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For my friends in the US, when considering positions (this applies to either salary or contract positions) I've heard it's sometimes along the lines of, you can have X with healthcare, or Y with no healthcare.

Is there a ballpark or typical figure for that difference?

So, you're making $X,000 a year with typical family healthcare, you go to another place where they want to pay you with no healthcare - what's about the difference there, how much extra does a US salary maker see that as? Would it be $2k a year difference, $30k a year difference?

Conversely you're hiring some folks in the US - what's the typical difference in those offers?


Would it help here to make an example? What about a completely typical person w/ three children and a spouse and the putative salary is "100k", "with healthcare", or then "X" "with no healthcare" - what do we reckon? Is there a ballpark X there? Business owners (among others) must deal with this constantly.

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    Healthcare isn't a binary option. There are numerous types of healthcare plans and different employers may subsidize to different degrees the cost of those plans. The value would vary quite a bit depending on these factors. – JohnFx Nov 6 '16 at 13:38
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    Hey John, thanks but general worthwhile ballparks exist. I mean for normal, typical, good family coverage. (Sure, "cadillac" plans and "minimal" plans also exist.) In other countries I could easily state the answer to this question giving the typical ballpark figure; what's the deal in the US my man? – Fattie Nov 6 '16 at 13:40
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    That works if the employer covers 100% of the insurance premium, but it varies quite a bit (even from year to year) how much of the premium is paid by the employer vs. the employee's responsibility. Even if the employee is responsible for the whole cost, the company's group plan may be at a discount to what you would get purchasing it outside of your job. It is really hard to quantify this especially with the new landscape that ObamaCare/PACA created in the health marketplace. – JohnFx Nov 6 '16 at 13:45
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    @JoeBlow You mention in the comments below that you're after the figure that the employer pays for your healthcare but that number is entirely meaningless for you. Your actual question is "what would it cost me to purchase an equivalent level of healthcare?". Of course you'll always have to run the numbers yourself as a ballpark average is useless for your purpose. – Lilienthal Nov 7 '16 at 10:50
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    hi @Lilienthal FWIW "but that number is entirely meaningless for you" how come? I'm an employer. Any number of non-US readers would be interested in (all) the figures involved for any number of reasons (negotiations on either end, general understanding of healthcare issues in the US, etc etc) and how this relates centrally to one's personal finance, on all ends. "All of the above" are interesting - what the employer pays / offers / what it costs / gets the employee - etc. Resolved by many great answers below – Fattie Nov 7 '16 at 17:52
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As a contractor, I have done this exact calculation many times so I can compare full time employment offers when they come. The answer varies greatly depending on your situation, but here's how to calculate it:

  1. How much is your annual healthcare cost if you don't get it from your employer? A good place to start is healthcare.gov and look up plans that are appropriate for you. If you have expensive health issues, then the calculation is pretty easy because you can count on maxing out your costs, so the calculation is simply monthly premium * 12 + MOOP (max out of pocket). If you are moderately healthy, you may want to keep track of 3 numbers: best case, expected case, and worst case. Example numbers for a family might be $600 * 12 = $7200/yr for best case, perhaps about $9000/yr for the average case if you don't go to the doctor very often, and $7200 + $12,000 MOOP = $19,200/yr for the worst case.
  2. How much is your annual healthcare cost if you get on your employer's plan? Again, this varies by company, your family situation, and which of your employer's plans you choose. Typically though, your premiums will be lower than if you purchased insurance on the exchange, and the deductible and MOOP options are often lower too. For example, suppose a comparable plan to what you would choose on the exchange is $400/month with a $3000 deductible and $5000 MOOP. In this case your best case is $4800/yr, average case might be $6600, and worst case would be $9800.

So, subtracting the two and you get

  • Best case: ($7200 vs $4800) you save $2,400
  • Average case: ($9000 vs $6600) you save $2,400
  • Worst case: ($19,200 vs $9,800) you save $9,400

I've run many different scenarios with multiple plans and employers, and in my situation with a spouse and 1 child, the employer plans usually ended up saving me approximately $5k per year. So then, to answer your question:

...salary is "100k", "with healthcare", or then "X" "with no healthcare" - what do we reckon?

