Presenters. Todd Berkley. Kathy Mertes. The Convergence of Health and Wealth Using HSAs 3/29/2018

Transcription

1 The Convergence of Health and Wealth Using HSAs Todd Berkley Global Leader BenefitWallet Conduent Human Resource Services Kathy Mertes Director BNY Mellon Treasury Services May 2018 Presenters Todd Berkley Global Leader BenefitWallet Conduent Human Resource Services BenefitWallet is an industry leader for consumer-directed health accounts, providing Health Savings Accounts (HSA), Flexible Spending Account (FSA), and Health Reimbursement Account (HRA) solutions to more than 20,000 U.S. employers of all sizes and industries. Kathy Mertes Director BNY Mellon Treasury Services BNY Mellon's Treasury Services group delivers high-quality performance in global payments, trade services and cash management. It helps clients optimize cash flow, manage liquidity and make payments more efficiently around the world in more than 100 countries. 1

2 HSA Basics HSAs are unique benefit programs triple tax-advantaged, can be used for current or future health expenses and owned by the account holder Funds Never Expire Tax Deductible Tax-Free Earnings Lifelong Tax-Free Withdrawals Fully Portable Funds May Be Invested Use today and through retirement Pre-tax when made through payroll Interest and investment gains For yourself, spouse, and tax dependents Keep your account if you change jobs Acts like an IRA for health care HSA Rules With all of the benefits and tax advantages HSAs offer, there are also some rules that must be followed: Deposit Eligibility Carrying the right health insurance coverage at the right time for yourself Must have a High Deductible Health Plan and no first-dollar coverage except preventive Disqualifiers: Medicare; most FSA and HRA (even if it is at your spouse s company); Tricare; some VA services; Indian Health Services; other items that cover first-dollar drugs and care Tax-Free Withdrawals Paying for the right expenses at the right time for people related to you in the right way 213(d) list with a few exceptions for COBRA, LTC, and Medicare premiums except Medigap Accountholder responsible for providing proper fund usage to IRS 2

3 Consumer Driven Health Plans To have an HSA, there must be qualifying current year coverage with a minimum but high deductible: Must have a minimum deductible of: $1,350 for individual coverage $2,700 for family coverage (covers more than one person) Out-of-pocket costs cannot exceed: $6,650 for individual plans $13,300 for family plans Your plan cannot cover ineligible items under the deductible except preventive services and prescription drugs Employers Focus on Full Replacement Employers contribute 71% of health premiums for employees, with PPO plan premiums about 9% higher than Consumer Directed Health Plans(CDHP) 84% of large employers offer at least one CDHP option 33% offer CDHP as only choice HSA plans most popular with over 87% offering one Source: 2016 Large Employers Health Plan Design Survey: Reducing Costs and Looking into the Future, NBGH, 2016 National Survey of Employer-Sponsored Health Plans, Mercer 3

4 Plan Design Matters Employers add choices to engage consumers and lower costs Employer Contributions to Health Accounts Today How Employer Contributions Will Evolve Source: 2016 Large Employers Health Plan Design Survey: Reducing Costs and Looking into the Future, NBGH HSAs Create Immediate and Lasting Change BCBSIL s HDHP/HSA Cohort Study Results show significant decrease in both utilization and costs when moving from a PPO plan to HDHP/HSA plans Consumers more discerning with health care usage: Inpatient admits lower by 21.7% ER visits drops by 8.3% Overall medical costs lowered by 9.2% Utilization/Cost Changes Utilization under CDH Plan compared to BCBS IL Utilization under PP Plan Cohort Study 1 Year 3 Year Inpatient Utilization Admits/1, % -21.7% Length of Stay 4.1% -3.7% Trend/Risk Adjusted PMPM Costs -11.3% -16.1% Outpatient Utilization Visits/1, % -6.1% Surgeries/1, % -7.9% ER/1, % -8.3% Trend/Risk Adjusted PMPM Costs -4.4% -5.7% Professional Utilization Visits/Member -5.2% -7.9% Trend/Risk Adjusted PMPM Costs -8.4% -10.4% Pharmacy Generic Fill Rate -4.0% -9.7% Trend/Risk Adjusted PMPM Costs -2.4% 0.2% Grand Total Medical Only Trend/Risk Adjusted PMPM Costs -7.1% -9.2% Medical & Pharmacy Trend/Risk Adjusted PMPM Costs -5.9% -6.6% 4

5 HSAs Help Employees Save on Income Taxes HSAs reduce income taxes for employees; the greater the contributions, the greater the income tax savings Monthly Income Tax Savings (Federal + State) HSA Contribution 18% 30% 42% $1,600 (average) $3,450 (individual max) $6,850 (family max) $8,750 (family max w/2 catch-ups) $24 $40 $56 $52 $86 $121 $103 $171 $240 $133 $221 $310 For illustration purposes only; example assumes 15%, 25% and 35% federal income tax rate, plus 3%, 5% and 7% state income tax rate, respectively; 2018 tax year used. HSAs Help Employers Save on Payroll Taxes HSAs reduce payroll (FICA) taxes by 7.65%; the higher the employee contributions, the greater the payroll tax savings. $38,250 $76,500 $114,750 $153,000 $191,250 $229,500 $263,925 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,350 $3,450 Average Employee HSA Contribution (to individual maximum) For illustration purposes only; example assumes participation of 1,000 employees with the same average HSA contribution 5

