The Link Between Health Care Benefits and Retirement

October 4, 2013 ( – Decisions about employer-provided benefits, such as health care coverage, can affect retirement planning.

“Questions about whether a person has enough saved to retire on or whether they will outlive these savings definitely tie into their benefits coverage. If you have an unplanned event occur, you will need to protect your retirement savings and have access to short-term savings. It’s not a question of whether such an event will occur, but when,” Heather Lavallee, president of employee benefits distribution, ING U.S., in Minneapolis, told PLANSPONSOR. For example, she pointed to research that one in two men and one in three women will have to deal with cancer at some point in their lives.

“If participants don’t have money for this increased spending on health care costs, then they are going to have to tap into either their savings or their 401(k) retirement account,” she said.

Lavallee pointed to the parallel example of employees now having an expectation that employers will provide retirement savings vehicles such as 401(k) plans, but probably not the pension systems offered in previous years, for which plan sponsors took care of retirement savings and investment decisions. The rise of the health insurance exchanges is similar, in that employees will have to be more proactive in making decisions for themselves. “Employees have a greater sense of the types of coverage. This information also makes them aware of the impact of a broader financial decision,” she said.

“The PPACA [Patient Protection and Affordable Care Act] has brought health care to the forefront of people’s minds. We are also seeing the rise of private exchanges, which kind of parallels defined contribution [DC] plans in terms of offering employees choices. As with DC plans, the exchanges definitely require more decisionmaking by employees,” Lavallee added.

Along with these choices, there is also the leveraging of technology to consider, Lavallee said. “With retirement plans, things started out with offering many choices for employees to invest in, but have been moving to more-targeted choices—ones that are more suited to the needs to the individual. Similarly, with health care, tools such as decision support allow employees to ask questions that winnow down the choices to the ones that best fit their needs.” In some ways, she said, it also mirrors the experience of shopping online, with preferences and subcategories of products.

Employers can take steps to help educate their employees about this holistic view and the impact that one decision can have upon another, said Lavallee. In terms of a delivery system for communicating information to employees, several things need to be done.

“First, you need to look at the industry. For example, someone in retail may benefit more from meeting one-on-one with an adviser before coming to a decision. Second, you need to look at the geography of the employees. Workers in the northern part of the country may lean toward online materials, while those in the southern U.S. may prefer a combination of online and print materials, as well as one-on-one meetings. Finally, you need to look at the employee demographics. For instance, younger employees may not look at anything they can’t view on their smartphone.”

Lavallee added, “Employers need to keep in mind that, in addition to the differences in how they want information delivered, employees’ needs are all a little bit different. Research shows that many people spend more time choosing their smartphone coverage plans than their health coverage plans.” Therefore, employers need to make sure the information is delivered in a way that is both appropriate for the employee—online, paper, etc.—and that it is designed to be understandable enough to catch their attention.

Lavallee noted that employers working with employees to assess their needs is definitely helpful. “Learning how to be a better-educated consumer when it comes to health coverage can definitely make employees more aware of health care expenses,” she said. This in turn can allow them to be prepared with information when it comes to planning strategies for retirement.