I reckon I would want to be paid $5K more, or $105K. This is purely hypothetical though and assumes there are no other differences except for with or without health insurance. In reality, contractor vs employee will have quite a few other differences. But in general, the calculation varies by company and the more generous the employer's health benefits, the more you need to be compensated to make up for not having it.

Note: the above numbers are very rough, and there are many other factors that come into play, some of which are:

  • Depending on your income, a portion of your premiums on the exchange may be subsidized.
  • Premiums you pay as part of an employer plan are tax deductible, whereas premiums you pay on the exchange may not be.
  • Your employer may offer an HSA and may even contribute to it (free money).
  • If you contribute to your HSA through your employer you could reduce your FICA wages by that amount. (Which could save you up to 7% but also might slightly lower your total SS benefit when you retire.)
  • Can you get insurance another way? In my case I can get pretty inexpensive health insurance through my spouse's plan, so the true value to me of my employer offering insurance is close to $0. In fact, it actually has a negative value since my spouse's plan has a surcharge if I choose to take her insurance while having the option to take my own.

As a side note, many years ago, during salary talks with a company, I was able to negotiate $2K in additional yearly salary by agreeing not to take the health insurance since I had better insurance through my spouse. Health insurance in the US was much cheaper back then so I think closer to $5K today would be about right and is consistent with my above ballpark calculation. I always wondered what would have happened if I turned around and enrolled the following year. I suspect had I done that they could not have legally lowered my salary due to my breaking my promise, but I wouldn't be surprised if I didn't get a raise that year either.

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    Spectacular answer, digesting it now I'll send a bounty thanks! – Fattie Nov 6 '16 at 17:20
  • Maximum legal MOOP for 2017 is 7150 not 12000; the latter is an old value for family maximum, which only comes into play when you have a family with more than 2 people in it. Also in the past (haven't checked yet this year) many gold plans have MOOP well under the legislated limit (typically half or less) but of course higher monthly premiums. – R.. Nov 7 '16 at 19:28
  • @R.. - my understanding is the MOOP to be considered a legal HDHP for a family is over $13K, even in 2017. – TTT Nov 7 '16 at 19:31
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    @R.. - ah, I see what you mean. I did say "for an individual" and then used 12K for MOOP. I've updated the numbers. Thx for pointing that out. – TTT Nov 7 '16 at 19:48
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    Something tells me that the link in your first paragraph is about to be broken....say around 1/21/17? – Matt M Nov 9 '16 at 15:51
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As others have said, it depends entirely on what benefits are provided, and how much of the cost of those benefits is paid by the employer and how much is paid by the employee, and compare that to what it would cost to obtain the necessary/equivalent coverage without employer assistance. In my case, my employer pays more than $10,000 per year toward the cost of medical, dental, vision, disability, and life insurance for myself and my family. That's almost 20% of the average total household income in my state, so it is not an insignificant amount at all.

  • "employer pays more than $10,000 per year..."; family case. That's a great data point, thanks MB. – Fattie Nov 7 '16 at 16:14
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While the other answers try to quantify the value of health care the question you ask is about employee vs contractor. The delta between those regarding benefits goes way beyond health care. In fact because almost every full time employee must have health care offered by their employer the option of "you can have X with healthcare, or Y with no healthcare" is no longer an option.

I have seen situations in the last few years where employees who had no need for healthcare coverage (retired military) were offered additional vacation days to compensate for their lower cost to the employer.

For employee vs contractor what is different isn't just healthcare. It also includes holidays, vacation days, sick days, employer portion of social security, education benefits, and 401k. Insurance benefits include not just healthcare but also dental, vision, short term and long term disability, and life insurance.

The rule of thumb to cover all these benefits that are lost when you are a contractor is an amount equal to your income. Of course some of these benefits depend on single vs married and kids or not. But unless the rate they are paying the contractors is approaching twice the rate they are paying employees the contractor will be hard pressed to cover the missing benefits.

