A new study has revealed the fact that increased retirement benefits savings lead to lower Medicaid spending. If a state is offering assistance to employees in boosting their retirement savings, it is indirectly contributing towards reducing the Medicaid spending. The study included several assumptions. Though it’s a fact that many states are offering programs to boost the retirement benefits savings, experts say that the other states should also consider initiating such programs by doing a cost-benefit analysis.
Study Says Increased Retirement Benefits Savings Lead to Lower Medical Spending
The study that says increased retirement benefits savings lead to lower Medicaid spending was conducted by Segal Consulting. It carried out a review of all 50 states and the District of Columbia to get estimates on the impact of expanded retirement benefits savings by individuals who are not a member of any retirement plan on the future Medicaid expenditures.
The Result of the Study
The analysis performed by Segal Consulting shows that there is a positive correlation between increased retirement savings and reduced Medicaid spending as more retirement savings remove a percentage of the currently vulnerable households from poverty rolls at the time they retire. The study also highlighted that every state saw an estimated reduction in the Medicaid expenses of the state that were a result of increased retirement benefits savings especially in the first 10 years of the plan.
The study that highlights increased retirement benefits savings lead to lower Medicaid spending also offered some startling figures. It found out that fifteen states would succeed in saving more than $100 million each and the total projected savings were around $5 billion. The amount of savings ranged from $11 million in Mississippi to $604 million in California. It is pertinent to add here that California recently became the eighth state that had enacted a retirement program for the private sector workers.
The study that found out increased retirement benefits savings lead to lower Medicaid spending was able to get the said results on the basis of the assumption that the programs would incur savings that start at 1 percent per year reduction in spending for workers who are currently 64 years old or older than that, grading up to 5 percent for the ones who were currently aged 60. The researchers did not assume that the Medicaid access would be eliminated. Instead, they mentioned that it would be delayed.
With these kinds of assumptions, it is not a surprise that the researchers described the impact over time as exponential. The researchers also noted that they did not take into account the different state eligibility nuances for Medicaid eligibility.
Segal as a Consultant for States Considering a State Retirement Plan
The paper that says increased retirement benefits savings lead to lower Medicaid spending was something of a promotion for the firm’s eligibility to serve as a Consultant to states that are considering the option of establishing a state-run retirement program. Segal Consulting can also help these states in creating as well as executing an RFP for providing the said services.
A flaw in the report that said increased retirement benefits savings lead to lower Medicaid spending is that it did not mention the fact that the same benefits (likely more than those) could be reaped by ensuring the expansion of retirement coverage generally through the existent employment-based savings system.
Already Enacted Programs
There are several states that have already enacted similar programs. It includes Oregon, Massachusetts, Illinois, Maryland, and Connecticut. Similarly, New Jersey and Washington State have launched small plan marketplaces to help people start saving more for retirement. It is also a known fact that around half of the states in the US are considering measures that will close the retirement coverage gap. Unfortunately, none of these programs have become operational till date. Only Oregon has made some progress as it has pledged to open the program for enrollment by July this year.
Opinion of an Expert
Cathie Eitelberg, who currently serves as the Senior Vice President and the Director of Public Sector Consulting at Segal, has expressed her opinion on the results of the study that mentions increased retirement benefits savings lead to lower Medicaid spending. She stated that the study clearly shows that the states could realize meaningful savings on the Medicaid spending when a good retirement savings plan is available to all the private sector workers.
She also added that a majority of jurisdictions still need to consider this option. It’s time that they should at least start evaluating the feasibility of such a program from a cost/benefit perspective.
We also agree that if it has been proved that increased retirement benefits savings lead to lower Medicaid spending, all the state governments need to start considering the launch of a state-run retirement benefits savings plan soon.