State Retirement Plan Initiatives Have Added Bonus

A study found increased retirement savings among state citizens is correlated with reduced Medicaid expenditures.

Several states have taken steps to establish workplace individual retirement account programs for workers who do not have access to an employer sponsored retirement plan.

According to Segal Consulting, these states are also asking how a population better prepared for retirement would affect public safety-net programs. Of most interest, given its growing presence in state budgets, is Medicaid, where there are clear potential savings.

Segal Consulting conducted a review of all 50 states and the District of Columbia to estimate the impact of expanded retirement savings by individuals not currently participating in a retirement plan on future Medicaid expenditures. The analysis showed a positive correlation between increased retirement savings, sufficient to remove a percentage of currently vulnerable households from the poverty rolls by the time they retire, and a related reduction in Medicaid spending.

According to the study, every state had an estimated reduction in state Medicaid expenditures resulting from increased retirement savings from the first 10 years of the plan. Fifteen states would save more than $100 million each, with total projected savings approaching $5 billion. The savings ranged from $11 million (Mississippi) to $604.7 million (California).

“This study shows states could realize meaningful savings on Medicaid spending when a retirement savings plan is available to all private-sector workers,” says Cathie Eitelberg, senior vice president and director of Public Sector Consulting at Segal. “The majority of jurisdictions have yet to consider this option, but should at least start to evaluate the feasibility of such a program from a cost/benefit perspective.”