FEATURE: Healthcare Costs Remain Key Priority for Financial Executives
Controlling the cost for company-provided healthcare benefits remains the top priority for financial executives, according to research released by Prudential Financial, Inc. and CFO Research Services.
The report, “Managing Financial Risk in Retirement and Benefits Programs,” found that finance executives believe improvements in funding benefit plans will make it easier to reduce and eventually eliminate risks associated with such plans.
The study found that most employers don’t plan to drop health coverage and switch employees to the public health insurance exchanges established under the Affordable Care Act. Instead, employers are looking at private health insurance exchanges where the employer continues to fund benefits but employees have the option to choose from any health plan they like.
“Everyone is looking at how to better control benefit costs and healthcare is still the No. 1 issue,” said Jim Gemus, senior vice president of Product for Prudential Group Insurance. “But they are acutely aware of the need to retain employees and attract new ones. The improving economy and recovery of the financial markets is making it a bit easier to do this.”
Companies are still shifting healthcare costs to employees, with 80 percent either transitioning more costs to employees or likely to do so, the study found. Only 38 percent are willing to end employer-paid healthcare and direct employees to public health insurance exchanges. Fifty-seven percent say they wouldn’t consider the idea, but 41 percent would be willing to provide subsidies to employees for use on private health insurance exchanges.
The report found that an improving economy and stable financial markets have given financial executives the confidence to explore a range of options to help their companies better manage the costs and risks of their healthcare, pension and benefits programs.
“Overall, finance executives feel that their companies are in a better financial position to consider a range of options for managing pension risk; many companies have experienced an improvement in funded status as a result of equity market improvements combined with increasing discount rates,” the study noted. “Executives are now able to weigh the relative advantages and disadvantages of plan restructuring alternatives that can lead to the ultimate disposition of their pension liabilities.”
The survey targeted senior financial executives at companies with defined benefit retirement plans holding $250 million or more in assets – plans that pay out a specified benefit to retirees. Most of the 182 companies included in the survey had revenue of more than $500 million and more than half had revenue of more than $5 billion.
“Many finance executives in this year’s survey perceive a trend toward employees extending their careers beyond historical retirement ages. In the face of this, companies are also considering expanding offerings in defined contribution plans to enhance security and reduce volatility in their employees’ retirement investment strategies. Automatic enrollments, stable value funds, and guaranteed income products are receiving more attention, and executives continue to consider ways to enhance target-date funds to reduce risk and provide retirement income,” the survey stated.
Thirty-five percent of responding companies have already closed their pension plans to new entrants and another 25 have frozen them, the survey found. Executives cited concerns about the impact of defined benefits plans on earnings, balance sheets and their companies’ ability to invest in growth opportunities. The survey found that companies continue to prefer defined contribution plans such as 401(k) where employees contribute their own money to their retirement plan, usually with matching dollars from the company.
“The rebound in financial markets has not only restored the value of 401(k) plans but helped improve the funding levels of defined benefit plans as well, though market volatility and other risk factors remain a concern,” said Phil Waldeck, senior vice president, Pensions and Structured Solutions, Prudential Retirement. “Now the focus can be placed on further reducing the risk of defined benefit plans and improving the offering and investment security of defined contribution plans like 401(k)s.”
Additional key findings included that more than half of the executives surveyed said they are likely to offer lump sum distributions to defined benefits pension plan participants over the next two years, and more than half of the respondents believe a significant portion of the workforce will have to delay retirement because of inadequate savings.
Nearly 50 percent of financial executives said they are likely to outsource some or all of their benefits administration on top of the 27 percent that already do so. Additionally, some 70 percent of the respondents believe offering voluntary benefits is a way to increase employee satisfaction and 58 percent are likely to expand voluntary benefit offerings.
In summary, the survey found that finance executives are examining a variety of solutions that can help them enhance benefit offerings while still allowing them to manage the financial risk of the programs.
“For their definitive benefits plans, more finance executives, as well as the boards they report to, are examining the feasibility and benefits of liability transfer – that is, purchasing annuities at some point in the future to transfer some or all of their companies’ definitive benefits plan liabilities to a third party insurer,” noted the survey. “Many see the adoption or expansion of liability-driven investment strategies as a means of dampening the volatility of definitive benefits investments, either as an initial step toward the ultimate transfer of liabilities, or as a sound risk-management strategy in itself.”
With the advent of both private and public health insurance exchanges, finance executives are given another resource to evaluate in their efforts to optimally balance corporate expense and employee benefits.
Dexcom: changing the lives of people with type 1 diabetes
It is estimated that 9.3% of adults around the world are living with type 1 diabetes, which amounts to a total of 463 million people. A further 1.1 million children and adolescents under the age of 20 are living with the condition.
Unlike the more prevalent type 2 diabetes, where the body still produces insulin and symptoms develop slowly, people with type 1 diabetes need regular insulin injections or pumps, and must monitor their sugar levels frequently.
In recent years a number of remote glucose monitoring systems have become available that patients can use at home. These work with a sensor, usually placed under the skin, that measures glucose levels every few minutes. This information is then transmitted wirelessly to a device like a smartphone or tablet, which can then be shared with their clinician.
British actress Nina Wadia's son Aidan, 14, has type 1 diabetes, and has been managing his condition using Dexcom, a glucose monitoring system used by patients all over the world. Here Wadia explains how Dexcom has improved their lives.
As a parent of someone with type 1 diabetes, what is your day-to-day life like?
Being able to take a breath, think and pivot constantly without getting frustrated becomes an essential mindset because sometimes it feels like each day is determined to be different from the day before. Whatever worked yesterday is going to misfire today.
Which areas of yours and Aidan’s life are most impacted by diabetes?
The one thing that you have to fight hard to reclaim is spontaneity, especially when it comes to food and exercise. It’s only when this is taken do you realise how essential each one is. You can be flexible and there are no real limits, but only in the sense that a great athlete can be flexible without limits because they’ve trained super hard to be that way. So we’ve all had to become athletes when it comes to being spontaneous.
How has Dexcom helped you and Aidan?
Dexcom has brought future science fiction to real life today. The continuous glucose monitoring system is tiny, sits discreetly on his body and gives him a ten-day breather between sensor changes, so it's goodbye finger-pricking seven times daily.
Dexcom is totally active at a grass roots level and for Diabetes Awareness has pledged to donate £2,000 if #DexcomDiabetesStories and/or #DexcomWarriorStories is shared 200 times! I’ll be sharing more on social media and would love to hear how other families are winning their fights.
Maybe most importantly Dexcom is trying to introduce a reimbursement programme for type 1 diabetes patients which will give greater access to modern, life changing hi-tech. I want to spread the word on the importance of accessing it through this campaign.
If you compared your life today with how it was before Aidan was using Dexcom, what has changed?
It's always working, which lets him take his mind off diabetes for longer stretches. It also lets me get off his back. We both receive alerts so I no longer have to pester him by asking him what his number is, and especially importantly, I don’t have to wake him at night to prick his finger if I’m worried. Dexcom gave us back our sleep!