Healthcare costs for Americans are rising, and along with them is the percentage of medical bills or debt in collections.
A common misconception is that health insurance is a panacea for healthcare costs, but that’s simply not true. While health insurance can cover a portion of healthcare costs, many Americans are still in debt from medical bills from high deductibles, out-of-network charges, or costs that are over their out-of-pocket maximums. For them, a prolonged illness or hospital stay can lead to financial crisis.
In the last decade, the average deductible has more than doubled, increasing by 55%, according to Kaiser Family Foundation. More than 50% of workers were enrolled in a high-deductible health plan (HDHP) as of 2020—up from 39% just 5 years earlier. According to Bankrate, less than half of Americans have the savings to cover an unexpected $1,000 expense, meaning many Americans are just one health issue from medical debt. According to Salary Finance’s fourth annual study, Inside the Wallets of Working Americans, one out of five Americans carries outstanding medical debt, and for nearly 60% of them, it’s related to one specific illness or procedure, not because of recurring care.
As workers face a potential recession at worst and inflation and cost-of-living increases at best, health insurance premiums for millions of Americans are also on the rise. For 13 million Americans, premiums are expected to increase by 50% in 2023. With the costs going up, workers, regardless of whether they have health insurance, are avoiding health care. According to the Salary Finance survey, one-third of workers are skipping preventive checkups, follow-up care, and scheduled procedures, which affects workers’ physical and mental health, resulting in increased emergency room healthcare costs, ultimately resulting in increased healthcare costs for the employer.
In the workplace, medical debt is impacting performance. Two-thirds of those with unpaid medical bills experience financial stress, which causes distractions at work and can lead to depression or anxiety. Stress from medical debt also impacts employee productivity at work. In past surveys, we’ve found that a quarter of employees with financial stress have troubled relationships with coworkers, and more than 20% can’t finish daily tasks. For businesses, that can be fatal for operations. We estimate that lost productivity costs businesses 13% to 18% of payroll expenses.
The challenge for businesses is two-fold: One, they need to ensure that productivity remains high in a competitive business landscape, and two, with the Great Resignation and a hot job market, employees, perhaps for the first time, have the power in the employer-employee relationship. What can companies do to meet employees in their time of need and support them with unpaid medical debts?
Salary-linked Loans Are an Affordable Response for Businesses—And Workers
Employer-sponsored, payroll-deducted loans provide an affordable way for employees to pay for unexpected healthcare costs or to pay off accumulated medical bills or debt in collections.
Employees are increasingly receptive to employer assistance in the area of financial well-being: Employees with access to these benefits rank them as some of the most important. On average, more than 50% of employees with access to financial well-being benefits rank them as highly important.
The good news is, businesses are starting to do this. Leading with empathy has become more common. Salary-linked loans are a cost-effective way to help employees get out of medical debt. Other healthcare financing benefits exist but often come with subscription-based pricing models that cost employees and/or employers money—and, unlike salary-linked loans, there may not be a potential for credit scores to go up as timely repayments are made.
Salary-linked loans are designed to offer a more affordable option to employees, and the benefits are immeasurable. For example, an employee named Robin used a salary-linked loan benefit to pay for a lost tooth. Having access to affordable credit through her employer enabled her to get the tooth replaced with low payments that came directly out of her paycheck.
Companies looking to implement a salary-linked benefit program should take the following steps:
- Know your workforce, and build a robust business case. Survey workers to understand their most pressing needs. An anonymous survey can be a low-stakes way to give you an understanding of where to start.
- Focus on progress, not perfection. Like any good strategy, it will take time to fully implement. Start with the programs that provide the most aid, and always choose quality over quantity.
- Communicate to build awareness and show availability. As noted, financial well-being programs are still not as common as many other benefits. Don’t fear overcommunicating; it will be a welcomed benefit from employees.
- Measure the impact. Know what metrics best demonstrate that workers are experiencing less financial stress. Factors to consider include reduced 401(k) leakage, improved employee retention, reduced healthcare costs, and increased productivity.
Healthcare costs don’t need to be debilitating for employees. Having a strong financial well-being strategy that complements your health insurance benefit will reduce the stress associated with medical costs and put your workforce back on the right track in the office.
Asesh Sarkar is Global CEO and co-founder of Salary Finance.