In my last blog I compared changes in post-retirement health insurance with changes in pension plans. The bottom line from that blog: individuals are now more responsible for selecting, managing and financing their post-retirement health insurance. As noted, we have seen this scenario play out before as employers moved from traditional pensions to 401(k) plans and shifted more responsibility to individuals.
When the pension world began to change with the introduction of the 401(k) plan, individuals had to learn how to manage complicated financial decisions. Many of the lessons we have learned over these years will help people better manage post-retirement health insurance needs, too.
The Pension-To-401K Shift
So, what can we learn from the pension-to-401(k) shift that will help people meet their needs for post-retirement health?
In this blog post I will describe why the shift in retiree health insurance mirrors the shift from pensions to 401(k) plans.
• The shift to individual responsibility places a tremendous burden on the individual.
In the 401(k) world, individuals are responsible for determining where to keep their money, managing their investments, determining how much to save, and managing their assets to last endure. Similarly, in managing post-retirement health insurance individuals face an array of complex issues, such as determining what kind of insurance to buy and determining how to pay for health care.
These are difficult questions and, generally, individuals are poorly equipped to answer them.
• Education is nice—but there are some real limits. The 401(k) plan has been around since 1979 and employers have spent much of that time trying to explain the fundamentals of saving and investing to employees. However, those efforts have barely made a dent in equipping individuals to make all of the decisions that are now on their shoulders.
Similarly, it is not clear that individuals can really master the information needed to confidently make key decisions about their post-retirement health insurance. It is not my intent to demean individuals’ intelligence. However, this is complex stuff and most people do not have the time, resources, or inclination to master it.
• When individuals don’t understand something, they are likely to make poor decisions, make decisions for the wrong reasons, or make no decision.
There is a tremendous amount of research supporting the fact that people make poor decisions when they are faced with something complex or challenging to understand. The retirement industry is rife with data about how individuals make these decisions—and how these decisions can create significant financial hardship over time.
• It is very difficult to get access to impartial information. As we learned from the 401(k) experience, there are lots of vendors willing to sell products and collect significant fees and commissions in the process. And, unfortunately, there are lots of vendors who will hawk their products, even if they really don’t meet the consumers’ needs.
This all seems so pessimistic. So, the next question is are there ways to overcome these challenges? Stay tuned for my next blog.
About The Author
Allen Steinberg, JD is chief legal officer of Retiree Health Choices. Allen has been a practicing attorney and a consultant specializing in benefit plans for over 30 years, including 25 years as an attorney and partner with Hewitt Associates. Allen has provided employers with advice and support in the design and delivery of their employee benefit plans. He received his J.D. cum laude from Northwestern University Law School.