Calculate Your Small Business Health Insurance ROI Easily – Cost-Benefit Analysis Guide

 

Supporting the health of your workforce could be considered a burden of running a business, but what if it was seen as a source of income? Similarly to any other asset, health insurance for your team might bring you measurable returns—both in financial and strategic forms.

Why ROI Matters for Health Insurance

Health insurance is probably the largest cost associated with employee benefits, but it is also a benefit with the highest value. Properly calculated, the ROI of health insurance can unveil:

• The extent to which it helps productivity and eliminates absenteeism
• The funds that can be used in the form of tax credits and deductions

Step 1: Determine Your Total Cost of Coverage

Begin by working out your total yearly outlay on employee health insurance. This would be:

1. Employer Premium Contributions

• Monthly employer share × number of employees × 12 months

1. Administrative/Broker Fees

• If you deal with a third-party administrator (TPA) or benefits broker

1. HRA or HSA Contributions (if applicable)

• Amount of money you give to Health Reimbursement Arrangements or Health Savings Accounts

Example:

• You pay 50 % of the premiums for the total of 10 employees
• Premium = $600/month × 50% = $300
• Annual cost: $300 × 10 employees × 12 months = $36,000/year

Step 2: Factor in Tax Credits and Deductions

Here’s where your “cost” starts shrinking.

A. Federal Tax Credits (SHOP Credit)

If you qualify (less than 25 full-time employees, average wages under ~$56,000, and contribute at least 50%), you could receive up to 50% back in tax credits.

• Example: $36,000 premium contribution × 50% = $18,000 tax credit

B. Tax Deductibility

Even if you don’t qualify for credits, your premium contributions are typically 100% tax deductible as a business expense. This reduces your taxable income.

• Assuming a 21% tax rate: $36,000 × 21% = $7,560 in tax savings

Net cost after tax benefits:
$36,000 – $18,000 credit – $7,560 tax deduction = $10,440

Step 3: Estimate Tangible ROI – Reduced Turnover and Hiring Costs

Replacing an employee typically costs from 30% to 150% of their annual salary, depending on the position. Providing benefits makes employees happier and more loyal, which in turn reduces turnover.

Example:

• Average salary: $45,000
• Replacement cost per employee = 30% = $13,500
• If health benefits help retain even 2 employees/year, that’s a $27,000 retention ROI

Step 4: Estimate Productivity & Absenteeism Gains

Healthy employees are absent for fewer days and are more efficient.

• CDC data suggests businesses lose $1,685 per employee per year due to absenteeism.
• Studies show that employees with good coverage miss 41% fewer days.

Productivity Savings:

10 employees × $1,685 × 41% = $6,908 saved annually

Add this to your growing ROI pile.

Step 5: Consider Employee Satisfaction and Recruiting Advantage

Employees consider health insurance the most important, and it is usually the most requested benefit. Having a good plan can help:

• Make your job postings more attractive
• Allow you to offer slightly lower base salaries in exchange for a benefits package
• Improve morale and workplace satisfaction

Though it is difficult to quantify,

Step 6: Calculate Your Health Insurance ROI

Category	Estimated Annual Value
Cost of Coverage	$36,000
– Tax Credits	-$18,000
– Tax Deductions	-$7,560
Net Cost	$10,440
+ Retention Savings (2 employees)	+$27,000
+ Productivity Savings	+$6,908
+ Recruiting/Branding Value	+$7,500
Total Value Gained	$41,408
ROI Formula	(Value Gained – Cost) / Cost
ROI = ($41,408 – $10,440) ÷ $10,440	≈ 296% ROI

 

Pro Tips to Maximize ROI

• Choose the Right Plan Type: Look at QSEHRA/ICHRA or level-funded options, which are controllable and less risky.
• Look at QSEHRA/ICHRA or level-funded options, which are controllable and less risky.
• Tap Every Tax Benefit: Employ Section 125 Cafeteria Plans, that allow employees to pay share pre-tax thus money-saving (~30%) and payroll taxes lowering.
• Employ Section 125 Cafeteria Plans, that allow employees to pay share pre-tax thus money-saving (~30%) and payroll taxes lowering.
• Pair Plans with HSAs or FSAs: Besides reducing taxable income, they also give triple tax advantages.
• Besides reducing taxable income, they also give triple tax advantages.
• Educate Your Team: Explain benefits to employees. If employees make use of benefits, then they will feel more valuable.
• Explain benefits to employees. If employees make use of benefits, then they will feel more valuable.
• Review Annually: You may overpay without realizing it if you have not checked rates and networks over the past year.
• You may overpay without realizing it if you have not checked rates and networks over the past year.

Final Thoughts

It turns out that if you do the math carefully, the ROI of health insurance is surprisingly high. A health insurance plan is not a mere expense; it is an instrument of business, which allows you to find and hire the best talents, keep the employees you have happy, reduce burnout and turnovers, create a positive environment, and enjoy considerable tax savings.

Offering health benefits even in a small setup can distinguish you from your competitors in a job-seeking market. And with customizable plan designs and alternative funding models in 2025, it’s easier and more affordable than ever to build a plan that delivers real value—for both your business and your employees.