Picture this. You get hired on the same day as a colleague. Both of you have the same qualifications, and will be doing the same job. The main difference you can discern is that your colleague is a married man and main breadwinner for his family, whereas you are a single woman with no kids. You find out shortly afterwards that your colleague is earning a whole lot more money than you, even though you are both doing the same job, equally well. You’re earning $60,000 per year, while your colleague is getting paid $150,000 per year.
You’re understandably shocked, and ask your manager for the reason. He tells you that the way the company determines salary is heavily based on each person’s living expenses. As a married man with kids and a stay-at-home wife, your colleague spends 3x as much as you on things like rent and food. Given how much higher his living expenses are, surely it is fair that he gets a much higher salary to offset those expenses?
When I present this scenario to most people, they react with indignation. “Of course it isn’t fair that someone gets paid more because of their personal circumstances! If you’re both doing the same job, you should both get the same salary!” One can hardly imagine an America where companies decide compensation packages based on personal circumstances.
Curiously enough, the above is exactly what is happening today, in almost every company in America… when it comes to health insurance. Take a look at the following chart:
For employees who purchase health insurance coverage only for themselves, the average company contributed $6,000 (per year) towards their health insurance premiums. And it is up to the employee to cough up the reminder, which is taken out of their paychecks.
Whereas for employees who purchase coverage for an entire family, the average company contributed $15,000 towards their health insurance premiums. In essence, head-of-households (predominantly married men) are getting a $9,000 bonus on account of their family status.
Some context for those not familiar with the intricacies of American Health Insurance plans. All health insurance plans have a monthly premium that needs to be paid, even if you’re perfectly healthy. If you’re getting health insurance through your employer, your company is paying a portion of this monthly premium, and the remainder is deducted from your paycheck.
The better your health insurance plan is, the higher your monthly premiums, and the lower your out-of-pocket expenses when seeing a doctor. The more people you want to have covered by your health insurance, the higher your monthly premiums will be.
Companies are able to customize how much they want to contribute towards their employees’ premiums. They have the option of contributing a flat dollar amount to every employee. As seen in the above chart, very few companies do this. Most companies contribute vastly more to employees who are purchasing family-coverage. Because of this, the average single is paying $1,200 out-of-pocket for their premiums. And if they selected a better health insurance plan that costs $10,000, they would be paying even substantially more out-of-pocket.
“But this is just contributions for Health Insurance premiums! That’s not pay!”
This is a technically true but utterly meaningless distinction. Every dollar that the company pays for your health insurance premium, is a dollar that is not deducted from your paycheck. As shown in the above chart, because companies are contributing so much less to singles, they are spending $1,200 of their own money to cover the shortfall.
Furthermore, because they know that the company is capping its contributions at a lower amount, most singles wind up selecting a lower-quality plan with higher deductibles and copays. Which leads to greater out-of-pocket expenses when seeing a doctor.
Combine all of the above, and the reality is that single employees wind up with less money in their bank account, as a direct result of companies contributing less money to their healthcare plans.
“But single-coverage insurance is just cheaper and there’s no way for employers to contribute more!”
This is factually false. There exist comprehensive and high-quality plans with premiums that cost $10,000 per year. There also exist high-deductible plans where the premiums cost $7,000 per year, along with a Health Savings Account where the employer can contribute an additional $3,600 per year. If the company were to contribute $10,000, they can cover all of the above, without any additional expense on the employee’s part. Bottomline, the company has the option of meaningfully contributing $10,000 to everyone. There is no cap at $6,000.
“But if you gave everyone a flat $10,000 contribution, singles would get health insurance for free, while those supporting a family would need to pay $11,000 out of pocket! How is that fair?”
True. You can also say the exact same thing about rent, food, and every other living expense. If both people got paid the same $100,000 salary, the single woman would be left with almost $40,000 in savings and disposable income, after paying for all her living expenses. Whereas the married man will be left with almost no savings or disposable income at all, since his housing, food, and other expenses are so much higher.
If it’s unfair for the married man to give up part of his savings to pay for health insurance, isn’t it also unfair for him to give up part of his savings to pay for housing and food? Should we encourage companies to pay all their employees a variable “food and housing” allowance, based on the size of their household?
Edit: Someone has informed me that the American military does exactly this. Service members with families are given an extra “housing allowance” to cover some of the cost of housing their family. Which further begs the question – should we encourage all other companies to do the same?
“But health insurance is a fundamental human right, and everyone deserves it!”
I agree that every country should aim for universal healthcare. I would also extend this to other essentials such as food, housing, and transportation. But it seems odd to outsource this responsibility to private employers on a voluntary and ad-hoc basis, without any form of means testing. Especially since most beneficiaries are affluent enough to afford health insurance even without this added “family bonus.”
We don’t expect companies to give their workers a variable “food contribution” or “housing contribution,” even though these are also fundamental human needs. Why is health insurance any different?
“But we should make it easier for people to have children, because that is good for the wider society!”
Let’s avoid getting into a debate around overpopulation, because that will take us on a completely different tangent. But even if you accept the above premise, societal priorities are best addressed at a societal level – using public policies such as universal healthcare for children and increased tax credits for parents.
Put differently, we don’t expect corporations to give married men a bonus for having kids. Why is health insurance any different? Should we be expecting corporations to individually and arbitrarily implement their own policies in service of wider societal needs.
Let me close off this discussion by saying that this isn’t an idle thought experiment. As someone who is starting a company as we speak, this is a real decision that I have to make today. On the one hand, equal pay for equal work is a value that resonates with me and most people. But on the other hand, people often react with outrage when I tell them I’m thinking of contributing a flat $10,000 towards each person’s healthcare.
It appears that we as a society often preach the ideal of equal pay for equal work, but we don’t quite fully believe in it. Maybe it’s time we had a honest discussion around the merits of needs-based compensation.