Beware of the Stealth Bomber

The rise in healthcare premiums in the U.S. has been well documented. In this article we will take a deeper dive into the devastating financial impact it is having on our workforce as well the driver behind the increases and a proven method to combat these ever increasing premiums.

According to a recent Kaiser/HRET survey of employer-sponsored healthcare plans, from the time period of 1999-2017, worker contributions to family premiums have risen by 270%, unfortunately, that is not a typo. During that same time frame, worker earnings have risen by a total of 64%. So essentially, any wage growth that we have experienced in the U.S. has been completely obliterated by the rising cost of healthcare.

Let’s take a look at two of the area’s that have been most impacted:

Worker Contributions And Employer Matching In Company Sponsored Retirement Plans

According to a recent article on Yahoo Finance (How Retirement Savings Behavior is Changing by Income, Age, and Race) 48% of Americans have no retirement savings at all. Retirement aside, 70% of Americans are estimated to have less than $1,000 of savings set aside in case of an emergency.

It is nearly impossible to increase deferral rates to your retirement plan if your company keeps delivering increases in contributions to the company healthcare plan, moreover, negative plan design changes often accompany the increase in contributions, meaning deductibles and out of pocket expenses have also risen dramatically, serving as a double whammy.

But what if your company was able to stabilize or even heaven forbid, reduce its’ healthcare premiums? Perhaps employees would then be in a position to take a portion of a pay raise and increase their 401(k) plan contribution. Let’s take a closer look at that, assuming a 40 year old female had a $15,000 401(k) balance on January 1, 1993 and was contributing $100 per month, and was invested in a 60/40 stock/bond portfolio (assume Vanguard Total Stock & Bond Indexes) and didn’t make any changes along the way, net of fees and expenses at the end of 2018 she would have had a balance of $159,524.

If I utilize the same assumptions and that individual was able to double her contribution from $100 per month to $200 per month, at the end of 2018 she would have had a balance of $230,728, a difference of $71,204! Again the impact is huge. However, if you received a raise of 3% and your contribution to your healthcare plan rose by 5%, chances are you will not be in a hurry to increase your retirement plan contribution.

Further compounding the problem is the fact that employers are decreasing the “match” on dollars that employee’s contribute. We’ve seen the defined benefit pension plan of the past (100% employer money contributed) go the way of the dinosaur and now we are are seeing the employer match heading in the same direction.

The days of the dollar for dollar “match” are ancient history. The reason for this is clear, healthcare has become the second largest expense aside from payroll for most companies, and frankly they are not dealing with it very effectively. In the end, employees are suffering with a very expensive, sub-par healthcare plan and an inability to effectively save for their retirement.

Millennials And The Massive Student Loan Issue

Without argument, Millennials are the best-educated generation in our history. However, that education has come at a cost. According to the same Yahoo Finance article referenced earlier, in total Americans owe $1.4 trillion dollars in student loan debt, much of which is held by those under the age of 40. The stories are well documented and primarily for financial reasons, children are living much longer with their parents, they are delaying home ownership and renting at record levels, they are delaying marriage and having children later.

Again, the primary driver behind this is the rise in healthcare costs. Parents unfortunately have had to place more of the college tuition burden on their children via student loans. I think the large majority of parents polled would agree that they would love to be able to fund 100% of their children’s college education. However, they have had to choose between funding for their retirement and paying their children’s tuition. Hardly a choice any parent wants to make.

If the current trends in healthcare continue, Millennials could be the first generation to be indentured servants to our broken healthcare system, with a large percentage of their wages and wage increases going to student loans and healthcare premium increases. I want to highlight Millennials here in a very positive way because I believe they can and will both demand and force change in this broken system.

So how can this be fixed? Believe it or not the answer is not that complicated and ultimately employers hold the key to fixing it. If the size of your group is substantial enough, let’s say over 50 employees on your plan for purposes of this article, then Step #1, and let me reiterate if you can’t get past Step #1, you will never win, STOP allowing insurance carriers and brokers to dictate the entire process of purchasing healthcare.

I will not go beyond Step #1 in this article. Take back control through having a partially self-funded healthcare plan. I mean a true open architecture healthcare plan where there is complete transparency over every single component in the plan. That includes your Carrier Network, 3^rd party administrator, stop-loss insurance carrier, pharmacy benefit manager (PBM), as well as your medical and pharmacy claims. And by the way you cannot achieve this by purchasing a bundled carrier program that you think is partially self-funded, you also cannot achieve this by buying a captive insurance solution or a PEO (Professional Employer Organization) solution.

The bottom line is that anytime you buy a carrier designed and carrier driven program, you will lose and so will your employees.

At Andus Health Benefits, we are leading the charge for change in employer purchasing habits.  Many of our clients have not had to raise employee contributions to their healthcare plan in several years. We also use real data to strategically enrich their benefit plans, not data provided by insurance carriers designed to support their objective which is YOU NEED TO PAY US MORE! We are fighting the good fight and putting employers and employees on a path to prosperity by helping them solve two of their biggest dilemmas, healthcare costs and retirement. We would love to do the same for you. Please call us for a no obligation consultation.

Anthony Martinelli

President

[email protected]