4. WHAT IS A CONSUMER DRIVEN HEALTH PLAN
STRATEGY?
A “consumer driven health plan” (CDHP) or High Deductible Health Plan (HDHP):
• Plans provide high-deductible health insurance to protect members from catastrophic medical expenses
• May offer accounts to members that enable them to pay routine costs out of pocket or tax advantaged
• Health Savings Accounts (HSAs)
• Health Reimbursement Accounts (HRAs), or
• Other similar medical payment products
• Deductible must be met before plan pays benefits;
• Member pays full cost for all covered services, including most doctor office visits and pharmacy
• No first-dollar coverage except for preventive care
• All out of pocket expenses accumulate to the deductible and out of pocket limits
Sources:
♦ Ninth Annual Cigna Choice Fund Experience Study, Cigna Corporation, 2015
♦ 11th Anniversary Aetna HealthFund® Study, Aetna, Inc., 2015
5. WHY EMBARK UPON CONSUMER DRIVEN
HEALTH PLAN STRATEGY?
• Traditional PPOs have very little incentive for consumerism and member engagement
• Majority of employees have little or no health care spending and need more affordable health plan option
• Studies indicate the following attributes of CDHPs:
• Lower future health care trend and overall health care costs
• Higher engagement in clinical programs and wellness programs
• Financial outcomes:
• Savings generally not realized in first or second year given less than 50% enrollment
• With high participation levels, savings can be up to 9% for plan design and approximately 2% annually
abatement of future trend.
Sources:
♦ Ninth Annual Cigna Choice Fund Experience Study, Cigna Corporation, 2015
♦ 11th Anniversary Aetna HealthFund® Study, Aetna, Inc., 2015
6. Converging factors
• Demographic shifts and rising health care costs
• Financially unprepared workforce
• Fragmented employee benefits experience
• Demand for simple, single source solutions
Outcomes
• Transfers first $1 spent to consumer (deductible)
• Lowers future healthcare cost through consumerism
• Savings realized over time
Source: MassMutual, Revealing Financial Risk
Yesterday Today
Employer as Benefits Funder Employer as Benefits
Facilitator
FUNDING
$$$ $ $$$$ $$
Employer’s
share
Employee’s
share
Employer’s
share
Employee’s
share
RISK
$ Potential liability of a financially
unprepared workplace
A funded liability for benefits
Protection Health Retirement
WHY EMBARK UPON CONSUMER DRIVEN
HEALTH PLAN STRATEGY?
7. HDHP WITH HSA – PLAN CHARACTERISTICS
HDHP with HSA
HDHP Required Plan Design
♦ $1,350 Individual/$2,700 Family Minimum Annual Deductible
♦ $6,650 Individual/$13,300 Family Maximum Out of Pocket
♦ Can’t enroll in plan with first-dollar healthcare
♦ Same covered expenses as a traditional PPO plan with no copays
♦ Aggregate family deductible applies for members on a family plan
Health Savings Account Features
♦ Contributions are tax exempt (FICA/FUTA, Fed, state).
♦ Earnings from investments are tax-free.
