Health insurance can feel like a tangled, complex web for global company leaders. In an attempt to give every employee local health insurance without collapsing under the complexity, some companies are turning to stipends and premium reimbursements as an alternative.
Instead of buying a group plan for all team members, the company offers a standard amount to individuals to find their own plans. This is either paid in advance or reimbursed.
On the surface, it seems like a flexible solution to the minefield of providing benefits to a distributed workforce—there are no plans to manage and everyone gets the same amount. That’s fair, right? Turns out, not so much.
How health insurance stipends fall short
A stipend, simply put, is a set amount of money given to employees each month so they can purchase health insurance.
Stipends are meant to give employees more choice, offer comprehensive coverage, and increase flexibility. The assumptions, however, do not match up with reality.
1. Shopping as an individual is more restrictive
With a stipend, the theory is that everyone can choose the coverage and provider that’s right for them.
In practice, this theory fails because of:
Pre-existing conditions: Many individual plans have higher bars to entry because the risk is assumed only by one person rather than spread in a group, limiting the ability for people with pre-existing medical conditions to find comprehensive coverage (or any coverage at all).
Plan availability: Someone may not have access to certain types of individual plans in their region. For instance, global travel plans may not be available or might be significantly more expensive than the same coverage under a group plan, exceeding the amount of the stipend.
The result is actually less choice because individuals have lower negotiating power than groups.
2. Differing levels of coverage (or none)
A stipend is supposed to ensure everyone has the resources to get fully comprehensive plans.
The complex realities of insurance markets make this almost impossible.
Group and individual plans are not equal: Insurance providers are usually more generous with group plans because they have a distributed risk profile. Each person buying an individual plan for themselves may not enjoy the same coverage as they would as a group buying a single plan. Or, if they do, it’s typically more expensive.
Employees may not actually use the money for health insurance: If they don’t, the company may end up paying their medical expenses or risk the possibility of increased sick days if an employee falls ill due to what would have been preventable had they had insurance.
Different jurisdictions may have different plan types: Some countries or regions may not have comprehensive plans available for individuals. This means, even though you’re spending the same money per person, the result is vastly different coverage levels (which could offer less coverage than what an individual actually needs).
Employees buying their own plans usually get less coverage, at a higher cost, and that’s if individual coverage is possible at all.
3. Less convenient and increased costs
Another argument for stipends is that it’s easy to manage—a company pays out the cash (or reimburses employees for monthly insurance expenses) and then it’s done.
Except that may not be what actually happens:
The burden is merely shifted: When you tell employees to figure out their own insurance, they have to navigate the complex world of insurance without the benefits of group negotiation. That means more mental energy spent on something other than their jobs, families, or lives.
Differential costs: If your true goal is to offer all employees equitable coverage, you will likely need to coordinate different payouts as some plans will cost more than others. This creates not only a financial administration problem but also a culture and compensation problem: some employees may perceive others getting more coverage as akin to getting a raise.
Stipends or reimbursements create admin headaches for both employees and the organization.
Group plans provide more flexibility than you think
The majority (86%) of remote workers say benefits are a key reason why they choose a job—and health insurance is the top benefit people want. Stipends are supposed to help companies offer an equitable solution to a globally distributed team with ease, but they fall short on all counts.
The better way forward is not using stipends but choosing better group plans.
Group plans offer more comprehensive coverage–often at a lower cost–and can be easier to manage. In the past, global companies got stuck trying to pick regional carriers for each geographical group of employees, but the market has changed. For instance, Remote Health by SafetyWing allows companies to offer the same insurance to all their workers in 175+ countries, whether they are full-timers, contractors, or freelancers.
When you get a global group plan, you can more easily estimate your costs while making sure that all team members actually get comprehensive coverage. It gives them the insurance they need, increases your value as an employer, and keeps your overhead predictable and consistent– a win-win for everyone.
Laura Scott
Head of Marketing, Remote Health at SafetyWing
As the marketing lead in our Remote Health team, Laura specializes in product marketing, project management and lead generation.
Laura Scott
Head of Marketing, Remote Health at SafetyWing
As the marketing lead in our Remote Health team, Laura specializes in product marketing, project management and lead generation.