  • As I've heard it, that 100% surcharge for contractor also covers the time a contractor needs to spend lining up the gigs; continuous employment is also effectively a benefit.... But, yeah, I've heard this rule of thumb. As a ballpark figure, recognizing the huge variation in real numbers it's plausible. – keshlam Nov 7 '16 at 12:46
  • (Not a big deal @mhoran_psprep but you may have misread the question. "employee vs contractor" ... no, I just mentioned in passing that regarding the question (for the question: see title) the question could be answered or examples given for either employee or contractor situations. Sorry if the first sentence was previously written ambiguously.) – Fattie Nov 7 '16 at 17:55
  • In the US post affordable care act that option of "X with healthcare, or Y with no healthcare" does not exist. If you are full time they have to offer health care. Now they do have options as to how gold plated, and how much of the premium they want to cover. If you are a contractor they will probably never provide healthcare. – mhoran_psprep Nov 7 '16 at 18:55
  • Hi MH - actually I've often been offered healthcare, re contract positions in the US (say, a 6 or 12 mo. contract); others would know more than me but it seems pretty common. – Fattie Nov 7 '16 at 19:02
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Equation:

(M x 12) + MOOP = Worst case scenario cost

Where M equals the monthly cost and MOOP is the maximum out of pocket amount. So, if a plan costs $500 a month and the maximum out of pocket amount is $12,000 - which in a worst case scenario you would pay (it's almost always over the deductible) ...

($500 x 12) + 12,000 = $18,000

Most people look at the deductible, but be aware this is incorrect in a worst case. The last one (maximum out of pocket) really hurts most people because they overlook it:

Deductible vs. out-of-pocket maximum

The difference between your deductible and an out-of-pocket maximum is subtle but important. The out-of-pocket maximum is typically higher than your deductible to account for things like co-pays and co-insurance. For example, if you hit your deductible of $2,500 but continue to go for office visits with a $25 co-pay, you’ll still have to pay that co-pay until you’ve spent your out-of-pocket maximum, at which time your insurance would take over and cover everything. New in 2016: embedded out-of-pocket maximums One change in 2016 is that, even with an aggregate deductible, one person cannot pay more than the individual out-of-pocket maximum within a family plan, even if the aggregate deductible is more than the individual out-of-pocket maximum, which is $6,850 for 2016. For instance, even if the overall aggregate deductible was $10,000, a single person in that family plan could not incur more than $6,850 in out-of-pocket expenses. (In 2017, the out-of-pocket maximum will increase to $7,150.) After they hit that number, insurance covers everything for that person, even as the rest of the family is still subject to the deductible.

From your question:

Thanks - not sure I totally follow you. My question is, essentially: "Say a typical large employer X gives you 'healthcare' as a benefit on top of your salary. In fact, how much does that cost corporation X each year?" ie, meaning, in the US, about how much does that typically cost a corporation X each year?

That's a good question because they may qualify for tax advantages by offering to a number of employees and there may be other benefits if they encourage certain tests (like blood work and they waive the monthly fee). More than likely, using the above equation may be the maximum that they'll pay each year per employee and it might be less depending on the tax qualifications. You can read this answer of the question and it appears they are paying within the range of these premiums listed above this.

  • Thanks - not sure I totally follow you. My question is, essentially: "Say a typical large employer X gives you 'healthcare' as a benefit on top of your salary. In fact, how much does that cost corporation X each year?" ie, meaning, in the US, about how much does that typically cost a corporation X each year? – Fattie Nov 6 '16 at 16:31
  • @JoeBlow In the question you're asking for the salary equivalent, i.e. what it's worth to you, which is more than it costs the employer, because the employer can buy it cheaper than you can. – Mike Scott Nov 6 '16 at 16:36
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    Hi Scott, can you give me some typical example figures? Is it worth about say $100- per year to a typical professional? Or more like $50,000? That's my question, thanks. (Yes, I'm sure corps. buy en masse at something of a discount.) – Fattie Nov 6 '16 at 16:46
  • I think the formula is missing something; the worst case is much higher. The MOOP only applies to covered expenses. There are various ways you may end up with additional expenses. Examples are a hospital stay where you later find out the surgeon was not in your network, medication that is not on the formulary, treatments the insurance claims are "experimental". Many people with serious illnesses still end up with hundreds of thousands of dollars in hospital bills despite insurance. – Kevin Keane Nov 8 '16 at 5:49
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For the person being hired this is a tricky situation. Specially with the new laws. There is no real magic number that can be applied as a lot will depend on what benefits you want, and what is actually available. This will really shift the spectrum quite a bit.

Under the affordibal care act, everyone has to have insurance or pay a ?fine? (were really not sure what to call this yet) but there are two provisions that really mess with the numbers you look at as an employee.

