Your Contribution Strategy Is a Pricing Strategy

The budget tells you what the company will spend. The contribution schedule tells employees what every option costs.

The carrier delivers rates for two plans and four coverage tiers.

Finance sets the employer budget. The spreadsheet backs into percentages until the total fits. Those numbers go to payroll and everyone calls the result a contribution strategy.

The carrier set the gross premium. The employer just created a second price: the amount an employee sees after the company contribution. That price influences which plan looks expensive, whether family coverage feels possible, and which people decide to enroll.

In 2025, KFF reported average annual worker contributions of $1,440 for single coverage and $6,850 for family coverage. Eleven percent of covered workers were in a plan requiring at least $12,000 toward family coverage. Those are market descriptions, not household affordability standards. [1]

For plan years beginning in 2026, the federal affordability percentage is 9.96%. For 2027 planning, it is 10.22%. For an employee, the employer-shared-responsibility test generally looks at the required contribution for the lowest-cost self-only option providing minimum value, with permitted safe harbors. Family-member eligibility for Marketplace premium tax credits uses the cost of qualifying family coverage instead. [2]

Passing the employee test does not prove the family tier fits the household.

The gross premium difference reflects network, design, expected claims, administration, and margin, imperfectly. The contribution policy decides how much of that difference employees see.

Pay the same percentage of every plan and the employer gives more dollars to the more expensive option. Pay one reference amount within each tier and the employee sees the full premium difference.

Neither method is automatically right. One may protect access to a richer plan. The other may expose its incremental cost. Both can alter enrollment.

Choose the reference plan before choosing its subsidy. Its network, drug coverage, and cost sharing should make it a credible option for your workforce. If many employees must buy up to keep routine care accessible, that constraint belongs in the decision.

Then decide how much support goes to employee-only, spouse, children, and family coverage. Using the reference plan's tier ratios is one starting structure, not a requirement. Different dependent subsidies may serve the compensation goal better. Keep the tier targets consistent across plans unless a deliberate exception serves that goal.

Consider a synthetic employer with 100 enrolled employees, two plans, and four tiers. These are invented assumptions, not client results or market benchmarks.

The base plan costs $800 employee-only, $1,600 employee plus spouse, $1,440 employee plus children, and $2,240 family each month. The richer plan is 15% higher at every tier. Enrollment is 70 in the base plan and 30 in the richer plan, with 60 employee-only, 14 employee-plus-spouse, 13 employee-plus-children, and 13 family contracts in total.

The richer plan holds 20 employee-only, four employee-plus-spouse, three employee-plus-children, and three family contracts. The base plan holds the rest. Total monthly premium is $123,256. Set the employer budget at 75%:

$123,256 × 75% = $92,442 per month, or $1,109,304 per year

Method one: pay 75% of every premium.

For employee-plus-spouse coverage, employees pay $400 in the base plan and $460 in the richer plan. The gross premium difference is $240, but the employee sees only $60 because the employer contributes another $180 to the richer plan.

Method two: use the same tier contribution across plans.

Keep the same $92,442 monthly budget at current enrollment. Applying 78.1817% to the base-plan rates, the employer can contribute about $625 employee-only, $1,251 employee plus spouse, $1,126 employee plus children, and $1,751 family, regardless of plan.

The employee-plus-spouse contribution becomes about $349 in the base plan and $589 in the richer plan. The employee now sees the full $240 premium difference. Use unrounded amounts for the budget comparison.

For employee-plus-spouse coverage, that change lowers the base-plan employee's deduction by about $51 a month. It raises the richer-plan employee's deduction by about $129, or $1,550 a year. The employer kept its budget; it redistributed the subsidy. Someone already in the richer plan will experience a substantial increase without any change in coverage.

Now move ten employee-only contracts from the richer plan to the base plan. Under the 75% method, employer cost falls $900 a month because the employer subsidized the richer plan more. Under the reference method, employer cost does not change because the tier contribution is the same in both plans.

Reference funding holds employer dollars steady for that move within one tier. More employees enrolling, or contracts moving from employee-only to family coverage, can still raise the budget. Test those changes with the original contribution schedule held fixed.

Adverse selection does not mean employees chose the expensive plan. It means people with predictably different claims sort between options strongly enough to change each option's cost.

A RAND-based simulation found that making employees pay the full plan difference could intensify risk sorting enough to collapse the higher-cost option without adequate risk adjustment. [3] At Harvard, equal dollar contributions preceded the disappearance of the most generous plan within three years. [4]

Those older models and settings are not an employer forecast. They are a reason to examine who may move and the claims mix that follows them before calling a contribution change efficient.

