Americans slash saving to pay soaring health bills

2006

Escalating healthcare costs are forcing more and more Americans to cut back on retirement savings and other investments, while employers are being warned to expect double digit increases in the cost of the packages they offer.

The ageing and increasingly unhealthy American workforce has led to a crisis in healthcare insurance, with both workers and employers struggling to meet soaring costs and demands.

Now, a survey by Ameriprise Financial has warned that 46 per cent of U.S workers say they are planning to decrease their savings or investments, a rise of 8 per cent over the past three years.

The rise illustrated the cumulative effect of growing benefit costs on personal savings, said Ameriprise.

On top of this, a fifth already had or planned to contribute less to their employer-sponsored retirement plan.

The majority of the benefit cost increases experienced by workers had been health care-related, said the survey.

Nearly seven out of 10 said out-of-pocket costs had increased for their health care coverage, with 44 per cent citing increases in dental coverage costs, 20 per cent experiencing increases in life insurance benefit costs and 17 per cent noting increased expenses for retirement plan benefits.

"As benefit costs such as health care continue to rise, the loss of investment dollars can have a large impact on a person's retirement income," warned Rusty Field, vice-president of Ameriprise Financial Education and Planning Services.

"This problem is magnified when employees forgo money from an employer matching program by reducing contributions to their 401(k) [employer pension] to cope.

"By cutting back on retirement and personal savings to pay for health care benefits today, uncertainty about meeting future health care needs and other necessities in retirement grows – and stress along with it," he added.

Of those who had or planned to contribute less to their employer-sponsored retirement plan, two out of three would also lose a corresponding employer match contribution, thus compounding the economic effect for retirement.

At the same time, 82 per cent were more concerned about affording healthcare in retirement than affording healthcare today.

With the increased out-of-pocket spending on health care benefits, 35 per cent were "concerned" or "very concerned" that these costs would impact retirement and other financial goals.

The finding came as a separate survey by accountancy firm PricewaterhouseCoopers has warned that employers who do not make changes to their benefit packages are being told by carriers to expect double-digit increases in healthcare costs.

Insurance firms anticipated medical costs to rise across all plan designs, it found.

"Medical costs continue to grow faster than wages, and this trend is an important driver of insurance company premiums," warned Jack Rodgers, managing director of the health policy economics group at PricewaterhouseCoopers.

"The fact that medical costs are expected to increase by double digits, however, does not mean that health insurance premiums will increase at the same rate. Employers have the ability to influence premiums through strategic and creative benefit plan design," he added.

American workers had in fact been shielded from the rising cost of healthcare for decades, and that the burden of rising medical costs had been borne largely by employers and the government.

According to PwC, Americans spent six per cent of their personal budgets on medical costs in 1960, the same percentage of consumer spending as in 2004.

But both the government and U.S. employers were now looking to share more of the responsibility, if not the actual costs, with their employees in an attempt to curb rising spending levels.

The average annual per employee cost for health care is now more than $6,700, according to a poll by Wolters Kluwer Law & Business.

This meant that, unsurprisingly, more and more employers were now moving to consumer-driven health plans is to reduce their costs, it added.