Abstract
As the COVID-19 pandemic approaches its second anniversary, the current healthcare system - and its ever rising costs - have brought an insurmountable amount of stress upon the shoulders of employees.
PwC conducted a 2020 COVID-19 Update to their 9th annual Employee Financial Wellness Survey. In it they found, even in the midst of a global health crisis, 54% respondents attributed financial challenges as their greatest cause of stress[1]. When only 38% of employees have $1,000 saved to deal with unexpected expenses, the financial burden of a trip to the hospital is just as stressful in the long term as the trip to the hospital itself.
On both fronts - health and financial - employees are ill-prepared, and have been for years. In the 2018 Alegeus Consumer Health & Financial Fluency Report, 42% of consumers failed a basic true/false financial fluency test, a further 33% not understanding basic terminology such as “fees, interest, debt, [and] investments”[2]. 42% of consumers also responded that they “aren’t confident they understand how health insurance works.”
Although the pandemic pushed health and financial stress to the forefront of the employee conscious, it is in no way the culprit. A widespread epidemic of health and financial illiteracy left employees in the wind when the crisis began, and employees will be equally vulnerable when the next crisis begins. Impacting health and financial literacy at its core can prepare employees for another crisis, and have long term benefits to employer stability.
What We’ll Cover
This paper provides solutions across three breadths; immediate action, guided facilitation, and long term empowerment for health and financial wellbeing. The benchmarks for success are monetary savings and reduced financial stress.
Benefits
Although immediate cash and debt intervention were largely addressed by the CARES act and related policies, employers can also take steps to provide direct monetary savings to their employees. Savings accounts such as HSAs and FSAs provide tax advantages to employees for health expenses and other qualifying costs.
Health Savings Accounts
Health Savings Accounts (HSAs) have a triple tax benefit, making them some of the most tax-advantaged savings options that the IRS recognizes.
- Tax-Free Contributions
- Tax-Free Growth
- Tax-Free Distributions
While many savings accounts have one of these tax-free advantages, few if any have all three. Employees who use pre-tax dollars for eligible out-of-pocket medical expenses would save 30% on average each year[2].
Limitations
Because of their unique tax advantages, contributions are capped at $3,500 for individuals and $7,000 for families. Additionally, employees are only eligible for HSAs if enrolled in a High Deductible Health Plan (HDHP). For employers that don’t offer HDHPs, a Flexible Spending Account is a more suitable solution.
Flexible Spending Accounts
Flexible Spending Accounts (FSAs) are another savings account that provides tax-advantaged savings. While HSAs can only but used for qualifying medical expenses, there are a few FSA types:
- Health FSA
- Limited Purpose FSA (Dental, Vision)
- Dependent Care FSA
Limitations
FSAs also have contribution limits, according to the FSA type. Most importantly, FSA contributions do not roll over year-to-year; they are “use it or lose it.” Employees must be carefully instructed on how to use them in order to optimize their savings without leaving money on the table.
1-on-1 Benefits Counseling
Offering savings accounts puts more money into employee’s pockets in the short-term, but does little to address the rise in healthcare costs in the long-term. Offering better benefits is only as effective as their utilization. As it stands, employees are not equipped to handle benefits options on their own.
Though the average consumer will spend 66 days researching a $500 purchase of electronics, they spend a total of 32 minutes reviewing benefits[3] costing $22,470[4]. This lack of employee engagement has dire consequences; according to a recent study at Penn Law, employees don’t get the benefits they actually need 80% of the time[5].
1-on-1 benefits consultations bridge the education gap. Advisors can assess employees’ health and financial circumstances and use that information to create a benefits package that meets employee needs without breaking the bank.
Carrier Agnostic
An insurance agent has loyalties to a carrier, and will operate in the best interests of the carrier. In most cases, this means promoting a specific product or line of products.
A benefits counselor has multiple carrier affiliations across a variety of product types. Their mission is to create a holistic benefits package that addresses the unique needs of the employee.
Flexible Scheduling
Benefits brochures only cover basic information, and a group seminar takes employees away from their projects during working hours. 1-on-1 benefits consultations allow employees to meet with counselors to discuss their own experiences on their own time.
People over Machines
According to a 2015 Trustmark Independent study, 93% of people say they need someone to talk to regarding their benefits[6]. Leveraging a team of counselors over an AI solution makes employees feel heard. Furthermore, counselors can provide HR teams with feedback on most commonly asked questions and points of confusion in the enrollment process that a chatbot would overlook.
Financial Wellness Programs
Benefits consultants are a powerful tool during open enrollment, but employees still need guidance for every other financial decision currently causing them stress. Financial wellness programs help employees help themselves, and serve as a long-term solution to financial literacy and workforce empowerment.
Finances Effect on Health
Financial stress is stress, and leads to health issues such as depression, anxiety, and high blood pressure. Addressing financial stress ultimately leads to healthier employees, bringing down short term disability claims and increasing overall employee productivity.
Prudential Case Study
In 2018, Prudential released an 8 year study on the effects of financial wellness initiatives on the overall stress of employees. During the first year of the Great Recession, 31% of Prudential employees experienced financial stress - higher than the WebMD benchmark of 28%. Through the steady implementation of financial wellness tools such as budget coaching, child and adult care benefits, and retirement workshops, Prudential brought this number down to a slim 16% in 2016 - lower than WebMD benchmark of 19%[7].
In an analysis of the case study by Retirement Advisor, it was found that individuals with lower financial stress were two times more likely to stay in their employment and missed one less week per year due to short term disability[8].
Conclusion
Health and financial literacy has been an issue under the surface for many years, and the stress of the COVID-19 pandemic exposed this weak foundation. In order to avoid the financial toll of future crises, employers must equip their workforces with the tools to take care of their physical and financial wellbeing.
The solutions provided can make an impact individually, but are best initiated in tandem. Tax advantages offer immediate relief, benefits counselors give employees valuable information, and financial wellness programs empower employees to someday garner that valuable information themselves. Employers who have responses to both short and long term literacy setbacks can look forward to the company wide benefits that reduced financial stress brings.
