The modern day employer benefits industry was born with the passage of The 1942 Stabilization Act. sometimes referred to as the “Inflation Control Act”. It amended The Emergency Price Control Act earlier that year that froze wages. This amendment allowed some of those frozen wage increases to be replaced by health and other insurances, exempting them as a “non wage benefits”, with a favorable non-wage tax treatment.
Initially, the costs of these new benefits were immaterial compared to wages, so this tradeoff was practical and allowed some incremental value to employers and workers.
But a lot has changed over the years. Ever since then, the costs and values associated with these Benefits have have become far more substantial, so substantial by some accounts that they actually have eroded the capacity for wages increases:
- In 1988, the average employer cost for benefits was $3.77 per hour or 38% of wages and salaries.
- In 2018, some 30 years later, the average employer costs for benefits had now increased to $11.50 per hour or 47% of wages and salaries.
- During this period, the biggest driver in the explosion of benefit costs was the insurance portion, which quadruped from $0.78 per hour to $3.12 per hour
Meanwhile, worker satisfaction with employment rewards, both wages and benefits, shows that this trade off, diverting cash from paychecks to “benefits” has not been helpful for either. From the Aug 2018 Gallup Annual Work and Workplace Survey of US Worker Satisfaction:
Could worker satisfaction with Cash Compensation be improved if less cash is diverted from Cash Compensation to Health Care Benefits?
Could worker satisfaction with Health Insurance be improved if workers could be provided Cash to purchase their own health insurance, rather than their employer imposing a health insurance solution on them?
As a result of Executive Order 13813, known as “Cash For Coverage” implemented for Jan 2020, companies of all sizes will be able to do exactly that – provide CASH compensation in an equally tax-preferenced manner to workers, specifically for the purchase of Health Insurance of their choice.
This is why companies like Hixme, the leader in portable coverage for larger employers have created a model to facilitate this obvious transformation. And that model and solution is available today for larger companies.