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Balancing ‘Acts’

Recently, we looked at how the trends in employment-based retirement plans and employment-based health plans seem to be heading in opposite directions; fewer choices for workers to make in the former, and more in the latter. However, recent EBRI research suggests a potential divergence in other areas as well.

A recent EBRI analysis found that lower income workers were withdrawing money from their individual retirement accounts in much greater numbers, earlier, and at much larger percentages, than other workers. In fact, the report noted that nearly half (48%) of the bottom-income quartile of those between the ages of 61 and 70 had made such an IRA withdrawal, and that their average annual percentage of account balance withdrawn (17.4%) was higher than the rest of the income distribution. In sum, a number of individuals — again, notably, lower income workers — were withdrawing more from their retirement savings accounts than those in higher income groups.

And yet, according to the EBRI/MGA Consumer Engagement in Health Care Survey, 26-40% of respondents reported some type of access-to-health-care issue for either themselves or family members last year. “Access” in this case refers not to availability, per se, but is broadly defined as not filling prescriptions due to cost, skipping doses to make medication last longer, or delaying or avoiding getting health care due to cost.

Not surprisingly, access is more of a problem among those with lower incomes, who appear to be forgoing spending on health care. In fact, regardless of health plan type, individuals in households with less than $50,000 in annual income were more likely than those in households with $50,000 or more in annual income to report access issues. In sum, a number of individuals, notably lower income workers, were restricting their spending on health care.[1. Some additional evidence of the trend was highlighted by EBRI research published recently in Health Affairs, specifically that consumer-directed health plans (CDHP) were shown to reduce the long-term use of outpatient physician visits and prescription drugs. See also EBRI’s “Lessons From the Evolution of 401(k) Retirement Plans for Increased Consumerism in Health Care: An Application of Behavioral Research,” here.]

One of the great hopes behind a growing emphasis on consumer-directed health plans is that individuals would make different, perhaps more economic decisions about their health care. Of course, one of the looming concerns is that individuals would make ill-informed decisions influenced by short-term personal economic, rather than health factors. Similarly, there have been concerns expressed that, left to their own devices, individuals will withdraw too much money too soon from their retirement accounts — that their decisions too will be motivated by short-term needs, rather than by a full appreciation for the longer-term consequences of those actions.

The trends highlighted in the EBRI analyses suggest that some, notably lower-income individuals, might well be spending less on health care than they might, and perhaps drawing more from their retirement accounts than they should.

What’s not yet clear — and what future research may shed light on — is whether these actions are born of necessity, are simply random and potentially ill-considered, or are the result of conscious (and perhaps conscientious, even counseled by advisor) choice.

Footnote

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