Saturday, March 14, 2009

A Good Deal?

A survey published this past week by Fidelity noted that workers cited health insurance, retirement savings plan matching contributions, and dental insurance as the three most important benefits, with health insurance ranking as No. 1.

That study (see Workers Underestimate Cost of Providing Health Benefits ) offered some interesting perspectives on health care and the expenses associated with that benefit. The good news was that workers very much prize this benefit – and in large part (72%) believed that what they got through their workplace was better than, or at least as good as, what most other companies offer. That said, more than half (61%) noted that they were paying more than they once did, but were getting the same – or less – in terms of benefits than they did in 2007.

However, a more striking finding in that Fidelity study, IMHO, was that more than half (53%) thought that that health insurance benefit was costing their employer less than $5,000/year, when a more typical range (depending on where you are, for health-care costs, like housing, can vary widely depending on where you live) is anywhere from $5,000 to $15,000. A benefit that, it should be noted, is still tax-free to workers (though there have been “designs” on that from both major U.S. political parties, see McCain’s View ).

Now, that workers underestimate the cost of providing health-care insurance is perhaps not surprising, in view of how insulated most are from the “real” costs under the current system (and let’s not for a second imagine that a nationalized version would do anything to close that gap). That’s why employers are increasingly predisposed to embrace programs that do a better job of “engaging” workers in the costs, even as those workers are asked to pay more. However, as the Fidelity survey illustrates, they may know they’re paying more, but most still have no real appreciation for the cost of the benefit they are being provided, and thus doubtless have less appreciation for the “deal” they are getting. Workers may appreciate the benefit – but how much more might they if they had a clue what it was costing?

When it comes to retirement programs, workers have long been asked to pay an increasing share of the costs; but, unlike health care, the shift of those costs has been less obvious, due to the imbedded nature of the expenses within/netted against the fund returns. As a consequence, surveys routinely show that participants (and plan sponsors) also underestimate those costs. In fact, in the extreme, a large number regularly opines that they pay nothing at all for those services.

Now, I’m not saying they aren’t being “told” now – or at least given the raw data with which to discern that impact. However, I suspect – and those aforementioned surveys validate - that the vast majority haven’t a clue as to the costs they are paying for those services. And, while it’s not here yet, the day is coming – and, IMHO, coming soon - when it will be mandatory to disclose that information to participants in a format much more likely to be understood and…“appreciated.”

And on that day, whenever it falls, those expenses – however fair, “disclosed,” and well-deserved they may be – will doubtless come as a shock to those participants. Participants who may well have been getting a good price, maybe even a good deal – but who thought they were getting it for a good deal less.

- Nevin E. Adams, JD

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