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Health Insurance Costs Squeeze 401ks?

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U.S. workers’ wages, adjusted for inflation, are stagnating, but their share of health care costs keeps going up.

“Something has got to give, right? That something could very well be the 401(k) or 403(b) plan,” said Mark Zoril, a personal financial planner and benefits adviser to small companies.

Six in 10 workers agreed: the rising cost of their health insurance “directly affects” how much they set aside in their retirement savings plan at work, according to a new survey gauging the “financial stress” of more than 2,000 full-time employees with health coverage. The random survey was conducted by LIMRA, a life insurance trade association.

Despite a slowdown in medical inflation, employees are paying a growing share of the tab for their health care. Average total premiums for family coverage under U.S. employer health plans rose 61 percent between 2005 and 2015, for example, but the employee premium increased 83 percent to $4,995, according to the Kaiser Family Foundation’s annual report. Two out of three individual workers today pay deductibles of at least $1,000, up from 16 percent a decade ago.

Anita Potter, LIMRA’s senior vice president of research, said workplace benefits face increasing competition for workers’ limited resources.

The growing prevalence of high-deductible health plans is one example. They have become a drain on 401(k) contributions, because workers need more cash available to pay potential deductibles that arise suddenly if they or family members become ill. If they don’t have savings, Potter said, “they’re stressing about how can I afford this.”

Chuck Miller, a Chicago communications consultant in retirement services, said employees mistakenly might feel that the 401(k) is an obvious place to cut back. Health care is an immediate and pressing need, while retirement is in the distant future and easy to put off.

“They’re going to pay for food, utilities, housing and healthcare – everything else is extra,” Miller said.

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