Health insurance is more than just a perk to keep employees healthy and happy – it’s also a powerful tool for reducing turnover, ultimately saving businesses a substantial amount of money. Using Gusto platform data from over 300,000 businesses, we calculated employees with health insurance are 25% less likely to quit during their first year of employment, on average. For employees in the professional services sector, this number increases to 30%.
Businesses spend thousands of dollars in recruitment, training, and lost productivity costs to replace workers who leave. This is especially true for higher-paid workers. Considering just the cost savings associated with reducing employee turnover, businesses can save tens of thousands of dollars in worker replacement costs every year by offering health insurance.
For businesses where the average salary is greater than $60,000 per year, offering health insurance has a positive return on investment because of how much it reduces worker attrition. However, just half of these SMBs offer health insurance to their employees, meaning they may be spending more on worker replacement costs than they need to.
Health insurance decreases the likelihood of employee attrition by as much as 30% during the first year.
Workers place a significant value on health insurance benefits, so much so that they are significantly less likely to leave when their employer offers them. In fact, across all industries, employees with active health insurance are 25% less likely to quit during their first year of employment. For workers in the professional services sector, the decrease in attrition is 30%.
Because health insurance is more commonly offered by employers in professional services, workers in this industry are likelier to switch to employers who offer it.
Looking at an example for workers in the professional services sector, by the end of the first twelve months, there is a 41.5% chance that a typical employee without health insurance remains at that job. That rate improves to 54% when that employee has a health insurance plan. This is a 30% reduction in the probability of quitting.
Offering health insurance has a positive return on investment for companies where workers earn $60,000+ per year.
Healthy and satisfied employees are more productive, take fewer sick days, and are generally more engaged in their work. In the long run, this investment in employee health can lead to increased loyalty, higher morale, and is a great financial investment as well.
For example, a company in the professional services industry with 15 employees offering health insurance would translate to 1.8 fewer employees lost in a year on average. It can cost anywhere from 0.5 to 2x of an employee’s annual salary to replace them. This estimate includes both recruitment and lost productivity associated with employee turnover. Assuming that it costs 100% of an employee’s annual salary to replace them and the average employee salary is $85,000 per year, the company would save $153,000 in replacement costs per year by offering health insurance.
A typical health insurance premium for a company of this size would be around $6,500 per year per employee. Therefore, if the company covers 75% of the premium, it would cost the company $73,125 per year to offer health to all its employees. By offering health insurance, this company has realized cost savings of $79,875 per year, which translates to a 109% return on investment.
Figure 3: The return on investment for SMBs in the professional services sector from offering health insurance plans exceeds 100% in many cases.
| Average Salary (15 employees) | Estimated reduction in Turnover | Cost to offer HI per employee – (6,500 * 75%) | Estimated decrease in replacement cost (using full salary replacement cost) | Total cost to offer HI | Realized Savings | Return on Investment |
| $65,000 | 1.80 | $4,875 | $117,000 | $73,125 | $43,875 | 60% |
| $85,000 | 1.80 | $4,875 | $153,000 | $73,125 | $79,875 | 109% |
| $115,000 | 1.80 | $4,875 | $207,000 | $73,125 | $133,875 | 183% |
Figure 4: Across all industries, SMBs can save tens of thousands of dollars per year by offering health insurance to their employees.
| Average Salary (15 employees) | Estimated reduction in Turnover | Cost to offer HI per employee – (6,500 * 75%) | Estimated decrease in replacement cost (using full salary replacement cost) | Total cost to offer HI | Realized Savings | Return on Investment |
| $65,000 | 1.22 | $4,875 | $79,300 | $73,125 | $6174 | 9% |
| $85,000 | 1.22 | $4,875 | $103,2750 | $73,125 | $30,150 | 41% |
| $115,000 | 1.22 | $4,875 | 139,725.00 | $73,125 | $66,600 | 91% |
Health insurance is more than just a great benefit, it’s a prudent financial decision with a positive return on investment.
There are a number of reasons employers may be unable to offer health benefits – costs, complexity in finding the right providers, or because they’re simply not sure how to get started.
Whatever the reason, the data is clear that many businesses are leaving significant value on the table when they do not offer these plans. For those businesses with an average employee salary exceeding $60,000, offering health insurance becomes not just a benefit, but a prudent financial decision with a positive return on investment. Despite these compelling benefits, it’s interesting to note that only half of these SMBs currently offer health insurance to their employees.
Additionally, previous Gusto research has found smaller businesses are significantly less likely to offer health insurance. This means there is opportunity for companies to stand out as employers of choice and, in the long run, build a more stable and motivated workforce while also reaping the financial rewards of reduced turnover. By prioritizing offering health insurance, businesses can reduce turnover, strengthen employee loyalty, and contribute to the overall well-being of their workforce.
Methodology
Using Gusto platform data, we compared the difference in risk of quitting among employees who are and are not enrolled in health insurance through their employer. Our sample included all employees who were hired on the Gusto platform since 2020. To reduce potential bias in our results, we controlled for gender, age, pay, 401k status, remote work status, managerial status, industry, and company size.