♦ Distributions to pay for qualified medical expenses are tax-free
♦ Funds may accumulate, are 100% vested and portable
Health Savings Account Maximum
Contributions
♦ $3,450 Individual/$6,900 Family Maximum Annual Contribution
♦ $1,000 catch up for ages 55 and older
Health Savings Account Eligible
Expenses
♦ IRS eligible medical, dental or vision expenses
♦ Medicare premiums
♦ Long term care premiums
8. HSA Plan Design Example
Deductible
Out of pocket maximum
HDHP with HSA
HSA
Upto
$3,450/$6,900
Coinsurance
80% Plan/20% EE
$0
$1,000
$500
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
Individual trust account with
employee or optional employer
funding
$3,500
$5,000
Note: Family coverage is 2X the employee coverage
High Deductible Health Plan Design
10. Deductible Trends
Percent of covered workers enrolled in a Plan with a Deductible of $1,000 or More
Source: KFF / HRET – September 2016
+40% in 2 years
11. HDHP with an HSA
17.6% 19.9% 20.3% 22.2% 23.6% 23.4% 24.7%
7.7%
9.2% 10.8%
11.7%
13.3% 13.3%
15.3%
25.3%
29.0%
31.1%
33.9%
36.9% 36.7%
40.0%
10%
20%
30%
40%
50%
2010 2011 2012 2013 2014 2015 2016 (Jan-Mar)
Percentage Under Age 65 Enrolled in an HDHP
HDHP no HSA CDHP (HDHP with HSA)Source: CDC National Center for Health Statistics – September 2016
12. Health Benefit Account Overview
• HSAs are projected to be the most utilized
CDH Account Type by 2020
• HSA growth projected at 18%
• Enhance benefit offerings and maximize
employee savings potential by offering a
limited purpose FSA along with an HSA
13. HSA Cash and Investments
Devenir HSA RESEARCH REPORT - 8/16/2017
15. HSA Buzz and Retirement
Health Equity to Roll Out
Services Integrating 401(k)s
and HSAs
By Javier Simon:
• PlanSponsor
HSAs Offer Tax Benefits
Beyond 401(k)s
By Anne Tergesen:
•The Wall Street Journal
Health savings accounts: A
second retirement plan
By Anna Robatson:
•CNBC
HSAs Become Key Part of
Retirement Plan
By Brian O'Connell:
•InsuranceNewsNet
Record keeper Empower jumps
into HSA market, as Fidelity
expands
By Greg Lacurci:
• Investment News
401k Funeral At NAPA Summit?
Hybrid HSAs might be the
answer
By John Sullivan:
•401k Specialist Magazine
Why You Should Max Out Your
HSA Before Your 401(k)
Kelley Long, Contributor:
•Forbes
Should HSAs and 401(k)s be
more closely linked?
By Brian M. Kalish:
•Employee Benefit News
“… more than 75% of plan sponsors view the HSA as part of their retirement benefits strategy.”
https://www.benefitnews.com/news/more-employers-view-hsas-as-part-of-retirement-strategy . May 9th, 2017
18. LIFE EXPECTANCY PROBABILITIES
PLAN FOR LONGEVITY
Average life expectancy continues to
increase and is a mid-point not an end-
point. You may need to plan on the
probability of living much longer −
perhaps 30+ years in retirement − and
invest a portion of your portfolio for
growth to maintain your purchasing
power over time.
Chart: Social Security Administration, Period Life Table, 2014 (published in 2017), J.P. Morgan Asset Management. Table: Social Security Administration 2017 OASDI Trustees Report. Probability at least one member of a same-sex female couple lives
to age 90 is 55% and a same-sex male couple is 39%.
19. OLDER AMERICANS IN THE WORKFORCE
IT’S STILL OFF TO
WORK I GO
More people are working
later in life, motivated by
the desire to do so.
Source (top chart): Bureau of Labor Statistics, Monthly
Labor Review, December 2016. Actual data to 2016
and projection to 2026.
Civilian population age 65+ is non-institutionalized
population.
Source (bottom chart): Employee Benefit Research
Institute, Mathew Greenwald & Associates, Inc., 2017
Retirement Confidence Survey.
Data as of March 2017. Latest available data through
December 31, 2017.
20. MANAGING EXPECTATION OF ABILITY
TO WORK
Source: Employee Benefit Research Institute, Mathew Greenwald & Associates, Inc., 2017 Retirement Confidence Survey. Data as of March 2017.
EARLY RETIREMENT
You may not have complete control
over when you retire, so you should
consider having a back-up plan. You
may have to draw income earlier
and make your portfolio last longer
than you anticipate.
21. SPENDING AND INFLATION
*There are no individual inflation measures for these specific subcategories. Source (top chart): BLS, 2016 Consumer Expenditure Survey for households where at least one member has a bachelor’s degree. Charitable contributions include gifts to religious,
educational and political organizations, and other cash gifts. Spending percentages may not equal 100% due to rounding. Source (bottom chart): BLS, Consumer Price Index, J.P. Morgan Asset Management. Data represent annual percentage increase from
December 1981 through December 2017 with the exception of entertainment and education, which date back to 1993. The inflation rate for the Other category is derived from personal care products and tobacco. Tobacco has experienced more than 7% inflation
since 1986 but each age group only spends 0.4%-0.7% on tobacco (21%-37% of combined personal care products and tobacco), which is a lower proportion than represented in the Other inflation rate.
LOSING GROUND
Inflation disproportionately affects
older Americans due to differences
in spending habits and price
increases in those categories.
