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surprising that the allocation of employer
dollars has swayed more toward health
care, given the increase in health care
costs over the past 15 years. In addition,
she says, health benefits-unlike retirement
funds-are something employees
are more likely to access multiple times a
year, so a larger spend is almost expected.
Alexa Nerdrum, a senior retirement
consultant at Willis Towers Watson in
Southfield, Michigan, notes that health
care costs have continued to far outpace
inflation, and the problem is exacerbated
by stagnant wage growth. While medical
cost increases have slowed in recent years,
insurers in the U.S. still reported annual
upward trends of 7% to 9% of pay from
2015 to 2017, says the firm's 2017 Global
Medical Trends Survey Report.
" If pay would have increased in line
with health cost increases, we would have
seen a lower percentage of health care
spend as a percentage of pay, " Nerdrum
says, also pointing out that employees
overused health care services, " especially
with the stress of the financial crisis, "
and lacked sufficient resources to help in
their decisionmaking.
Further, companies that may have
moved from defined benefit (DB) plans to
defined contribution (DC) plans have likely
reallocated their benefits spend, Nerdrum
says. " Employers with DB plans wanted
more cost predictability because of the
volatility seen in the market. Employers
can better understand and budget for DC
costs than they can for DB plan costs that
move with the market, " she says.
Cost concerns can affect an employer's
retirement plan in other ways. A
Pew Charitable Trusts survey found that
small businesses are much more apt to
offer a health plan to employees than a
retirement plan and cite the latter's cost
as the reason. Studies have also shown
that costs discourage some employers
from offering automatic plan features in
their retirement plan.
" Decreasing use of these [design]
features can be related back to the most
commonly cited primary focus of plan
Share of Cost Between Active Health and Retirement Plans*
n Active health plans n Retirement plans
63.5%
58.1%
41.9%
57.6%
42.4%
36.5%
2001
2008
Source: Willis Towers Watson Benefits Data Source
*Weighted by employer size.
sponsors' need to cut fees, " a 2016 Cogent
Wealth report says.
Meeting Two Sets of Needs
How do employers find a balance between
benefits spend and what employees need?
" I think the best way to find balance
is to identify and understand the financial
needs and priorities of the work force, "
Nerdrum says. " That will differ among
employers, but targeting communications
to different demographic groups
allows them to personalize benefits. " For
example, Millennials who are healthy
and single may find that a cheaper highdeductible
health plan (HDHP) is sufficient
for their health benefits needs.
For employers to find the right
balance, they need to help employees find
the right balance, she observes. They can
aid in this process by offering technology
such as retirement readiness calculators
and investment decision tools, by which
employees can learn about their DC plan
and retirement savings. Employers may
also offer health savings accounts (HSAs),
paired with an HDHP. Employees may
decide to defer into an HSA that permits
investment rather than the DC plan.
" Building employee understanding
will affect a plan sponsor's bottom line, "
Nerdrum says. " Employees will make
better decisions. " One method is to give
each employee a pool of money, then let
him pick the benefits he needs. This flexibility
enables employees to meet different
objectives during different times in their
career-some will want to pay down a
student loan, others to invest in an HSA,
and others to save for retirement.
According to Buckey, supplementing
that with one-on-one support via telephonic
or in-person meetings with benefit
educators can help ensure the employee
understands all the options available to
him and makes the best choice for his individual
situation.
" Employees don't understand how to
use health plans; that's where employers
should focus, these days, " Buckey says,
noting that a recent study found 20% of
employees thought their deductible was
their health plan premium. " If there's
that level of misunderstanding, how
can we expect employees to make good
choices about what plans to select and
how to use them? " Of course, reducing
health care costs can free up more benefit
dollars for employers to spend elsewhere,
such as on their retirement plans. " Until
we start offering robust education, we
won't see much movement in cost reduction, "
she says.
According to Buckey, DirectPath is
seeing clients implement basic consumerism
education-informing employees
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