Health Benefits Are Not Health Insurance: The Case for Non-Insurance Employer Health Investment

The prevailing view holds that employer health benefits and employer-sponsored health insurance are synonymous. The benefit is the plan. The plan is the product. A 15-person employer who offers a level funded plan has a health benefit. A 15-person employer who does not offer a group health plan, regardless of what else they offer, does not. This equation is so embedded in the regulatory and benefits architecture that most practitioners do not notice it as an assumption. It reads as a fact.

The counter-thesis is that the equation is wrong, and that a small employer who understands why it is wrong can design something that costs less and does more for the actual health of their actual employees. An employer who spends $4,500 per employee annually on a DPC membership, a pharmacy discount arrangement, transportation assistance to appointments, and a catastrophic individual policy may produce better health outcomes and meaningfully higher employee satisfaction than an employer who spends $9,000 per employee on a bundled group plan with a $3,000 deductible that the employee avoids using because the deductible reaches into the next paycheck before it clears. The question health benefits should answer is not “what product category did the employer purchase?” It is “can the employee afford to see a doctor when they need one?”

The Deductible That Converts Coverage into Decoration

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The KFF 2024 Employer Health Benefits Survey documents the scale of the cost-sharing problem in small group coverage. Workers at small firms (fewer than 200 workers) faced an average annual deductible of $2,575 for single coverage, compared to $1,538 at firms with 200 or more employees. Nearly a third (32 percent) of covered workers at small firms had deductibles of $2,000 or more. The 2025 KFF survey found that 53 percent of workers in firms with 10 to 199 workers were enrolled in plans with general annual deductibles of $2,000 or more, versus 28 percent at larger firms.

For an employee earning $45,000 per year, a $2,575 deductible is 5.7 percent of gross income before a dollar of insurance coverage activates for non-preventive care. For an employee at $38,000 per year, a $3,000 deductible is 7.9 percent of gross income. These are the employees the 1-to-50 employer market predominantly employs: service workers, tradespeople, administrative staff, and production workers whose median wages sit well below the national household median of $83,730 (Census Bureau, 2024). For these employees, high-deductible coverage is not coverage in any functional sense. The card exists. The network exists. The employee does not use them because the financial barrier of the deductible is real and immediate in a way that the theoretical protection of having insurance is not.

The Commonwealth Fund’s 2024 State of Health Insurance Coverage survey, drawing on a nationally representative sample of adults aged 18 to 64, found that nearly one in four continuously insured adults were underinsured: covered for a full year but with out-of-pocket costs or deductibles that did not provide affordable access to care. Among underinsured adults, 66 percent had coverage through an employer. Of those underinsured adults, 57 percent said they avoided getting needed health care because of cost. Two in five said a health problem worsened as a result of delaying or skipping care. An Imagine360 survey conducted in 2024 found that 38 percent of adults with health insurance delayed or skipped care due to cost, a 41 percent increase over the 27 percent reported the prior year. Of those who deferred care, 42 percent said their medical condition worsened.

The deductible wall is not an edge case. It is the central experience of coverage for the majority of employees in small group plans. The employer has purchased something that the employee cannot use for the medical needs they actually have.

What Non-Insurance Health Investment Buys

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The counter-thesis is not that employers should abandon risk protection. It is that the money currently allocated to bundled group plan premiums buys very little actual health access for the employee, and that the same dollars spent outside the insurance structure can buy more. The non-insurance health investment stack looks like this.

