Why offer health benefits?
Why do you offer health benefits to employees? Attraction and retention are obvious initial answers. We have to provide competitive benefits to attract and retain the best people, right? For most organizations, a bit deeper reflection might reveal a sincere desire for the good of employees and their families. After all, we all recognize that health is a critical pillar of well-being for everyone.
But goodwill must always be tempered with the pragmatic necessities of profitability and the recognition that we can’t make people be healthy. Sure, we want our people to live well but most of us have been convinced that there’s really not much we can do about it, so we focus on aligning health benefits costs with resulting attraction/retention objectives and then balance the benefit to the organization with the mitigation of healthcare risk we take in our self-funded plans.
This pragmatic approach to healthcare often leads us to procurement decisions built upon decades of optimization learning manifested in lean programs and the obsessive pursuit of lowest unit or net cost. We commoditize the piece parts so that we can make clear comparisons which allow us to squeeze costs out of the system. This approach assumes functional equality among the individual parts, a disposition that is highly suspect in a service-centered world that produces wildly varying results.
Certainly some procedures have greater predictability than others, but when it comes to the world of medicine, differences in outcomes makes efforts to commoditize really difficult. Even mass-produced drugs have varying degrees of efficacy, with some of the most specialized and most expensive therapies showing ranges of inconsistency that would drive manufacturing quality engineers crazy.
This is not to suggest that cost control efforts are not worth pursuing. Efforts to curtail profiteering by legacy carriers and pharmacy benefit managers have been very fruitful in driving costs out of the system and prudent leaders must always have an eye toward ensuring that unit costs are comparable for any product or service they procure. But when it comes to buying products and services that have such variable results for a group of people who use them to wildly varying degrees of success, it would seem that all we can do is fight for the lowest cost possible and hope for the best.
What if there is a different way? A better way?
Cost center versus investment
How might we view the cost of health benefits if we found a way to ensure that they actually produced health in our employee population, that we had a role to play in it, and that the end result was measurably impactful for our organization?
Today, money put into health benefits is a cost center – a necessary expense to position our companies as contenders for talent and a hedge against the appeal of others who would like to take our best away from us. We don’t really expect the dollars to do anything other than act to neutralize what other companies competing for the same talent offer. This is a huge missed opportunity.
After cost of goods sold and compensation, the cost of health benefits is often the next highest line item on the expense side of the corporate income statement. These costs represent dollars thrown out the window in the hope they will land in the right place. Imagine the power of that cash if we could direct it to something productive, like a piece of equipment or new product development. Wouldn’t that be amazing?
The Bureau of Labor Statistics estimates that 2% to 5% of corporate revenue is spent on healthcare for workers. That number translates to about 8% to 12% of payroll. Some analysts feel the Labor Statistics’ numbers are low, claiming that companies spend 5%-10% on healthcare – about as much as is spent on Sales and Marketing or Research and Development. We know what we kind of return we expect from Sales and Marketing or Research and Development. Imagine the radical implication of having a similar expectation from what we invest in healthcare for our employees.
A hidden truth
A great truth which has been hidden behind complexity and obfuscation is that corporate health benefits can and should be managed as an investment in employee development. A January 2026 report from the McKinsey Health Institute estimates that investing in holistic employee health can add 17% to 55% of average annual pay in economic value through reduced attrition, absenteesim, and presenteeism, as well as improvements in productivity, attraction, and retention.
You read that correctly: they estimated that better health could, at the low-end, return 17% of a person’s salary. McKinsey broke it down further and in one example for a digital company with an average salary of $80,000, they projected $14,000-$44,000 of annual economic benefit to the organization through better health. Their lowest estimate exceeds what the Bureau of Labor Statistics says is being spent on corporate healthcare. The higher estimate reflects a multiple on the investment. A multiple!
Most leaders intuit this. Reason suggests that healthier employees are happier, showing up more often and in better condition to work than less healthy counterparts. Regardless of whether one agrees or disagrees with McKinsey’s numbers, we sense truth within these projections. But organizations don’t count on the investment in health benefits to produce these results because leaders don’t really feel they can predictably manage the spend as an investment.
The missed opportunity
This is the great missed opportunity of our health benefits investment. Dollars spent on healthcare for employees are the single largest investment in productivity an organization can make, yet we approach it as the necessary evil of a sunk-cost and invest massive time and energy into mitigating its impact to our bottom lines. This produces a race-to-the-bottom focus on unit cost and the expense of highly specialized consultants who act as procurement and contracting specialists rather than partners who help produce health in our employee populations.
Mass production health benefits giving us access to mass production healthcare does little to drive the most significant factor in costs: the health of the individual. Health systems engage at the tail-end of unhealthiness and our health benefits primarily serve as managed-cost mechanisms on the front-end of risk-management arrangements on the back-end. We know better health leads to lower costs but we do not believe we can actually influence member health.
That has all changed. The data, tools, insights, and service models now exist to predictably manage cost by predictably producing health. That 5% – 10% cost center we call health benefits can now be turned into a managed investment in the single most critical resource companies have: the individual employee. An investment that produces a multiple in return. Corporate sponsors can play a positive role in the health of their employees, they can facilitate flourishing, which in turn produces economic value in multiples of the cost of the health benefit itself.
The changing tide is not high-risk
The beautiful thing about this shift is that it is not a high-risk departure from doctors and facilities with whom we are comfortable, it is a reimagining of the fundamentals of access points, networks, contracts, technology, and focus. Much of the needed shift is philosophical, a simple change in worldview around health, costs, and human flourishing.
From there, it’s putting the individual at the center, rethinking the experience of health, and doing the hard work to help people understand, find, pay for, and sustain engagement with the elements of the system that foster good health. In effect, it’s turning it upside down and seeing all of it through the eyes of the one experiencing it: the member. Suddenly, a new approach begins to look a lot like common sense.
How do I know this? Because we’re doing it. We’re measuring it. We’re watching the results. One self-funded plan at a time and one member at a time. The American healthcare system has all the data one could ever want, the greatest technology in the world, many of the greatest healthcare providers in the world, and the fundamental necessity of change. But all of it is siloed, burdened with old economic models, and entrenched with competing interests which create barriers.
All we need is a bit of courage, a few new ideas, a dash of moxy, and the willingness to do the hard work that is the right thing for each human being. All underpinned by the knowledge that better health equals lower costs and therein more flourishing, which drives greater economic value.
Yes, it takes hard work but it doesn’t have to be complicated. Yes, it might require that some in the system accept lower margins but it doesn’t have to be a race to the bottom. And yes, it might cause some disruption to the status quo along the way but that doesn’t have to be scary. Well, at least for those working toward the right things. Flourishing prospers and we’re on a mission to scale it.
Flourishing Prospers
We offer benefits to our employees because we want them to benefit employees and their families. America is the most generous nation in the world. It is born of a will to do and be good. Our laws are designed to protect, our programs created to support, and our companies built within a capitalist system grounded in the fundamental rights of individuals: life, liberty, and the pursuit of happiness. Our creed underpins a fundamental desire to do the right thing. This is human flourishing and it centers on mental, physical, and spiritual health. The next era of American healthcare will be be redefined by organizations able to turn the cost of health benefits into a measurable investment in human flourishing.
How very American to use innovation to convert the human good into the economic good.
