Survey Finds Workers Coping With Financial Strain of Health Care Costs

American Express Financial Advisors Inc. today released results from a 2003 national survey measuring the impact of recent health care cost increases on workers’ financial health.

The survey found a significant number of employees are concerned about the financial effect of health care increases on their retirement future. The majority (73 percent) of workers responded they were either somewhat or very concerned about how rising health care costs might impact their ability to fund their retirement and other financial goals. More than two-thirds reported an increase in the share of expenses they pay for their health care benefits.

The long-term consequences of increased health care costs are already being felt as employees make difficult benefits trade-offs — 37 percent of those employees surveyed stated that they are planning to decrease the amount allocated toward savings and investing overall.

“We’re most concerned about employees making abrupt decisions to try and quickly fix their current financial situation, without taking into consideration the long-term impact to their retirement savings,” said Rusty Field, vice president, American Express Financial Education and Planning Services. “We have found that a significant number of people are now considering reducing their retirement plan savings. We realize that having sufficient health care is vital for workers and their families, but their future retirement security is equally important. However, employees need to be well educated on the options they have to help them handle the increase in health care expenses without compromising their ability to save for the long-term.”

Along with decreased long-term saving and investing, workers are responding to the increases in healthcare costs by adjusting a variety of their financial decisions. The survey revealed that 55 percent are reducing discretionary spending, 24 percent are cutting back on workplace benefits they receive at additional costs (such as contributing less to a retirement/401(k) plan or trimming back on their employer-sponsored life insurance), 12 percent are switching to a less-expensive health plan and 6 percent are dropping their healthcare coverage completely.

In addition, 29 percent of those surveyed said that a significant increase in their health care costs would make them consider reducing their regular retirement plan contributions. In such cases, 42 percent would make a modest 1 to 2 percent reduction while 21 percent would cut back 3 to 4 percent and 22 percent would decrease their contribution percent or more. (Reductions in contribution rate are shown as a percent of salary.)

Overall health care expense increases were shown to have a measurable effect on respondents’ level of financial stress, with half of those surveyed indicating at least some or considerable increase in financial stress.

"In the past year, the public has seen news reports indicating that more employers are finding it a necessity to share health care cost increases with employees in order to operate and maintain profitability in their businesses going forward," said Field. "As benefits enrollment season culminates for 2003 and healthcare costs continue to rise, many employees are experiencing sticker shock over their health care benefits, leading them to experience additional financial stress as they sort through their fiscal options."

To combat financial stress issues, the survey found that 70 percent of workers would be interested in attending a free financial seminar to help them understand and address rising healthcare costs. To assist employees, American Express Financial Education and Planning Services unveiled a new seminar on Oct. 8 – Rising Health Care Benefit Costs: The Personal Financial Impact – available nationwide through American Express’ extensive network of financial educators.

American Express hopes to relay to employees the variety of choices at their disposal. Many companies offer employees healthcare reimbursement accounts with tax advantages, although the accounts are often underutilized. In addition, employees can tap into these accounts using a payroll deduction to cover increased co-payments and higher prescription costs with pre-tax dollars to save money throughout the year. Even some over-the-counter medications can be covered by these accounts thanks to a recent IRS ruling. On top of some of the core financial decisions employees must make, some forget to change the simple and sometimes less obvious choices such as eliminating a daily gourmet coffee or espresso to help offset the additional costs they are facing.

"We know that employees are receptive to accepting help regarding their financial options," said Field. "Now is the time for employers to provide additional options and integrate employees into a program of sound financial education that assists employees in weathering financial change both now and in the future."

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