First, the cost of heath care has skyrocketed. So the same benefits that you had 5 years ago now cost maybe 10-15 times as much as they used to. This gets swept under the rug a bit because the "main costs" of insurance has only increased a tiny amount. What this actually comes down to is does your new ACA approved heath plan cover exactly the benefits you need, or does it cut corners.

Sorry this is complicated, and I don't mean it to come off as a speech against the ACA so I will give an example. My wife has RA, she really has it under control with the help of her RA doctor. This is not something she ever wants to change. Because she has had RA from the age of 15, and because it's degenerative, she doesn't want to spend 5 years working with a new doctor to get to the same place she is with her current doctor. In addition, the main drugs she takes for RA are not covered under any ACA plan, nor are the "substitutions" that her doctor makes (we are trying to have kids so she has to be off the main meds, and a couple of the things this doctor has tried has been meds that reduce inflammation, are pregnancy safe, but are not for the treatment of RA)

You now have to take into effect rather the cost of health insurance + the cost of the things now not covered by the heath insurance + the out of pocket expenses is worth the insurance.

Second the ACA has set up provisions to straight up trick those people that have lower income and are not paying close attention. When shopping for insurance, they get quotes like "$50 a month" or "$100 a month". The truth is that the remainder of the actual cost is deducted from their tax returns. This takes consideration, because if you thing your paying $50 a month for insurance but your really paying $650 then you need to make sure your doing your math right.

Finally, you need to understand how messed up things are right now in the US with heath care. Largely this goes unreported. I'm not really sure why. But in order to do this I will have to give examples.

For my wife to see a specialist (her RA doctor) the co-pay is $75. So she goes to the doctor, he charges her $75 and bills the insurance $200. The insurance pays the doctor $50. With out insurance, the visit costs $50. At first you want to blame the doctor for cheating the system, but the doctor has to pay for hours of labor to get the $50 back from the insurance company. From the doctors perspective it's cheaper to take the $50 then it is to charge the insurance company. And by charging the insurance company he has no control over the cost of the co pay. He essentially has to charge more to make the same money and the patient gets the shaft in the process.

Another example, I got strep throat last year. I went to the walk in clinic, paid $75, saw the doctor got my Z-Pack for $15, went home crawled in bed and got better. My wife (who still had separate insurance from before the marriage) got strep throat (imagen that) went to the same clinic, they charged her $200 for the visit ($50 co-pay) and $250 for the z-pack ($3 co-pay). The insurance paid the clinic $90 for the visit and $3 for the drugs. Again the patient is left out in this scenario. In this case it worked better for my wife, unless you account for the fact that to get that coverage she had to pay $650/month.

My point is that when comparing costs of heathcare with insurance, and without out insurance, its often times much cheaper for the practices to have you self pay then it is for them to go through the loops of trying to insurance to make them whole. This creates two rates. Self pay rates and Insured rates. When your trying to figure out the cost of not having insurance then you need to use the self pay rates. These can be vastly different.

So as an employee you need to figure out your cost of heath care with insurance, and your cost of heath care without insurance. Then user those numbers when your trying to negotiate a salary. The problem is that there is no magic number to use for this because the cost will very a lot. For us, it was cheaper to not have insurance. Even with a pre-existing condition that takes constant attention, it's just better if we set aside $500 a month then it is to try to pay $750 a month. That might not hold true for everyone. For some people or conditions it may be better to pay the $750 then to try to handle it themselves.

So for my negotiations I would go with x+$6,000 without insurance or x+$4,500 with insurance.

Now as an employer it's a lot simpler. Usually you have a "group plan" that offers you a pretty straight $x per year per person or $y per year per family. So you can offer exactly that. Salary - $x or Salary - $y. AS a starting point. However this is where negotiations start.

If your offering me $50,500 and insurance, I would rather just have $57,000 and no insurance. Of course your real cost is only $55,000 cause you don't care about my heath care costs only about insurance costs. So you try to negotiate down towards $55,000 and no insurance. But that's not good enough for me. So I either go else where and you loose talent, or I accept $50,500 and insurance (or somewhere in between).

