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Welcome to the Back Office, where we dive into trends & insights around startup talent, compensation, and benefits. Looking to build your benefits strategy and want to tout 100% coverage? You may be shooting yourself in the foot. I dive into an example of why this doesn’t always work, and actionable takeaways on how to fix it.

🤑 Cover 100% Of Medical Premiums: A Well-Intentioned Mistake?

Companies I work with looking to build a healthcare strategy get stuck on the contribution piece. They want to be thoughtful and competitive, and often times see covering the premiums as part of their philosophy or “part of their DNA.”

In theory, it’s compelling. In practice, it often results in confusion, mixed enrollment, and a bad return on investment. Here’s what I mean.

The 100% Contribution Trap

Consider a typical Blue Shield of California multi-plan healthcare offering:

Now, let’s assume round numbers as the monthly total premium for each plan. Keep in mind, in the small-group, each employee will be “age-banded” meaning they are assigned a different rate based on their age at the time of enrollment. For the sake of the example, let’s keep it simple:

• Platinum PPO 250/15 - $1,000/month in total premium

• Gold PPO 1000/30 - $750/month

• Silver HDHP 2600/35 - $500/month

When a company covers 100% of any plan, each option appears "free" to employees. With no financial differentiator, most employees commonly default to the richest plan available (the PPO 250) regardless of their actual healthcare needs.

Let’s assume the company has 20 employees and each one is enrolled in a medical plan. With this contribution strategy, the enrollment distribution becomes severely skewed toward your most expensive option:

• Platinum PPO 250/15: 70% enrollment (16 people)

• Gold PPO 1000/30: 20% enrollment (4 people)

• Silver HDHP 2600/35: 10% enrollment (2 people)

This creates a significant financial inefficiency when we factor in demographics and utilization patterns. What do I mean by that?

Difference in Demographics

Let’s look at a common example. Your 25-year-old engineers are statistically unlikely to use much healthcare beyond preventive services (which are covered at 100% on all plans). When these employees select your Platinum PPO 250 plan but rarely use its benefits, you're essentially burning cash with no corresponding value creation.

The opposite can be true for older employees who are statistically more likely to utilize healthcare services at that age. They will find significant value in the offering of a high-quality, low-deductible health insurance plan and are more likely to view the benefit as a reason for staying at the company. Offering a range of plan options to meet different needs is a strong retention strategy.

The core issue isn't about being less generous or more restrictive. We want to build a framework that drives conscious decision-making around healthcare benefits. Employees should select plans that align with their actual needs rather than automatically choosing the most expensive option simply because it's free or a worse one because they feel they can’t afford it.

Driving Healthcare Consumerism

The solution is implementing a strategic contribution approach that introduces meaningful choice while maintaining strong employee support. Continuing this example, I’d recommend doing the following:

1. Position the Platinum PPO 250 as a "buy-up" option with employee contributions covering the delta in premium

2. Establish the Gold PPO 1000 as your "base plan" with 90% employer contribution

3. Structure the Silver HDHP 2600 as a "buy-down" option with an employer HSA contribution to incentivize enrollment and drive down costs. Put simply, put pre-tax dollars in the pockets of employees rather than pay insurers premiums for plans your people won’t use.

This approach (should) transforms your enrollment distribution into a more balanced bell curve:

• Platinum PPO 250: 25% enrollment (those with higher healthcare needs & value richer plan designs)

• Gold PPO 1000: 50% enrollment (your middle-of-the-road users and appreciate traditional PPO structure)

• Silver HDHP 2600: 25% enrollment (typically younger, healthier employees who value lower premiums & pre-tax HSA contributions)

The resulting structure maintains your commitment to comprehensive healthcare while significantly reducing wasted spending. More importantly, it creates genuine choice and encourages employees to become active participants in their healthcare decisions rather than passive consumers.

By The Numbers

Let’s put this into practice and highlight the potential difference in cost to the company using the first strategy vs. my recommendation:

Option 1: All plans covered at 100% by company

• Platinum PPO 250: $1,000/month × 16 enrollees = $16,000/month

• Gold PPO 1000: $750/month × 4 enrollees = $3,000/month

• Silver HDHP 2600: $500/month × 2 enrollees = $1,000/month

Total monthly employer cost for Option 1: $20,000/month

Option 2: Strategic contribution approach

• Platinum PPO 250:

  • Base contribution equals 90% of PPO 1000 = $675/month per enrollee

  • $675/month × 5 enrollees = $3,375/month

• Gold PPO 1000:

  • 90% of $750/month = $675/month per enrollee

  • $675/month × 10 enrollees = $6,750/month

• Silver HDHP 2600:

  • 90% of PPO 1000 (base plan) = $675/month per enrollee

  • However, since this exceeds the total premium, employer pays the maximum of $500/month per enrollee

  • $500/month × 5 enrollees = $2,500/month

Total monthly employer cost for Option 2: $12,625/month

Cost Comparison

• Option 1 (100% coverage): $20,000/month employer cost out of $20,000 total premium

• Option 2 (strategic approach): $12,625/month employer cost out of $15,000 total premium

• Monthly savings with Option 2: $7,375/month

How to Design Your Contribution Strategy

When designing your approach, focus on these core principles:

1. Create meaningful differentiation between plan options

2. Align financial incentives with both company and employee interests

3. Support high-need employees while rewarding cost-conscious choices

4. Educate your team on the true value of different plan designs

Your healthcare strategy should balance competitive positioning with fiscal responsibility. The right approach is less about decreasing cost and more about a thoughtful contribution which creates sustainable value for both the company and its people.

Questions about your own company’s healthcare strategy? Shoot me a note:

The recommendations provided in this article are intended for informational purposes only. They should not be construed as direct advice or guidance. Readers are encouraged to consult with a qualified professional before making any decisions related to benefits contribution strategies.

Talk soon,

Cris Cafiero

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