It is no secret that health care is a top concern for employers and employees, as legislative reform and rising costs are challenging company resources and limiting employers ability to offer the type of benefit packages that have become the standard. With limited benefit dollars, employers must decide how to allocate among health plans, retirement plans, and other benefits to meet employees’ expectations and maintain the quality of the programs being offered.
As health care costs grow and become a larger portion of a companies’ benefits budget and employees’ paychecks, it may be surprising to find that the challenges affecting both the future of health care and retirement are more correlated than previously thought. While the two have historically been treated separately by employers, the future of benefits planning must take both into consideration to address both near- and long-term worries.
For example, many employers understand that an employee who cannot retire costs a company in more ways than one. Not only does an older workforce tend to have higher salary requirements, but it also costs more to insure. Recent research has even shown that it can cost a company talent, as the younger workforce refuses to wait for a promotion. Companies must think about this long-term issue when they design the retirement plan. Can the plan help their employees retire on time and provide an adequate monthly income?
The changes in health care are affecting employees in other ways as well. Many believe they are losing benefits as companies change from the traditional model to the Consumer-Driven model, despite statistics showing that a majority of employees may be financially better off in a HDHP (High Deductible Healthcare Plan) with a Health Savings Account (HSA). The changes have begun to shape other areas of an employee’s life. A recent Bank of America Merrill Lynch Report showed that 56% of employees are saving less for retirement today due to health care costs.
There are other instances where the financial wellness of employees affects companies, but are not as obvious as when someone is “unable to retire.” As we have mentioned in other communications, it has been found that financial worries are one of the largest sources of stress among employees and takes an enormous toll on the body. Financial stress leads to higher healthcare costs as well as time away from work or unproductive work. But if people lack an “emergency fund” sufficient enough to cover medical expenses, where do they get the money? Many people choose to make a withdrawal from their retirement plan, severely affecting their future. Worse, they may choose to use credit to pay for the bills, which can lead to a never-ending cycle that may look like this:
What’s worse is this higher debt load is being carried into their non-working years if retirement is not already delayed. Employees are looking for help and their employer is in a prime position to help them. A Gallup poll found that more than 80% of employees say they would participate in a financial wellness program if it is was offered through the employer.
Importance of Education
Companies must begin to incorporate financial education into their existing health and wellness programs. Because the concept of financial wellness is so new, there has not been much research on its long-term impact on employers or employees. That being said, there has been a wide body of research that shows health and wellness programs have saved companies money. If companies can take financial knowledge and it turn into financial action, they’ll begin to see employees making the right decisions when it comes to spending dollars on health care and saving for their retirement.
The convergence of health and wealth is the new reality. Employers should be aware of this connection and its ramifications when making plan design and budget decisions. A holistic plan design approach that incorporates both health and wealth components, and recognizes the impact each can have on the other, can help mitigate the effect on both plan costs and employee productivity. Employers can also help to educate employees on how addressing both their physical and financial wellness can improve their health and wealth outcomes.
For both retirement plans and health plans, the biggest risk an employer faces is that despite all of the money spent, the benefits will fail to meet the company’s business objectives. Benefits are partly put into place to get a more productive and loyal workforce and the strategies being used to improve them include a coordinated vision, plan optimization, and impactful education.
Research has shown that benefits are an important driver of alignment between employer and employee, and it is has also been shown that a more engaged workforce leads to higher operating margins. Financial wellness programs can increase this alignment, leading to better recruiting and retention as well as helping companies become the employer of choice for highly sought-after executives. Once employers understand and think of their benefit packages as more than a required benefit, they’ll be able to see the positive impact the plans can have on their employees, their profits, and their corporate culture.