wages given to employee


Employer payroll taxes (6.2% + 1.45%)

$   275

Employer work comp premium (3% rate)

$   108

Total Employer Cost


Employee Benefit Received


Additional wages


Employee payroll taxes (6.2% + 1.45%)

- ($ 275)

Employee federal income tax (15% marginal tax rate)

- ($ 540)

Employee state income tax (5% marginal tax rate)

- ($ 180)

Estimated reduction in government subsidy

- ($ 607)

Total Employee Benefit


You can see that the increased wages are only part of the cost to the employer. Adding take-home pay causes an 11% increase in costs for the employer, and this money is now subject to tax for both the employer and the employee. The employee is left with nearly half of the wage increase being eaten up by taxes and a reduction to the subsidies he or she would receive.

This employee has lost a benefit worth $3,600 and traded it for $1,998 of purchasing power. In other words, the employee is basically exchanging a benefit valued at $1.80/hour for one that would be worth only $1.00/hour.

And don’t forget to figure in the cost of the employer’s desire to keep things equal—the additional wages paid to employees who waived coverage. That equals another potential cost increase for the employer.

The fact is, employer contributions toward health insurance have great advantages for both the employer and the employees. The purchasing power of $1 remains $1!!

Your Federated marketing representative can be a valuable resource for helping you understand the ACA. Knowing your options and making choices now will help you avoid hasty, poorly planned decisions later. And, your employees will appreciate your sincere and open communication regarding their choices.

Locate your Federated marketing representative by visiting, or calling 1-800-533-0472.

Important Note: This example is for illustration purposes only and may not reflect the actual costs to any specific employer or employee. The figures used are only assumed and may not apply to your situation.

{Guest Post} Guest post provided by Jerry LeemkuilFederated Insurance. For more than a century, Federated Insurance Companies has provided peace of mind to business owners through valued insurance protection. Learn more about Federated Insurance.

The opinions and advice given by guest post contributors are not necessarily those of NATSO Inc. The posts should not be considered legal advice. Qualified professionals should be sought regarding advice and questions specific to your circumstances.

This article is intended to provide general information and recommendations regarding risk prevention only. There is no guarantee that this information will result in reduced losses, lower premiums, or lower experience modification factors. The content provided is accurate as of January 2014 and is subject to change. This information may be subject to regulations and restrictions in your state and should not be considered legal advice. Qualified counsel should be sought regarding questions specific to your circumstances and applicable state laws. © 2014 Federated Mutual Insurance Company.

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About the Author

Jerry Leemkuil

Jerry Leemkuil

Jerry Leemkuil is Field Manager in the Association Risk Management Services Department at Federated Insurance. In his current role, Jerry oversees relationships with over 150 recommending associations and numerous prospect associations.  He has provided professional presentations to many of the association partners Federated works with, including numerous “Affordable Care Act” updates.

During Jerry's 23 years with Federated, he has worked exclusively in the marketing and association relationship areas. He has coordinated and developed many of Federated’s association relationships across the country. Prior to being named Field Manager in Association Risk Management Services, Jerry spearheaded the development of the Commercial Health Team. 

Jerry, his wife Lisa, and their two daughters reside in Owatonna, MN.