NJ workers' retirement benefits can grow if employer health plan costs are reduced

The United States is hitting "peak 65" this year, with 4.1 million baby boomers reaching this retirement age. Unfortunately, much of this silver tsunami does not have adequate retirement savings. Median retirement savings among baby boomers is only about $200,000 and for Generation X around $100,000. America is facing a retirement savings crisis.

Employers can help younger generations adequately save for retirement by offering retirement plans that match employees' contributions up to a certain amount. Unfortunately, employer-sponsored retirement benefits have been squeezed in recent years by runaway health plan costs. Employers have a responsibility to take control of their high-cost health plans by analyzing their claims data. They can use the ensuing savings in a variety of productive ways, including boosting retirement benefits, reducing health plan premiums, increasing wages or bonuses and reinvesting back into the business.

According to the Kaiser Family Foundation, the average annual employer-sponsored family health care premium reached $24,000 in 2023, a 50% increase over the last decade. These escalating costs cannibalize the funds employers could otherwise have put toward retirement benefits or wage increases. A new JAMA study finds health care premiums as a share of total employee compensation have increased from an average of 7.9% in 1988 to 17.7% in 2019, reducing wage growth by $125,000. Dave Chase, CEO of Health Rosetta, estimates the average annual retirement account balance would be around $1,000,000 without this health care hyperinflation tax over the past 30 years.

Consider the major impact of a minor employer retirement benefit. Take an entry-level employee who earns $40,000 a year, receives a 3% annual raise, and contributes 5% of her salary to her employer's 401(k) program. If the 401(k) earns a conservative 7% annual return for 35 years, this employee would save $394,136 for retirement. If her employer could contribute a mere 2% of her salary in a matching program, her retirement account would grow by 40% to $550,390 over the same time frame. A full 5% employer match would grow the account by 113% to $841,311.

Reducing outrageous health plan costs to free up such retirement benefits starts with employers accessing their health claims data. By analyzing their historical payment receipts, they can spot plan overcharges and identify high-value care. They can audit their claims data against actual prices to spot overbilling and fraud. This information is imperative to make rational health plan decisions to reduce health plan costs and share the savings with employees.

Unfortunately, many health insurance companies are blocking employer access to claims data to make it easier to continue overcharging and profiteering. They routinely stonewall employers trying to access their health plan receipts despite legal requirements to turn over this information. Major employers and unions nationwide, including  Kraft Heinz, Owens & Minor Inc., and Bricklayers and Sheet Metal Workers unions, have recently been forced to sue their health insurance companies to access their claims data and accurate pricing information. They've identified billions of dollars in overcharges facilitated by the opaque status quo.

With broad claims data access, employer health plan cost-cutting can follow the recent decline in retirement benefit costs. Several years ago, employers faced a series of lawsuits for violating their fiduciary duty to responsibly steward employee benefits by offering costly 401(k) programs full of hidden fees charged by the financial institutions managing the plans. One outcome of these lawsuits is that employees today enjoy far more low-cost index funds that maximize returns in their 401(k) plans.

Employers also have a fiduciary duty to manage health benefits in the best interest of their employees. And employers are also facing lawsuits from the same firms that successfully challenged the retirement industry. Bipartisan health care price transparency legislation currently being negotiated in Congress would overcome the widespread information blocking by health insurance companies, allowing employers to fulfill their fiduciary duty.

When employers can appropriately manage their health plan spending, they can share savings with employees through higher wages and increased 401(k) contributions, boosting retirement accounts and helping the country stave off its retirement savings crisis. A comfortable retirement can become the norm, not the exception.

Christin Deacon is the former Director of Health Benefits Operations and Policy and Planning for New Jersey.

This article originally appeared on NorthJersey.com: Reducing employer health plan costs can boost retirement benefits