  • pretty amazing answer – Fattie Nov 15 '17 at 0:56
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You could probably see prices at one of the Obamacare websites. I'm on Obamacare in Massachusetts, and the premiums for me ranged from about $300-600 per month. For a couple, you just multiply by two (couples don't get any discounts over single people). So for a couple, the cost is about $600-$1200 per month.

I never looked at family prices because I don't have kids, but I think the family plans are not that much more than the plans for a couple.

  • Thanks. So if someone worked for a typical large company (Google, Stackoverflow, whatever), is that the type of healthcare you'd typically get, Obamacare? Or .. ? Thanks again for the info! – Fattie Nov 6 '16 at 16:20
  • @JoeBlow No. At major companies, you generally get access to private healthcare. Most quality companies will pay the monthly cost and some will even pay some or all of the deductible (usually in the form of HSA contribution if you have an HSA plan). – wpquestionz Nov 6 '16 at 16:31
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    Hi @wpquestionz, I see "At major companies, you generally get access to private healthcare". That's precisely what I'm asking then. As I say in a comment below, I'm (simply) asking, "about how much does that typically cost a corporation X each year"? – Fattie Nov 6 '16 at 16:33
  • I think if you got the expensive Obamacare plan ($600/person) that it would be about the same coverage as a typical corporate plan. Companies do vary greatly in what they provide. – Jeff O'Neill Nov 6 '16 at 23:39
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    "I think the family plans are not that much more than the plans for a couple" That is a very bold claim to make with zero evidence. Everything I've read on the topic suggest that family plans can make a significant difference. You even say that a couple doesn't get a discount, why would kids get one? – Lilienthal Nov 7 '16 at 10:45
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Many answers here have given what look to be useful perspectives on your question. I want to point out an interesting technical issue.

If an employer contracts with an insurer, it agrees to cover all employees (or all that fill some pre-specified definition and no one else), and to offer only a limited range of options.

If you buy insurance directly, you obviously have a huge range of choices, including the (technically illegal) one of no insurance at all.

Your first thought is probably, "Hey, that's great! More options, more chances to pick the plan that's right for me."

Sorry, no. Yes, you have more options, but so does everyone else.

If you are working for some large company, you get insurance, period. If you suspect you have an expensive health condition, you cannot buy more insurance; if you believe yourself to be healthy as a horse, you cannot get skimpier insurance and pocket the difference. Healthy people and sick people are all in the same predictable pool.

If you buy insurance freely, the insurer knows that the sicker you are, the more likely you are buy insurance, a phenomenon called adverse selection. As a result, the premiums (fees) a person buying his own insurance pays are much higher, because most of his fellow policy-holders are sickly -- even if he himself is just risk-averse.

On the other hand, if you are risk-neutral, if you can survive a $10,000 bill if it happens to arise, you can save big by finding the skimpiest imaginable insurance, where all your fellow policy-holders will be hale and healthy people like yourself.

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There is some magic involved in that calculation, because what health insurance is worth to you is not necessarily the same it is worth for the employer.

Two examples that illustrate the extreme ends of the spectrum: let's say you or a family member have a chronic or a serious illness, especially if it is a preexisting condition - for instance, cancer. In that case, health insurance can be worth literally millions of dollars to you. Even if you are a diabetic, the value of health insurance can be substantial. Sometimes, it could even make financial sense in that case to accept a very low-paying job.

On the other extreme of the scale, if you are very young and healthy, many people decide to forego insurance. In that case, the value of health insurance can be as little as the penalty (usually, 2% of your taxable income, I believe).

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Healthcare for the employee is more valuable to the employer than is providing healthcare for the rest of the family members. Depending on the family situation, you're going to see significant differences in price between out of pocket costs for insurance of just the employee, vs cost for insuring the entire family. This is because in the first instance the insurance is more subsidized by the company (as a percentage of the total cost).

The costs to the company for insuring just the individual (mid-career) are in the neighborhood of $5000 per year. If this is all that's being negotiated (single person coverage) then I would use that amount as a baseline.

  • Derek thanks for the great answer - if I'm not mistaken you're the first person who's given a stab at a baseline figure. (For a single person - I think, in the question it mentions a couple times perhaps the example is for family healthcare.) – Fattie Nov 9 '17 at 0:31
  • All the other answers are fantastic and informative - awesome QA – Fattie Nov 15 '17 at 22:16

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