Healthcare in the U.S. is a unique and expensive system — one most Americans can’t fully decipher — so it presents even more challenges for newcomers who are used to some version of socialized medicine. Part of what makes the American healthcare system so different is that coverage makes up a significant portion of an overall salary package. Understanding how healthcare is structured, taxed, and factored into your overall salary package will allow you to best negotiate for a suitable package.
Healthcare is only one of many issues that you have to deal with when moving to the US, with transferring your credit history from your home country to the US being another one.
Employer contributions: A brief overview
If you’re offered a full-time job in the United States, healthcare is typically included in your offer package. This often accompanies other extras like a 401k and vacation time. Employers rarely provide full coverage. Instead, most make “employer contributions.” Employers will choose a health insurance plan and cover, for example 75% of costs. You, the employee, will be responsible for the rest. Your contributions are subtracted from your paycheck pre-tax, which means you are taxed on income minus the healthcare expenses subtracted from your check. In other words it reduces your tax liability.
The modern American private healthcare system has its roots in the 1930s. In 1994, the nation’s largest insurer Blue Cross and Blue Shield, who are now part of many compensation packages, became a for-profit venture in an effort to raise much-needed equity quickly. The consequences had ramifications beyond that quick need for cash, essentially unraveling a system that had suited corporate America after World War II.
According to the Journal of American Medicine (JAMA), healthcare costs rose nearly a trilliondollars from 1996 to 2015. As a result, in 2019, employer contributions are down and employee contributions are up.
Additionally, for many salaried employees, raises are being applied to healthcare instead of base pay. Employers receive tax incentives on your health insurance. Wages do not provide tax incentives, so it behooves a business to apply your “raise” to healthcare rather than your personal bottom line.
Negotiating healthcare as part of an overall compensation package
Trying to navigate the American healthcare system might feel as daunting as a medical school exam, so we’ve broken down healthcare as part of a salary package into five key steps:
1. What healthcare is your employer offering?
As employer contributions become more variable with increasing costs, understanding what your employer is offering is essential. Key things to pay attention to include:
- Premiums, the per-paycheck cost of coverage.
- Deductibles, the amount you'll need to spend personally before your insurance starts covering costs.
- Co-insurance, what it costs you every time you seek care.
Additionally, if you have a family, take note of cost increases and coverage options, as they may vary.
2. Consider your healthcare in the context of the overall package
Is your offer in line with standard market rates? A higher salary may be deceptive if the benefit package is slim, as any added wages would be eaten up in healthcare costs (and probably then some).
3. If information is unclear, ask to speak to a benefits specialist
Benefits are often deliberately complex and difficult to parse. Once you’ve signed an offer it is difficult to change. Understanding benefits adds value early in the process, so if you’re unclear, this is the time to investigate.
4. Do not try and negotiate your employer contribution
Unfortunately, this is something your HR representative or hiring manager will have little control over. You will be more likely able to negotiate increased base pay to accommodate a less-than-stellar employer contribution, or increased vacation time. Focus your energy in these areas.
5. Use your deductions as a bargaining chip
According to Denise Dudley, author of Work It! Get In, Get Noticed, Get Promoted, “It’s possible that by explaining ‘deduction realities’ to your hiring manager, you just might nudge the base up by a few dollars – and every little bit counts toward a victorious negotiation.” Deductions include cost of living, taxes, and transit. The biggest deduction reality tied to your paycheck is healthcare. A successful negotiation requires due diligence and preparation of facts and figures.
For example, if you’re switching companies, and your new employer has offered a considerable raise but has smaller employer contributions, you may find your raise is chewed up in healthcare expenses. This highlights the role healthcare has in your overall package.
A note for freelancers
Determining your freelance rate can be a delicate dance. Since your tax liability is much higher than full time employees, your rate needs to take this into consideration. Additionally, as a freelancer you are responsible for your own healthcare. Make sure you take this into consideration, as you will not benefit from the pre-tax employer contribution structure.