A direct primary care membership at $75 to $88 per member per month (the median range documented in the AAFP 2024 DPC Data Brief) gives the employee unlimited primary care: same-day or next-day appointments, extended visits averaging 30 to 60 minutes rather than the 7-minute average of traditional fee-for-service primary care, 24-hour direct physician communication, care coordination across specialist referrals, and basic lab work at wholesale pricing. There is no deductible, no copay, no prior authorization for a primary care visit, and no claims. The employee sees the doctor. The DPC physician, operating on a panel of 400 to 600 patients rather than the 2,000-plus of a traditional fee-for-service practice, has time to know the patient’s history, manage their chronic conditions proactively, and handle problems before they escalate to emergency department visits or specialist referrals. For employer groups, DPC practices commonly offer rates of $70 to $80 per member per month. Group employer contracts are available in at least 40 states, and as of 2026, DPC memberships qualify for HSA contributions under the terms established by the One Big Beautiful Bill Act, provided the arrangement meets the statutory criteria.

A pharmacy discount arrangement, whether through GoodRx, Mark Cuban’s Cost Plus Drugs, or direct pharmacy contracting, covers the majority of prescription needs for most employees without insurance intermediation. Generic drugs, which constitute approximately 90 percent of all prescriptions dispensed in the United States, are available at discount programs for a few dollars per prescription. For common branded medications, the GoodRx price frequently undercuts insurance copays at common plan designs. An employee who needs metformin, lisinopril, atorvastatin, or the dozens of other common generics can fill prescriptions for $4 to $12 per month without touching a deductible. The employee who has a bundled group plan with a $3,000 deductible pays full retail pharmacy price until that deductible clears, which for a low-wage worker may never happen in a given plan year.

A catastrophic protection layer covers the actual insurance function: the financial event that would otherwise destroy the employee. A catastrophic policy or a high-attachment individual stop loss layer, activating above $25,000 or $50,000 in annual medical costs, exists outside the group health plan structure for direct individual purchase in most states. The premium for catastrophic-only coverage is a fraction of the bundled plan premium because it covers only the genuinely catastrophic tail, not the routine and moderate care that most members experience in most years.

The three components together, at a typical cost of $7,200 per employee annually for DPC plus pharmacy discount access plus a catastrophic policy, compare to an average small firm single premium of $9,131 per the KFF 2024 survey. The non-insurance stack costs less and produces more healthcare access than the bundled plan with a $2,575 deductible that the employee does not cross in most years.

The Provider Infrastructure That Makes This Work

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The non-insurance model requires providers willing to operate outside the fee-for-service billing structure. DPC physicians are the foundational layer. As of early 2026, more than 2,800 DPC practices operate in the United States, with representation in every state and an average panel size of 413 patients per the AAFP’s tracking data. The growth trajectory has been consistent: the DPC model has expanded from a niche experiment to an established alternative primary care delivery system.

Beyond primary care, cash-pay providers operate across many parts of the specialist and procedural market. The Surgery Center of Oklahoma has published transparent all-inclusive prices for hundreds of surgical procedures for more than a decade, demonstrating that a knee arthroscopy costs $3,740 and a laparoscopic cholecystectomy costs $4,970 including surgeon, anesthesia, facility, and implants. These are procedures that cost $15,000 to $40,000 in a conventional hospital billing context. A small employer who negotiates access to cash-pay surgical pricing for elective procedures, or who facilitates employee access to Joint Commission International-accredited facilities in Mexico or Costa Rica for procedures priced at 20 to 30 percent of domestic rates, is providing real and valuable health support that the bundled group plan cannot replicate at the premium the employer can actually afford.

Direct-contract imaging centers, cash-pay labs at wholesale pricing, and mental health practices operating on direct pay or membership models provide the additional specialist access layer. The employer does not need to build this infrastructure. The employer needs to know which vendors to contract with and how to connect the employee to that access.

The Employee Compact That Activates the Model

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The non-insurance health investment model operates on a reciprocal premise that the bundled group plan does not. The bundled plan is a product the employer purchases and the employee activates when they exceed the deductible. The employee’s relationship with the plan is reactive: something has gone wrong, and now the plan might pay for some of it.

