A new report is out that analyzes the return on investment (ROI) that employer-sponsored health insurance (ESI) provides employers with 100 or more employees. Avalere Health’s analysis, on behalf of the U.S. Chamber of Commerce, estimates that ESI provides a 47% ROI to employers in 2022, continuing to rise year-over-year to reach 52% in 2026.
The overall growth in ROI can be attributed to a range of factors, including growing employment over the 5-year period, projected rise in wages, expected increase in per-employee spending on wellness programs, and employee turnover rates remaining flat.
In the report, Return on Investment for Offering Employer-Sponsored Insurance, Avalere Health analyzed various benefits of offering ESI to determine total ROI. These include direct medical costs, productivity, recruitment, retention, short- and long-term disability, and tax benefits. Components that yield the largest benefits of ESI include improved employee productivity, reduction in direct medical costs, and tax benefits.
ROI of some of these key components include $275.6 billion from improved productivity in 2022 and $346.6 billion in 2026, $101 billion from a reduction in direct medical costs in 2022 and $108 billion in 2026, and $119.2 billion from tax benefits in 2022 and $139.7 billion in 2026.
Another important benefit within the context of the current labor crunch is the effect EST offerings have on recruitment and retention. ESI offerings can positively influence prospective employees’ decisions to join firms, reducing employer recruitment and vacancy costs. The study’s model assumes 9% of individuals decide to accept a certain position based on ESI. The analysis estimates that firms with 100 or more employees derived $141M in employer benefits in 2022, growing to $167M in 2026.
Similarly, ESI positively affects retention of employees. Avalere’s analysis estimates $20.3B in employer benefits from improved retention in 2022 and $24.3B in 2026.
The study finds that industries where firms generally made greater investments in ESI tended to result in larger ROI. Also, since costs associated with turnover and recruitment are positively associated with wages, Avalere estimates higher ROI in higher wage industries. On the flipside of that same coin, lower ROI was associated with industries that typically have lower investment in ESI and wellness programs, lower wages, and lower employee participation in ESI and wellness programs.