22. Retired Worker Age 65, 2015
1. Source: Social Security Administration, 2015 Retirement Rates for Hypothetical Retired Workers.
Earnings
Level
Low
$20,830
Medium
$46,290
High
$74,060
Maximum Taxable
$112,090
Social Security
Replacement
Level
53%
$11,120
40%
$18,320
33%
$24,290
26%
$29,420
INCOME REPLACEMENT NEEDS IN
RETIREMENT
23. INCOME REPLACEMENT NEEDS IN
RETIREMENT
Source: J.P. Morgan Asset Management analysis, 2017. Household income replacement rates are derived from an inflation-adjusted analysis of: Consumer Expenditure Survey (BLS) data (2013-2016); Social Security benefits using modified scaled
earnings in 2017 for a single wage earner at age 65 and a spousal benefit at age 62 reduced by Medicare Part B premiums; and 2017 OASDI and FICA taxes. The income replacement needs may be lower for households in which both spouses are
working and the second spouse’s individual benefits are greater than their spousal benefit. Single household income replacement needs may vary as spending is typically less than a two-spouse household; however, the loss of the Social Security spousal
benefit may offset the spending reduction. Percentages and values may not sum due to rounding.
ESTIMATING RETIREMENT
LIFESTYLE NEEDS
Less income may be needed in
retirement to maintain an equivalent
lifestyle due to no longer needing to
save, lower spending in certain
categories and lower income taxes.
24. INCOME REPLACEMENT NEEDS VARY BY
HOUSEHOLD INCOME
Source: J.P. Morgan Asset Management analysis, 2017. Household income replacement rates are derived from an inflation-adjusted analysis of: Consumer Expenditure Survey (BLS) data (2013-2016); Social Security benefits using modified scaled
earnings in 2017 for a single wage earner at age 65 and a spousal benefit at age 62 reduced by Medicare Part B premiums; and 2017 OASDI and FICA taxes. The income replacement needs may be lower for households in which both spouses are
working and the second spouse’s individual benefits are greater than their spousal benefit. Single household income replacement needs may vary as spending is typically less than a two-spouse household; however, the loss of the Social Security spousal
benefit may offset the spending reduction. Percentages and values may not sum due to rounding.1
SPENDING NEEDS BY INCOME
Estimated income replacement needs range
from 70%-80% depending on pre-retirement
household income. The more you earn, the
more of your income you will be responsible
for providing as Social Security replaces less.
25. CHANGES IN SPENDING
Source: J.P. Morgan Asset Management. Estimates based on average consumer expenditure
from the 2016 Consumer Expenditure Survey (BLS) for each age group excluding pension
contributions. Population includes households where a bachelor’s degree or higher is achieved
by any member. Average household size for age 45–54 is 3.0, age 55–64 is 2.3, age 65–74 is
2.0 and age 75+ is 1.7.
WHAT TO EXPECT
Household spending peaks at the age of
45, after which spending declines in all
categories but health care and charitable
contributions and gifts. Housing is the
largest expense, even at older ages.
26. RISING ANNUAL HEALTH CARE COSTS IN
RETIREMENT
Notes: Age 85 estimated total median cost in 2018 is $7,097. Medigap premiums usually increase due to age, in addition to annual inflation, except for most policies in the following states: AR, CT, MA, ME, MN, NY, VT WA, AZ, FL, ID and MO. Analysis
includes the most comprehensive and expensive plan available in each state. Parts B and D additional premiums are calculated from federal tax returns two years prior; individuals may file for an exception on form SSA-44 if they reduce or stop work. For
the definition of MAGI, please see slide 41. Source: Employee Benefit Research Institute (EBRI) data as of December 31, 2017; SelectQuote data as of January 18, 2018; Centers for Medicare and Medicaid Services website, January 22, 2018; CMS
Annual Release of Part D National Average Bid Amount, July 31, 2017; 2017 Medicare Trustees Report, July 13, 2017; Consumer Expenditure Survey data as of December 31, 2017; J.P. Morgan analysis.
A GROWING CONCERN
Given variation in health care cost
inflation from year to year, it may be
prudent to assume an annual health
care inflation rate of 6.5%, which may
require growth as well as current income
from your portfolio in retirement.
