PSNC 2023: Addressing the Health Care and Financial Benefits Tradeoffs

Expert panelists discussed ways employers can strike a balance between offering a variety of health care benefits and mitigating rising costs. 

Left to right, Brea Dantin, Stephanie Ulrich, Sarah Haflett. Photograph by Matt Kalinowski

As the cost of health care continues to rise, many employers are finding it increasingly difficult to offer a robust total rewards benefits package to their workers, according to expert panelists at the PLANSPONSOR National Conference last week in Orlando, Florida. 

Health care costs and budgets are starting to eat into other benefits that employers offer, including financial wellness, student loan benefits, retirement contributions and more, said Sarah Haflett, director of health care thought leadership and research at Fidelity Health. 

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“We’re seeing this intersection of health and wealth really at play,” Haflett said. “There’s really no way that we can look at health and financial wellness separately. They really need to be addressed together.” 

In a recent employer health benefits survey, Fidelity found 62% of health benefits leaders said their organization has projected an increase in their health care budget for 2023. On top of that, Haflett said 40% of employers reported they are making adjustments to their retirement contributions and other benefits because of the rising cost of health care. 

“It’s really starting to crowd out other spending,” Haflett said. “We also see it really impacting employers’ ability to even fund current business priorities. … We’re coming to a point where some critical decisions have to be made around health benefits. … Are we actually getting a return for what we’re investing in? Are we seeing improved health outcomes? How can we curb this spending, not just for ourselves, but for our employees as well?” 

At RoyOMartin, a manufacturer of wood products with facilities in Louisiana and Texas, Stephanie Ulrich, a benefits accountant, said that to mitigate the cost of health care, the firm decided to open its own clinic and pharmacy for its employees within the past few years. 

Ulrich explained that one of RoyOMartin’s companies employs the physicians and nurses, with nurses stationed at every RoyOMartin location. Employees who see any of these physicians or nurses are not charged any fees, and they can also get prescriptions at a reduced cost. 

“We don’t want our employees going to a doctor’s office and spending hours in a waiting room or, worse, going to the ER and spending 10 hours,” Ulrich said. “[Opening the clinic] helped our productivity, and it lowered our costs.” 

She added that all employees or dependents covered by the company’s health insurance only need to pay a $15 flat fee for anything done in the clinic, including lab work. RoyOMartin currently employs about 1,300 employees, Ulrich said. 

In addition, Ulrich said RoyOMartin retirees maintain the exact same medical benefits at the same cost as active employees. At age 65, the company automatically enrolls retirees into a Medicare Advantage plan for which the company pays 100% of the premiums for both retirees and their spouse or dependents. 

As the company is based in the South, Ulrich said diabetes is one the firm’s biggest medical expenses. Now, when an employee goes to see the medical director, they work together to map out a “life plan” and schedule times to fill their prescription and get their insulin. 

“That’s another way we cut down on costs,” Ulrich said. “We actually have a person that’s certified in diabetes care and management, because we saw that need for our company.” 

How Many Benefits are Too Much? 

As there are a wide variety of benefits an employer can offer, there comes a point where too many benefits will result in a heavy administrative burden for the plan sponsor. 

“There’s a sweet spot in terms of how many benefits you offer,” Haflett said. “Somewhere around 25 benefits is where you start to see the law of diminishing returns. Anything more than that, [and] you’re not really getting bang for your buck.” 

Haflett said there has been an “explosion” in plan sponsors offering specific health benefits to help people with diabetes, cancer, oncology appointments, mental health and more. She said many employers are also investing more in employee assistance programs.  

However, she said monitoring all these benefits is a huge administrative burden on many plan sponsors and can be extremely time-consuming,  

Plan sponsors “don’t know if they’re getting a return, [and] they don’t know if health outcomes are improving significantly, but they feel like they have to keep offering because they want to remain competitive,” Haflett said. 

According to another Fidelity survey, Haflett said some 50% of employers have started to look at the concept of packaging benefits in a way that is relevant to people’s lives. For example, an employer may offer a benefits package catered toward someone who is starting a family or caring for a sick loved one. She said packaging benefits in a relatable way could help drive engagement.  

Employees Mitigating Costs 

Haflett said the Fidelity survey found that about half of employees with employer-sponsored insurance are taking some sort of action to reduce their health care costs

About 22% of employees said they had delayed getting medical care to mitigate costs, and 12% said they completely avoided seeing a doctor or did not fill prescriptions. Other employees said they took out loans to pay for medical care.  

