The benefits industry has undergone a significant transformation over the past three decades. Employers have moved away from fully subsidizing employees’ retirement savings via a defined-benefit plan to enabling their employees to save in a defined-contribution plan like 401(k).
The same transformation is happening right now in health care, where employers have been shifting more of the cost to their employees. What does this mean for retirement plan advisers, and why should they care?
Health care is the second largest expenditure, after compensation, for employers. In addition, rising health care costs are significantly affecting how much employees can contribute to their retirement accounts.
Jamie Greenleaf, principal and lead adviser at Cafaro Greenleaf, posed three questions about the potential scope of the problem:
How many employees know that Medicare is only going to cover 59% of their health care costs?
How many of them know what their Medicare premiums will look like?
Is it likely that they have considered how health care costs will affect their savings?
Greenleaf’s entry into the health care world happened several years ago, when a 401(k) client asked her to help with a request for proposals for a health savings account provider. Through the process, it became clear to her that the health care industry saw HSAs only as reimbursement accounts. The greater potential of HSAs as retirement accounts for health care expenses was lost on it.
This year, Greenleaf launched her health benefit advisory firm, TILT, which helps advisers guide participants to make better decisions around the plan that they choose, invest in an HSA and help show the cost of care.
Consider the opportunity cost of not making HSAs part of your business. Any employer can include an HSA if they offer a high deductible health plan.
As of 2019, 58% of employees work at companies that offer at least one high deductible health plan, according to a report from KFF. In addition, it does not matter if they are fully insured or self-funded. The market opportunity is large and getting larger.
I have spoken with many RPAs who avoid HSA conversations because compensation is relatively low. But as Greenleaf said, “Retirement advisers are paid to change behavior. Changing behavior drives cost down for the employer and ultimately provides better outcomes for the employees. Employers are not resistant to compensating people for providing value.”
For RPAs looking to transform their practices, HSAs are a way to bring something new to the table, she said. “That’s what a good partner does.”
Change is never easy, yet often necessary. The convergence of retirement and health care is here. When is the right time to start?
“You can’t invest for the future in the future,” Greenleaf said. “You have to do it now.”
Francesca Messano is a managing director at Innovu, a firm that works with advisers and employers to identify health care savings.