The non-insurance model positions health investment as a continuous relationship. The employer provides a DPC physician the employee can call Tuesday afternoon about the medication that is not working, not just when an urgent care visit is unavoidable. The employer provides pharmacy discounts the employee uses at every prescription fill, not just when costs hit a threshold. The employer provides a catastrophic layer the employee hopes never to need, but knows exists if the cancer diagnosis arrives. The employer’s commitment is ongoing and visible. It is not a premium that disappears into an administrative apparatus the employee never sees.

The employee’s reciprocal commitment is engagement. The employer’s non-insurance health investment produces better outcomes only if the employee uses the DPC physician for the hypertension management, fills the metformin prescription at the discount pharmacy, and gets the colonoscopy screening through the cash-pay gastroenterology practice the employer has negotiated access to. The employer cannot mandate health behaviors. What the employer can do, with a genuinely transparent arrangement, is make the commitment explicit: the company invests in your health access, and the company asks you to use it. This is a different conversation than handing an employee a benefits guide with a $3,000 deductible and a provider directory that includes specialists two counties away.

The TOS.PRE preface frames the employer’s three objectives: do not put the company at risk, do right by the employee, keep it honest. The non-insurance model addresses the second and third objectives more directly than the bundled group plan does for the low-wage small employer workforce. The catastrophic layer addresses the first. The question is whether the regulatory and tax structure accommodates the model.

The Tax and Regulatory Friction

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The principal barrier to the non-insurance model is not philosophical or operational. It is the Internal Revenue Code.

Employer-sponsored health insurance premiums are excluded from employee gross income under IRC Section 106. The exclusion is worth approximately 30 cents per dollar of benefit for an employee in a 22 percent marginal tax bracket plus 7.65 percent FICA payroll tax, for a combined rate near 30 percent. An employer who provides $9,000 in annual premium for a group health plan delivers roughly $12,857 in effective compensation value to the employee when the tax exclusion is considered, at a $9,000 employer cost. An employer who provides the equivalent $9,000 in taxable cash for the employee to purchase their own health components delivers $6,300 to the employee after the 30 percent combined tax rate, a 51 percent reduction in effective value.

The IRC Section 106 exclusion is not available for DPC memberships structured as direct employer-to-practice contracts outside a qualifying health plan. It is not available for employer-funded transportation assistance unless structured within an IRC Section 132 qualified transportation fringe. It is not available for wellness stipends unless structured within a Section 125 cafeteria plan with a qualifying health FSA component. The employer who wants the non-insurance stack to deliver its full economic value must structure each component within a qualifying regulatory vehicle, which brings the compliance overhead described in TOS.10 back into the picture.

The ICHRA offers a partial path: the employer can fund an ICHRA through which the employee reimburses DPC membership fees (DPC qualifies as a medical expense under IRC Section 213(d)), prescription costs, and other qualifying expenses. The ICHRA’s contribution can also fund individual market premiums for a catastrophic marketplace plan. This structure captures some of the tax advantage while preserving employer contribution flexibility. It does not capture the full economic value that group health insurance enjoys because it still requires employee substantiation and excludes some components of the non-insurance stack from reimbursement.

For employers below the ACA’s 50-full-time-equivalent threshold for applicable large employer status, the employer mandate under IRC Section 4980H does not apply. The non-insurance model is structurally feasible for these employers without triggering the employer mandate’s minimum essential coverage requirement. For the sub-50 employer, who is the entire focus of this series, the regulatory barrier is the tax treatment gap between insured coverage and the non-insurance alternative, not the employer mandate.

That gap is real. It is also not permanent. The ICHRA’s expansion has progressively reduced the regulatory friction for contribution-based employer health support. The 2026 change making DPC memberships HSA-compatible reduces friction further. The policy direction is toward accommodation of the non-insurance model, even if the pace is slower than the employer need.

The counter-thesis does not require the tax structure to change today. It requires the employer, broker, and benefits professional to ask a question the current architecture discourages: for this specific workforce, at this specific employer contribution level, does a bundled group plan with a deductible these employees cannot afford produce better health outcomes than the components that would actually reach them?