Are Increased Healthcare Costs Putting Stress on 401(k) Plans?

healthcare-401kThere are many demands on your employees and their regular paycheck.  One of those demands is increase to record-highs yet again this year.  Although the direction of increased healthcare premiums itself is not necessarily news, the magnitude of the rise in healthcare premiums, relative to normal pay raises is of concern.

What is on the Horizon for 2017 Healthcare Pricing? 

According to a recent Employee Benefit News article the cost of healthcare for the average employee has increased by approximately five hundred dollars per employee to approximately $8,669 during the current year.  The real cost comes to the forefront when employers are faced with difficult funding decisions.   The employee has few options when deciding how to absorb or balance these increased healthcare costs.

The employer has the choice of eliminating healthcare completely – which could equate to a terminal fix since a recent Society of Human Resources Management (SHRM) Healthcare Benchmarking Report reveals ninety-eight percent of employers offer healthcare as an employee benefit.  Removing healthcare altogether is a dangerous experiment when relying on a skilled or specialized workforce. Adding on top of that, approximately ninety-two percent of employers provide some form of healthcare for spouses.  When such a large expense increases (healthcare costs – which the Report indicates currently consumes approximately 8% of the annual operating budget) that expenditure moves closer to becoming a stress-point of no return.

Other options include, the employer chooses to pay the increased healthcare cost for each employee, the employer can choose to pass that cost increase directly to their employee – or, a combination of the two.

 None of these are Good Options

The funding of the benefit must come from somewhere if the healthcare benefit is to survive.  Enter the 401(k) Plan, which becomes the likely foil within a workforce plagued with present-bias.  Does the employee “need” the 401(k) contribution to be funded at the same rate this year as last year?   Does the employer “need” to keep their matching contribution at the same rate as it was the year before?

Employers and employees alike each view the act of funding retirement as secondary when faced with pressing medical issues – or the thought the family going without healthcare.  Healthcare needs are immediate, whereas funding retirement plans are frequently (yet, incorrectly) viewed as a luxury.

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