The University of Michigan
555 South Forest Street
Third Floor
Ann Arbor, MI 48104-2531

T 734-936-9842
F 734-998-6341



Short Takes

Q: Since employers who offer health insurance typically have lower turnover, why don't more employers offer health insurance?

Part of the "business case" for offering health insurance rests on convincing employers that providing workers with this benefit will mitigate turnover, or the costs associated with recruiting and retaining high quality workers. Consider that a job that comes with health insurance lasts eight times longer than one without health insurance, and that the cost of employee turnover at large companies runs from about $10,000 to more than $30,000 per worker. Offering health insurance might lower turnover, but if the savings from lower turnover are less than the cost of health insurance, there isn't much of a "business case" for offering health insurance. In 2005, the average annual cost of family coverage was $10,880.

How much turnover costs depends on what kind of job it is and locale. Employers that have highly skilled workers will avoid substantial costs if its employees stay. But if an employer offers lower-skilled jobs that don't require extensive training, such as a sales clerk or short-order cook, then turnover-related costs are lower. The local job market also is a key factor. If the labor market is tight, it costs employers more to find adequate workers.

Whether there is a "business case" for offering health insurance depends on how much value an employer places on this benefit. For example, a child care center may experience less turnover if it offers health insurance and thus is able to recruit higher quality staff that helps boost the organization's reputation and enrollment levels. If parents are willing to pay higher enrollment fees, the child care center may find there is a "business case" for offering health insurance.

Bottom Line: Lower turnover costs that result from offering health insurance are not always greater than the cost of offering health insurance.

Back to top

Funded by The Robert Wood Johnson Foundation, ERIU is a five-year program shedding new light on the causes and consequences of lack of coverage, and the crucial role that health insurance plays in shaping the U.S. labor market.