33. LIFE EXPECTANCY BY HEALTH STATE
FOR A 65 YEAR OLD
Healthy Cancer
Cardiovascular
Disease
Diabetes
High Blood
Pressure
High
Cholesterol
Tobacco
Use
Male 87 81 85 78 86 85 81
Female 89 81 88 81 88 87 83
34. Percent Reduction in Salary Upon Return
100%
89%
63%
–11%
–37%
0
25
50
75
100%
No Time
Out of Workforce
Less than One Year
Out of Workforce
Three or More Years
Out of Workforce
Women lose earnings by spending time out of the workforce.
Source: Harvard Business Review “Off-Ramps and On-Ramps: Keeping Talented Women on the Road to Success.” 3/31/05. https://hbr.org/2005/03/off-ramps-and-on-ramps-keeping-talented-women-on-the-road-to-success#
11 Years
Average number of
years women spend
outside the workforce
raising children
THE PENALTY FOR MOTHERHOOD
35. 0
25,000
50,000
75,000
100,000
$125,000
18–34 35–49 50–64 65+
Age
Women Men
• Median Wealth for Single Men and
Women by Life Stage2 • Median Retirement Savings3
Women
$118,000
Men
$162,000
Age 55 to 64
1. Source: Bureau of Labor Statistics, Census Bureau, 12/31/15.
2. Source: www.americanprogress.org/issues/women/news/2014/12/16/103380/5-reasons-why-social-security-matters-for-womens-economic-security/;
assetfunders.org
3. BlackRock Global Investor Pulse. (Median figures). March 2016.
• Women Earn Less than Men1
$1.00 vs. $0.79 =
$431,000
missed lifetime earnings
THE SHADOW OF INCOME INEQUALITY
37. Vital Stats On Health Savings Accounts (HSA)
HSAs do not raise the cap
on tax-deferred savings.
No time limit for
using the money.
No “use it or lose it”
restrictions.
Triple tax break when
paired with high-deductible
health insurance policies.
HSA funds may be invested
in cash, mutual funds or
other investments.
Tax-free withdrawals
for medical expenses.
Taxable withdrawals at
age 65 for any reason
Can use cash on hand to pay
and wait to withdraw later
39. Retirement Savings
A 65 year old couple
who retired in 2016 needs
nearly $265,000 to cover
medical bills in retirement
Individuals need to save
10x their salary to retire
comfortable at age 67
265K
40. Maximizing 401(k) and
HSA Contributions
401(k) or HSA?
• To figure out if a retirement
contribution would grow to a larger
sum in a 401(k) or health-savings
account, look to your combined
federal/state tax rate and any 401(k)
match
41. Increasing Participation Strategies
Talk about the HSA with employees 1st
The HSA benefits can be missed if the HSA eligible health plan is introduced first
Seed the employees HSA with employer contributions
Even matching contributions tied to payroll will increase HSA adoption rates
Position the HSA as a lifetime account
Breakdown silos of health and wealth for employees to understand the powerful long term savings potential HSAs have.
HSA Education is a best practice to increase participation
Don’t wait for open enrollment to introduce the HSA as a benefit. Rather create a coming soon approach by discussing
benefits several months before open enrollment
Inertia: Auto-enrollment
Auto-enrollment is the most effective tool to overcome participant inertia. Setting an auto-enroll for 1/3 of the annual
deductible for the HDHP can help seed accounts.
401(k) & HSA Integration
See if your 401(k) provider offers HSA’s and consolidate services. The K providers have much better websites and
participant interfaces
42. HSA Caution Flags
Contributions not allowed after account owner enrolls in Medicare.
Withdrawals for non-medical expenses taxed as income after age 65.
20% penalty AND income taxes owed on withdrawals for non-medical
expenses prior to age 65.
Vital Stats on Health Savings Accounts (HSAs)
44. THANK YOU!
Qualified Plan Advisors and its team thanks all of you for
the opportunity to provide you our services!
Securities offered through Cambridge Investment Research, Inc., “Cambridge,” a Broker/Dealer, Member FINRA/SIPC. Advisory services offered through Prime Capital Investment Advisors, LLC. “Prime Capital,” a Registered Investment
Advisor. Prime Capital doing business as Qualified Plan Advisors, “QPA,” 6201 College Blvd., 7th Floor | Overland Park, KS 66211 | p: 913.491.6226 | f: 913.491.3214 | primecap-ia.com |
Cambridge and Prime Capital are not affiliated.