Brea Dantin, the chief operating officer of ProCourse Fiduciary Advisors, moderated the panel and said delaying care can actually have a negative impact on an employee’s cost mitigation because waiting may result in the need for more expensive treatment later down the road.  

“Not everyone is financially educated enough to strategize their [cost mitigation],” Dantin said. “They may just not [seek medical care] at all.” 

Haflett added that Fidelity research revealed that one in three employees conducted a hardship withdrawal from a 401(k) account to pay for health care expenses.  

Dantin pointed out that health savings accounts can help branch the gap between health and wealth, as it allows employees to set aside money, which will grow tax-free, for qualified health care expenses, deductibles, copayments and more. Access to an HSA is a tool that could potentially prevent people from taking out a hardship withdrawal to pay for medical expenses, she said.  

House Democrats Say Swing Pricing Would Hurt West Coast Investors

This has been a concern among Democrats for months and adds to Republicans’ already significant opposition to the proposal.

Democrats on the House Subcommittee on Capital Markets expressed skepticism on Friday at the SEC’s swing pricing proposal, especially the “hard close” element.

Republicans on the House Committee on Appropriations last week advanced a spending bill which would block the swing pricing proposal, on the recommendation of Republicans on the House Committee on Financial Services. The various blocked proposals in the bill will have to be negotiated with Democrats before it could be passed. If Democrats are also skeptical of swing pricing, there might not be much to negotiate on that item.

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Democrats in Congress have primarily voiced concerns about the proposed hard close, which would require that mutual fund trades be executed by 4 p.m. Eastern time. Under current rules, a trade must be received by 4 p.m., but not executed, in order to receive that day’s price for a mutual fund.

The problem for many Democrats is that the proposal would make processing orders for investors on the West Coast very difficult, given that 4 p.m. ET is 1 p.m. PT and 11 a.m. Hawaii-Aleutian time. Representative Brad Sherman, D-California and the ranking member of the subcommittee, said the proposal would have a “horrendously discriminatory effect” on investors living in the Pacific time zone.

The time zone concern expressed here by Sherman closely mirrors concerns expressed by other Democrats during a full committee hearing in April.

Mike Hadley, a partner in the Davis & Harman law firm and a member of the Society of Professional Asset Managers and Recordkeepers (SPARK) Institute’s advocacy team, says the concern about time zone discrimination is “a real issue.”

He explains that it takes time for a recordkeeper to process trade orders. He estimates that trades would likely have to be received by 12 noon ET to receive that day’s price. Some retirement plans would have to get their orders in the day before, Hadley explains.

This time zone issue was not invented by the SEC or by swing pricing, but the swing-pricing proposal “aggravates it by many times over.”

Sherman also expresses skepticism about the swing pricing mechanism itself, which passes the costs of trading on to the sellers of a mutual fund instead of the holders in order to mitigate dilution and discourage panic selling. Sherman likens this to charging for life preservers or life boats. He argues that investors will be less likely to invest in mutual funds if they believe they will penalized for selling in tough times in the future.

He says that swing pricing “seems like the worst idea you could have in trying to achieve our objectives.”

Sherman pressed Jessica Wachter, the director of the SEC’s Division of Economic and Risk Analysis, who was called to testify, if the SEC had done any analysis on whether swing pricing would discourage investment in mutual funds. Wachter did not offer a direct answer.

Market Structure Proposals

Other Democrats at the hearing also pushed back against some of the market structure proposals offered by the SEC in December 2022, suggesting that they may be on shaky ground as well.

Representative David Scott, D-Georgia, asked Haoxiang Zhu, the director of the SEC’s Division of Trading and Markets, if the SEC would consider implementing the update to Rule 605, which would require brokers to publish monthly quality-of-execution reports so that more data is available to the SEC before it implements the other three proposals.

This request mirrors many of the comments on the proposals, which Zhu acknowledged. A Republican spending bill also blocks all of the market structure proposals except the Rule 605 update. Zhu answered that he would consider Scott’s and others’ comments.

Scott answered that “using the latest and most available statistics” is critical to evaluating the merit of the other three proposals.

Representative Wiley Nickel, D-North Carolina, said many of his constituents are concerned about these proposals, especially the Order Competition Rule, which would require rapid auctions for certain retail orders to achieve more competitive pricing. Nickel asked Wachter if she would agree that smaller retail orders for less liquid stocks will actually receive reduced execution quality if nobody shows up on the other side of the auction.

Wachter answered that stocks outside the S&P 500 actually received better price improvement in the SEC’s economic analysis of the Order Competition Rule than those inside it and that the analysis suggested this “might not be a concern.”

 

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