Employee Benefits Are Eating Your Profit: Dan Cosgrove on Making Your Own Model Obsolete
Updated: Oct 29
There are things in your business right now that are working, and sometimes that's exactly what makes them dangerous. Something that isn't obviously broken doesn't get fixed. Employee healthcare benefits are the clearest case. The invoice gets paid, the increase arrives every year, and everyone tells you that's simply how the system works.
Dan Cosgrove, CEO of Better Benefits USA, a certified 501(c)(3) nonprofit working to close gaps in care, cost and coverage, argues the cost keeps climbing because of who gets paid when it climbs. Brokers have historically earned a percentage of the premiums an employer pays. Insurance carriers operating under medical loss ratios make more when the total bill grows. His answer for employers starts with one question: how is the person advising you compensated, and what happens to their pay when your costs go up?
Underneath the healthcare argument sits his napkin. Make yourself obsolete before someone else does.
Inspired by Paper Napkin Wisdom Episode 385 with Dan Cosgrove.
Why the people helping you cut costs can win when costs rise
Cosgrove's starting belief is plain. You shouldn't make money off somebody being sick or injured. And yet in America's healthcare system, he says, you make money off of people being a recurring revenue stream.
He walks through the mechanics an employer rarely sees.
Broker compensation. Benefits managers have historically made a percentage of commission off the premiums the employer pays. A broker who negotiates your increase down to fifteen percent still took a raise. Cosgrove calls that a conflict of interest and says advisors should either work off a fixed per-employee-per-month fee or a percentage of the savings they generate.
Medical loss ratios. If you pay a hundred dollars in premium a month, eighty-five has to go to medical care. The carrier keeps fifteen. So the way to grow that fifteen dollars is to grow the hundred. As Cosgrove puts it, insurance companies are not negotiating with hospital systems to reduce the cost of care. Whether the employer plan is fully insured or self-insured, lowering the cost of care is not in the carrier's interest.
Complexity as a product. He likens today's health insurance marketplace to the mortgage-backed securities market in The Big Short. So many acronyms, so much confusion, money made off the confusion itself. Pre-authorization here but not there, tier one drugs and tier four drugs, third-party administrators layered on third-party administrators. He points to an algorithmic denial rate of roughly eleven percent of claims across carriers, and says only about forty percent of people ever follow up, which means sixty percent of those claims are never paid.
I notice how familiar this shape is outside healthcare. A vendor relationship where their upside and your upside point in different directions. It doesn't automatically make the advice bad. It does mean the structure deserves examination.
Better Benefits USA runs the opposite way. Cosgrove describes it as a gain share or sustainable funding model, typically twenty-five percent of savings. If they don't save the client money, they don't get paid anything. As a nonprofit, he says, they shouldn't exist unless they're delivering real value.
Benefits savings as a sales number, not an HR line
Cosgrove reframes this in language a CEO responds to, because he thinks the reframe is the whole unlock.
Take a hundred-person company running a ten percent profit margin. Save a thousand dollars per employee per year, conservatively, and that's a hundred thousand dollars. At a ten percent margin, generating that same hundred thousand in profit through growth is a million-dollar sales opportunity. Same money, and you never leave your four walls.
He says his own low side is about five hundred per employee and his high side closer to three thousand. In his own organization the pilot produced directionally about three thousand a year per employee, with better benefits at the same time.
There's a reason this sits unexamined in most companies. Cosgrove's read: employee benefits is not a sexy topic, so CEOs and CFOs hand it to HR. HR is accountable for compliance, not for math equations this complex. So HR asks the third-party benefits manager for help, and that manager has no fiduciary responsibility to them. You're asking the group that is overcharging you to help you solve being overcharged.
And there's a quieter incentive underneath. Show me an HR person who's ever been fired for sticking with the status quo. That's the sentence I keep coming back to.
A forty-person shop outperforming its industry
Cosgrove found this problem as an employer, not as a consultant. He left Nike during COVID with a package, at ten years and one month against a ten-year goal he set leaving the University of Richmond, and started in mental health. Mental Health Matters is a nonprofit with about forty employees.
The mental health industry runs high turnover. He puts typical retention around seventy percent. His organization sits around ninety five percent. Two years running as a Massachusetts top employer, less than one percent off the Inc. list of best workplaces in America, and ahead of the next mental health facility in those rankings by about seven percent.
His approach: provide an amazing benefits package, and don't overpay the broken healthcare system. Those are two separate decisions, and most employers treat them as one.
That's the part worth sitting with if you compete against larger employers for people. The narrative says a small company can't match a big one on health benefits. Cosgrove is wagging a finger at that narrative. The large employers solved this for themselves fifteen or twenty years ago, he says, and they are not busy helping small and medium businesses. His goal is to get that knowledge to the companies that are the backbone of the economy and don't have anyone whose interest is served by telling them.
