Optimizing Your Health and Wealth Benefits
Under pressure from an uncertain economy, many employees struggle with protecting the health of themselves and their loved ones while saving for retirement.
The trade-offs between health and wealth benefits can be difficult for employees to make without guidance. Employees tend to over-insure for healthcare and under-save for retirement. Employers can play an essential role in helping their workforce strike the right balance.
A benefits mismatch can diminish employee productivity and lead to less retirement readiness. Organizations invest heavily in their employee benefits, not optimizing them makes those programs less effective. One way to help re-balance employee decisions is to focus on a consumer-driven strategy that provides employee clarification and education.
Take a Holistic Approach to Benefits
Health and wealth benefits are intertwined and the benefits strategy needs to look at how offerings interact with each other. For example, over the past decade, healthcare and retirement benefits have decreased in value, as a percentage of total compensation, while broader wellness benefits, such as parental leave, have been adopted by more employers.[1] A holistic approach improves employee outcomes and maximizes benefit effectiveness.
Employers should start by measuring the impact of how benefit changes affect employee outcomes. With the right structure in place, enhanced communication and tools can help employees navigate the complex wellness decisions they need to make to have a secure future.
While data and analytics are a good starting point, HR leaders will need to innovate more to improve their benefit programs' efficiency and effectiveness. Employers that lead the way will have a cost-competitive workforce with more retirement readiness and optimized healthcare coverage that best fits employees' individual needs.
Adopt a Consumer-Driven Healthcare Strategy
Employees face complex healthcare choices and employers can provide them with simplified plans, resources and tools to find the benefits that fit their needs using three main solutions:
- Tax-advantaged health savings vehicles can help drive consumerism. When an employee participates in a tax-advantaged plan, they develop a broader understanding of medical costs and how to become savvier at saving those dollars with better choices. A health savings account (HSA) or a health reimbursement account (HRA) empowers employees to make more informed decisions that save money for the employee as well as the organization. Employers see average premiums for HSA- and HRA-compatible plans that are considerably lower than the overall average premiums for other types of healthcare coverage. HSAs have the added benefit of being a supplemental source to pay for retiree medical care.
- Telemedicine and virtual care can reshape healthcare delivery because it’s more accessible, personalized and cost-effective. Consumers are realizing how much can be done virtually as employees and employers are experiencing the financial gains. Telemedicine is typically less than $50, which is well below the cost of in-person care, and can be a time saver as well. From 2019 to 2020, consumers using some form of telehealth increased from 11% to 46%.[2] Since the pandemic began, consumer use of telemedicine consultations has grown by more than 400% and now nearly half of physicians have virtual-care capabilities, up from 18% early this year.[3]
- Employer-provided education, tools and advocacy can promote consumer-driven healthcare behaviors. Again, a better understanding or guidance through the healthcare system is impactful. Through data and analytics, organizations have identified cost savings opportunities with health plans and providers. With those insights, employers can incentivize employees to use in-network services that cost significantly less. Advocates and tools can help guide employees to these choices. These consumer-driven efforts hinge on the ability of employers to offer tools that provide pricing, quality and claims transparency so workers can make cost-effective healthcare decisions.
Close the Retirement Gap
Closing the retirement savings gaps that workers face should be a priority for employers. Among retirement plan participants, two-thirds not on track for retirement at age 67.[4]
To address this problem, employers should understand the retirement readiness of their employee population. An individual retiring at the age of 67 will need, on average, 11.1 times their pay in savings for an adequate retirement, but most employees are on track to save 7.9 times their income at retirement.[5] However, averages don’t capture the nuances of an organization’s workforce. Analyzing employee data can help employers develop customized solutions.
Many employers already have the basic structure in place to improve retirement readiness, even during uncertain economic times. More than 80% already have plan design features, like automatic enrollment and automatic contribution escalation, to encourage appropriate savings levels.[6] Employers should encourage tax-efficient decisions with flexible savings options, such as pre-tax, after-tax and Roth accounts as well as HSAs, to best meet their personal situation. Nearly 7 out of 8 employers offer online modeling tools to help employees determine when retirement is financially feasible and more than two-thirds of employers provide employees access to expert financial advice within or outside of managed accounts.[7]
With an evolving retirement landscape, employers should consider plan designs and features to improve the benefits package. For example, the SECURE Act enhances plan sponsors' ability to offer lifetime income options that provide stable retirement income. Incorporating lifetime income options can help employees manage the risk of outliving their retirement assets.
The law also allows employers to band together to offer a Pooled Employer Plan (PEP) that has the potential to provide lower-cost investments with the buying power of pooling assets and better services to employees at reduced fees. Lowering the cost of plan administration and management can produce better retirement outcomes for participants—as less of their account balance is used to fund plan expenses. Organizations that do not embrace the opportunities created by the law may be left at a disadvantage.
[1] The value of the benefits is based on an analysis of Fortune 500 companies in Aon’s Benefit SpecSelect™ applied to a standard population using constant assumptions.
[2] "Telehealth: A quarter-trillion-dollar post-COVID-19 reality?," McKinsey & Company
[3] “Survey: Physician Practice Patterns Changing As A Result Of COVID-19,” Merritt Hawkins
[4] Aon’s 2018 Real Deal: Retirement Income Adequacy Study
[5] Ibid
[6] Driving DC Plan Success Survey: Aon 2020 Defined Contribution Employer Survey
[7] Ibid