Home Money Rising Health Care Costs Are Eating Into Retirement Benefits

Rising Health Care Costs Are Eating Into Retirement Benefits

by Paul-Martin Foss

Do you feel like your employer’s retirement plan offers less and less benefit each year? You’re not alone, and you’re probably right. The skyrocketing cost of health care is costing employers more and more money each year, taking up a larger portion of corporate budgets and forcing them to cut back elsewhere on expenses.

As a share of compensation, employers pay more in benefits today than they ever have, about 18.3% on average. But most of that is due just to health care coverage. Employers don’t have unlimited amounts of money to spend, so the more money that is spent on health care, the less there is to be spent on other benefits such as retirement plans. Retirement benefit spending by employers has decreased from 9.1% of employee compensation to 6.8% of compensation since 2001.

For workers who are already forced to shoulder more of the burden of retirement planning themselves, that comes as a big bite. And because health care plans are not only becoming more expensive, but also offering higher deductibles and out-of-pocket maximums with fewer benefits, that’s a double whammy.

Given the rising cost of health care plans in the future, workers can probably expect either fewer retirement benefits in the future or lower salaries. Because Obamacare requires employers above a certain size to offer health care coverage to full-time workers, health care is now a fixed cost. Everything else is variable: salaries, retirement benefits, and hours worked. Expect all of those to decline as the cost of providing health care continues to grow.

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