Average covered members per enrolled employee, sometimes called contract size, is useful context. It is not a universal target.

A higher number may mean employees value family coverage. A lower number may mean spouses have their own coverage, dependent contributions are unattractive, or the workforce has different household characteristics. The ratio alone cannot tell you which.

UnitedHealthcare reported 36% higher per-member cost for spouses than employees in its mixed fully insured and self-funded book. This proprietary observation is not risk-adjusted proof that spouse status causes higher cost. [5] Small subgroup averages can also be dominated by a few large claims.

Spousal surcharges and carve-outs are possible responses. So are different dependent subsidies, better navigation, or accepting the cost because family coverage serves the compensation strategy. Choose the response from the workforce evidence and the goal, not the carrier average alone.

Compare payroll deductions alongside employer HSA or HRA funding, deductibles, and out-of-pocket limits. An HSA deposit belongs to the employee; an HRA generally reimburses eligible expenses under its terms. Those forms of support are not interchangeable. [6]

Show account funding and cost sharing separately. A smaller deduction can leave more cost at the point of care. The premium-only example above does not establish which plan produces the lowest total employee cost.

1. What job does the employer dollar have?

Choose the priority: employee-only access, family support, a credible reference plan, or budget predictability. State how the reference plan and tier subsidies serve it, and where an exception is intentional.

2. What prices did the contribution schedule create?

Build a before-and-after grid by plan, tier, and pay level. Show monthly and per-paycheck deductions, account funding, and cost-sharing exposure. Identify who receives less support, how large the change is, and whether it needs a transition or a clearer explanation. A group average will hide those differences.

3. What happens when enrollment changes?

Hold the policy fixed and test plan migration, family-tier growth, new enrollment, and waivers. Track the resulting employer spend and payroll impact. For claims expectations, separate a less credible subgroup result from a persistent demographic or selection effect.

If the employer covers a smaller share of a plan's cost than last year, explain why and how the change fits the long-term benefits strategy.

If the goal is to phase out that plan in year two or three, make the timeline and alternatives clear. Explain the transition before employees see it in their payroll deductions.

Where does your contribution schedule create a price nobody intended? Submit a case describing the structure and decision.

Do not send PHI, diagnoses, claimant details, identifying information, or confidential employer files. Submissions are considered for possible analysis and publication. Nothing is published without permission.

Useful cases are worth discussing in the open. Names and private details can stay out.

Know someone backing into next year's employee deductions? Forward this issue and ask what the employer dollar is supposed to do.

Try the Compare two plans mode in Who Pays the Increase?. It loads this synthetic example and tests enrollment changes with both policies held fixed. Neither mode predicts claims or total household cost.

See you in two weeks.

Scott

P.S. Next issue: provider consolidation and IDR fees. We will trace where the extra dollars enter the claim before they reach the renewal.

1. KFF, 2025 Employer Health Benefits Survey, October 22, 2025. Survey of 1,862 randomly selected nonfederal public and private employers with ten or more workers. Premium and contribution figures are national averages, not household-affordability standards. KFF survey.

2. Internal Revenue Service, Questions and Answers on Employer Shared Responsibility Provisions and Updates to Questions and Answers About the Premium Tax Credit. The required-contribution percentages are 9.96% for 2026 and 10.22% for 2027. Employer safe harbors and family-member Premium Tax Credit affordability are distinct tests. Employer guidance, family guidance, and 2027 indexing.

3. Marquis and Buchanan, Simulating the Effects of Employer Contributions on Adverse Selection and Health Plan Choice, Health Services Research, October 1999. Microsimulation based on relationships estimated from the RAND Health Insurance Experiment and 1993 employee-benefits data; not a current employer forecast. Study.

4. Cutler and Zeckhauser, Adverse Selection in Health Insurance, 1997 working paper and 1998 published chapter. Evidence from Harvard University and the Massachusetts Group Insurance Commission; the institutional settings limit direct generalization. NBER paper.

5. UnitedHealthcare, More Than a Plus-One: The Cost of Spousal Coverage, June 26, 2026, citing UnitedHealthcare Employer & Individual claims incurred November 2024 through October 2025 and paid through January 2026 across its self-funded and fully insured books. Proprietary book-of-business observation, not an independently risk-adjusted causal estimate. Carrier analysis.

6. Internal Revenue Service, Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans, HSA benefits and HRA sections. HSA portability and retained balances differ from an HRA's reimbursement terms. Account guidance.

General information, not insurance, legal, or tax advice.

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