Improving Financial Security Through Employer Benefits

Financial volatility caused by health expenses is a barrier to financial security. According to a study by JPMorgan Chase Institute, many families take at least 12 months to recover financially from a major medical expense. Can personalized data spur a behavior change in saving for medical expenses? Can customized health benefits that better fit the needs of low wage employees increase the effectiveness of health insurance benefits? Could this lead to a more financially secure workforce?  Could this in turn result in a better bottom line for employers? These are the questions we have begun to explore at Commonwealth.

While health insurance markets are in flux, the shift to High-Deductible Health Plans (HDHPs), in which employees have to pay significant amounts of health care expenses before insurance payments kick in, is expected to continue. As of 2016, it’s estimated that 84% of employers now offer such plans and 33% offer only this option. Few offer complementary savings tools, such as HSAs, to help employees pay for out-of-pocket expenses, and more than half of employers offering HSAs do not make contributions to it.

This combination has led to a situation where 59% of adults with health insurance, and an annual household income of $40,000 or less, say it’s difficult for them to afford their deductibles. 38% are “very worried” about not being able to afford health care services they think they need.  Employees bring these financial worries into the workplace, which can lead to a distracted and less productive workforce.

The higher out-of-pocket costs for employees associated with HDHPs can also result in delayed medical care. One study found that for adults in families with incomes less than 400% of the federal poverty level, the probability of delayed/forgone care due to cost was 40% for those with HDHPs, significantly higher than the 15% for those in traditional plans. Sick employees are bad for business.

This environment – where health benefits don’t work well for employees or employers - provides an opportunity for trying innovative approaches.

To deepen our understanding of this financial challenge, we interviewed employers, HSA administrators, health insurance providers, medical providers, and employees who have HDHPs. “I hate having to pay money for stuff that hasn't happened,” said one employee, illustrating one theme we found. Medical expenses are often seen as unexpected – something that they don’t think will happen, such as a tree falling on their car. However, medical expenses might be better categorized as unpredictable – you know it’s going to happen, you just don’t know when, like buying new clothes for a growing child. Does this provide an opportunity for innovation? Could a change in this mindset lead to a change in savings behavior?

One approach we are exploring is the use of “personalized” data to illustrate the likelihood of medical expenses for employees. Big Data gives us the ability to know how much other people have spent on medical expenses. If an employee is presented with engaging, personalized data that shows what other people of their age, family size, gender, location, condition, etc. have spent, might that spur a change in mindset? Could we then design a path to link that mindset shift to a shift in savings behavior? Would the addition of gamified elements or incentives increase uptake? Could we also use this data to spur employers to contribute to medical savings for employees? Increased savings could lead to less financial instability when an unpredictable medical expense comes up, and therefore to more stable, less anxious lives.

Another insight from our research is that current benefit offerings are often “one size fits all” with a set package for all employees, but employees at different income levels have different benefit needs. For example, low wage employees prefer unrestricted savings products that provide them the flexibility that their complicated lives require, yet few benefit packages include this type of product. Is there an opportunity to design employee-centric benefit packages for low wage employees? If employees’ needs and preferences were included in the HR benefit process, could this lead to an increased use of benefits and better return on this investment for employers? Could these changes make a significant positive impact on employees’ financial security?

Designing workplace benefits that contribute to financial security requires collaboration. It requires employees, employers, financial institutions, benefits providers, HR consultants, non-profits, and FinTech to work together to innovate new approaches. A good place to start is health insurance benefits: at over $1 trillion dollars a year, they remain employers’ largest single benefit expense. Together we can make health benefits, and other benefits, work for low wage employees, leading to a healthier, more productive, and more financially secure workforce and workplace. Start a conversation with us today about how we can work together to tackle this barrier to financial security.

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