Not everyone can afford the short term hit of paying 3-4X what they're paying now for their health insurance. If your monthly group policy is $1200/month for your family, but the employer's paying $800 of that, and you're only paying $400, you'll get quite a shock when the COBRA bill comes.
No one has to pay 3-4X what they're paying now for their health insurance. They have to pay 101%.
It's possible that they didn't understand the nature of their compensation, and mistakenly believed their compensation was lower than it was. But in that case, I'd suggest they simply failed at financial planning.
(Note: if you can't do proper financial planning, don't do a startup.)
