Simple Ways to Reduce Employees’ Current and Future Health Cost Concerns

Survey data from the Nationwide Retirement Institute reveals 63% of younger adults believe their health today will impact how much they need to save for retirement, and 69% of older adults noted that one of their top fears in retirement is their health care costs going out of control.

Younger adults reported health care expenses have caused them to go into debt (38%), stop saving money for discretionary purchases (43%), made it harder to contribute as much as they would like to a 401(k) retirement account (31%) or caused them to file for bankruptcy (13%).

Prioritizing preventative care, taking advantage of a health savings account (HSA), participating in employer physical wellness programs and working with a financial adviser are simple actions employees can take to help lessen the burden of health care costs before and in retirement, Nationwide notes.

Getting control of one’s health today can affect current health care expenses as well as ensure a healthier life in retirement. However, the survey found many younger adults have taken “risky” actions to save money on medical cost at the expense of their current health. These include delaying seeking medical help, taking less than the recommended dosage to extend the length of a prescription or stopping use of the prescription altogether, and not following a treatment plan recommended by a doctor. Nearly seven in 10 younger adults (69%) agreed that prioritizing self-care and mental health will help them save on health care expenses in the distant future and would like to do more to prioritize their health.

Taking advantage of preventative care is a way for adults to help ensure they are in good health. Only half of younger adults have had a physical or well-check and less than that (45%) have had preventive screening in the past year.

A different survey by Lively found many employees don’t understand health benefits—including that most insurance covers preventive care. The Affordable Care Act (ACA) features a provision that requires private insurance plans to cover recommended preventive services without any patient cost-sharing. Better education can lead employees to use benefits correctly and become healthier.

Lively found almost half of survey respondents only see a doctor if they are sick or something catastrophic happens (such as a broken bone). Lower-income adults tend to only go when something catastrophic happens. Ameeth Reddy, founder and CEO of Equal Health, based in Detroit, says case studies have shown that by encouraging employees to use primary care doctors, which encourage them to get preventive care, employers reduce their claims for other services. One case study of an Equal Health employer member shows surgeries and hospitalizations dropped by more than 70% and patient satisfaction was in the 54% range for a control group versus 94% for those with primary care.

The IRS has issued guidance allowing high-deductible health plans (HDHPs) with HSAs to cover specified medications and services used to treat chronic diseases prior to meeting the plan deductible.

Nationwide found that both younger and older adults lack understanding of the advantages an HSA can provide them from a tax perspective and as a retirement savings tool. Only 17% of younger adults use an HSA and of those who have one, 25% use it to pay only for current health care expenses (rather than saving those funds as a tax-free way to cover health care costs in retirement).

Only two in five older adults (42%) know that HSA contributions or funds drawn to pay for qualified expenses are not taxed. Among older employed adults who contribute to their HSA offered by their employer, more than half (52%) use it to pay for current health care expenses only.

More than half of respondents to the Plan Sponsor Council of America’s (PSCA)’s first-ever survey on HSA design and use, sponsored by Empower Retirement, educate employees about allocating assets between their 401(k)/403(b) plan and an HSA–but employee education remains the dominant concern of plan sponsors (indicated by 60% of respondents). During a session at the 2019 PSCA Annual Conference in May, Ken Forsythe, head of product strategy at Empower Retirement, told attendees that plan sponsors should use touchpoints, with suggested actions, to communicate to employees about HSAs throughout the year.

“If a plan sponsor offers an HSA-capable plan and are not somehow connecting HSAs with retirement for employees, they are missing an opportunity to help employees with retirement readiness,” Forsythe said.

In addition to taking advantage of preventive care and HSAs, employees can use physical wellness programs provided by their employers to improve their health and reduce health costs now and in the future. Nationwide found only 29% of younger adults said they have access to wellness programs from their employer. But, of those, only 17% participate in those programs.

Finally, if an employer offers access to a financial adviser to its employees for retirement planning, it should encourage employees to include discussions about health care expenses in their meetings with advisers. According to Nationwide’s survey, only one in three older adults plan on discussing health care costs during retirement (33%) or long-term care costs (32%) with a financial adviser or consultant.

Breaking down retirement health care costs between fixed and variable expenses can help ease the fears that employees have about the future.