He also built the vehicle to survive. Better Benefits USA is a 501(c)(3) partly because it's harder to acquire a nonprofit. He's watched healthcare innovations get bought by one of the big players and go dark. Ten percent of proceeds go back to a cause the client cares about. An anti-obsolescence move inside an obsolescence argument.
Preventative care, and what the Netflix model means for a health plan
The part of the conversation that moves furthest from spreadsheets is about what happens before the catastrophe.
When premiums climb, people move into high deductible plans. Now insurance is effectively catastrophic coverage. So the little cough goes unaddressed, because addressing it costs money today. Cosgrove's point is that the little symptom, caught early with access to an on-demand doctor, stays a little symptom. Left alone, it becomes a chronic condition.
He cites two thirds of Americans carrying at least one chronic condition, often two, and four and a half trillion dollars a year in chronic care cost to the American economy. His estimate is that preventative access more in line with other developed nations could cut roughly half of future chronic care cost.
What he means by the Netflix model is flat and predictable. Whether you watch one show or a hundred, you pay the same. Whether you see one doctor or a hundred, you pay the same. He calls that value-based care against the fee-based care America runs now. In the programs he describes it looks like a thousand-plus drugs at zero dollar copay, and GLP-1 access with a doctor and nurse supporting dosage at around two hundred twenty five dollars a month instead of a thousand.
He cites a survey last year in which two thirds of employees said they would leave a company for another that offered GLP-1 coverage. Two thirds. His advice is to carve GLP-1 coverage out of the insurance plan, where it inflates premiums, and deliver it through a preventative program instead.
Cosgrove sees this as the third frontier in employee benefits. The 401(k) was first, created as a tax shelter for very wealthy people, doubted by the IRS, ratified in the mid-80s. The HSA was second, starting around 2003, widely predicted to be shut down for being triple tax advantaged, and fully accepted around 2012 or 2013. Preventative care programs started under an Affordable Care Act amendment in 2016 and 2017, poorly rolled out, with bad actors. He points to the IRS triagency agreement in 2024 and the overturning of the Chevron Doctrine the same year as the ground shifting. The carriers and the brokers tied to them push back, he says, because it cannibalizes their margins.
He is careful about the timeline. This is a habit change for millions of Americans. Nobody gets an overnight win here.
One caution on scope. This is an American argument. Cosgrove notes the US is effectively the only place where health coverage is pushed onto employers to subsidize. If you lead outside the US, the mechanics won't transfer. The question about incentives will.
The napkin underneath the healthcare: what still works, and what it's costing you
Cosgrove learned obsolescence in the corporate world. Procter & Gamble on the front end of monetization. Berkshire Hathaway after they sold his brand, Duracell. Then Nike, as chief of staff to the CMO, sitting in rooms with executive leaders. He was working on a business plan that would have disrupted the Converse and Nike business when an executive told him he liked the idea of making yourself obsolete before somebody else does. Nike didn't move forward on it, which is why he left.
Everybody knows the Kodak half. Someone inside Kodak said digital was the frontier, and heads went in the sand. Netflix is the counterpoint. They were rocking DVDs in the mail, no late fees, and they moved to streaming when streaming was difficult. Blockbuster didn't. Hollywood Video didn't. And Netflix kept going, asking how to disrupt themselves before somebody else did it to them.
Here's the thing about that napkin. It's easy to hear it as a warning. I wonder if it's actually permission.
Every business accumulates a system designed for a different moment. Something that helped build the chapter you're in and may not belong to the next one. A process, a relationship, a compensation model, a vendor. And almost invisibly, we start serving the system instead of asking whether the system still serves us.
So try this week. One sitting is enough.
Write down how each of your major benefits partners is paid, and what happens to their compensation when your healthcare costs increase. If you don't know, that's the first call.
Do Cosgrove's math on your own headcount. What is one dollar of healthcare savings worth against generating that same dollar in sales at your margin?
Look at your plan through an employee's eyes. How easy is it for someone on your team to get help before a small health problem becomes a large one?
Ask whether your people actually value the benefits you buy, or whether the company has simply gotten used to paying for them.
Then name one important system that still works, and ask whether it's being kept because it's best or because replacing it feels risky.
The last one is the real test. If you were building this business today, knowing everything you know now, would you build it this way again?
The Napkin Moment
If Dan Cosgrove had to write this on a napkin, it might read: "Make yourself obsolete before someone else does." The healthcare system is his application of the idea, but the question belongs in every established business. What are you protecting because it works today that may be quietly preventing what comes next?
For the entrepreneur who has already built something substantial, reinvention rarely begins with an obvious failure. More often, it begins with the willingness to question something that still appears successful. The harder question may be this: What would you replace today if you weren't waiting for the market to force you to replace it tomorrow?
Related Insights
If you want help finding the systems your company has stopped questioning, and what they're costing you now, the Growth Pattern Diagnostic is built for that look. The Growth Pattern Diagnostic
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