6 HSAs Help Drive Consumerism and Financial Wellness Employees want employers to help them be better consumers and achieve financial wellness HDHP/HSA education and engagement Investment options and advice Employers want employees to make informed decisions and take more responsibility Health care options and costs HSA Wellness and prevention HSAs are uniquely positioned to deliver for both groups Reporting and best practices Receipt management and audit support Health Care Costs in Retirement In retirement, Americans become responsible for 100% of their health care expenses, including premiums, copays, deductibles and all other out-of-pocket expenses A 65-year-old couple will pay $404,253 ($607,662 in future dollars) for total lifetime health care costs Due to health care inflation, a 55- year-old couple will pay 25% more for the same coverage in 10 years In 20 years, equivalent coverage will cost a 45-year-old couple over $635, year-old couple 55-year-old couple 45-year-old couple Premiums Out-of- Pocket Total Costs (Present) Total Costs (Future) $321,994 $82,258 $404,253 $607,662 $410,002 $88,961 $498,962 $1,010,223 $537,480 $97,662 $635,142 $1,730,774 Calculations assume a healthy male and female will have life expectancies of 87 and 89 respectively, and a combined future modified adjusted gross income (MAGI) of under $170,000. Source: HealthView Services 2017 Retirement Health Care Costs Data Report 6

7 Health Care Costs in Retirement As a 65-year-old couple ages, monthly premiums and out-of-pocket costs will increase dramatically due to the compounding effect of health care inflation The $947 monthly outlay will almost double by age 75 and grow to $3,267 per month a 245% increase at age 85 Age 65 Age 70 Age 75 Age 80 Age 85 Overall Costs (to age 87) Monthly costs $947 $1,269 $1,755 $2,408 $3,267 Annual costs $11,369 $15,226 $21,064 $28,900 $39,208 $607,662 Illustration shows cost projections for a 65-year-old couple for Medicare parts B and D, supplemental insurance, dental insurance and out-of-pocket expenses (in future dollars). Source: HealthView Services 2017 Retirement Health Care Costs Data Report Retirement Perceptions and Realities Running out of money, health issues and health care costs in retirement are employee concerns across all generations Running out of money 45% 53% 50% 33% Health issues 29% 29% 27% 30% All Millennials Health care costs 28% 20% 25% 38% Gen X Baby Boomers Source: PWC 2016 Employee Financial Wellness Survey 7

8 Retirement Perceptions and Realities On average, 44 percent of employees are planning to delay their retirement due to insufficient savings 32% 44% 52% Millennials Gen X Baby Boomers Source: PWC 2016 Employee Financial Wellness Survey Retirement Perceptions and Realities Employees increasingly feel their employers have a responsibility to: Help them have enough money in retirement 37% Aid their financial well-being 43% Offer benefits that meet their financial needs 43% Source: MetLife 2015 Employee Benefit Trends Study 8

9 Retirement Perceptions and Realities Even with broad availability of this additional retirement savings vehicle, employees are still not taking advantage of HSAs Employees who are covered by a HSA-qualified plan Covered employees who contribute to their HSAs 52% 48% No 38% Yes 62% Source: PWC 2016 Employee Financial Wellness Survey Retirement Perceptions and Realities Employees don t view HSAs as retirement savings vehicles, instead they treat them like spending accounts 47% 35% 18% Short Term HSA funds are used for immediate or short term health care costs Mixed HSA funds are used for both immediate and future health care costs Long Term HSA funds are used for future retirement health care costs Source: PWC 2016 Employee Financial Wellness Survey 9

10 HSAs Enhance Retirement Savings Options HSAs are like a 401(k) or IRA on steroids but with more flexibility and fewer rules, especially for tax-free distributions, making them complementary savings tools. 401(k) / IRA HSA Money grows tax-deferred Contributions are tax-deductible (if eligible) Penalty tax applies to withdrawals that do not follow IRS rules Use tax-free money at any age to pay for qualified medical expenses Before age 65, funds to pay for long-term care insurance, COBRA premiums and health insurance premiums while receiving unemployment After age 65, use funds to pay for health insurance premiums (except MediGap) No required minimum distributions or means testing 10% tax to age 59½ 401(k) and IRA at 59½ subject to income tax Available subject to income tax 20% tax to age 65 HSA Investments: An Untapped Opportunity Account holders are missing out on the untapped benefits and powerful growth potential of investing their HSA assets Less than 3% of HSA account holders currently invest; those who do are a happy and profitable group Investment balances have more than doubled in the last five years from $4,100 to nearly $10,000 Investment-focused HSA programs growing faster than the market; growth in recent years is 27% Research by BrightScope reports that 401K outflows were larger than inflows for the first time in

11 Revenue Opportunity for Financial Professionals Given the realities of health care costs in retirement, HSAs present a unique opportunity for financial professionals 3% $14,035 $4.2B $9.7B 11.3% Only 3% of all HSA account holders invest today Average HSA investment account total balance Total HSA investment assets at end of 2015 Estimated investment assets by end of 2018 Average annualized return for HSA investors (last 3 years) Source: Devenir 2016 Year-End HSA Market Statistics & Trends The Future Is Now As more Americans expect an omni-channel experience for managing their personal finances, health care and daily tasks, HSAs are keeping pace with tools and resources that provide personalized, digital and secure transactions Member Portal Mobile App Chip Debit Card Investment Site Calculators 11

12 Bright Future for Further HSA Expansion The 2016 Presidential election and Republican Congress make it likely HSA-type health programs could expand rapidly: There is executive as well as bipartisan and bicameral support for HSA expansion Likely changes would increase limits; allow over the counter drugs, services/rx for chronic conditions; eligibility for excluded groups May be excluded from any Cadillac tax calculation (if not repealed) or any cap on tax exclusion Many bills including HSA provisions have been introduced; supporters believe the Gold Standard is the Hatch-Paulsen bill Pending HSA Legislation Hatch-Paulsen Bill: The Health Care Savings Act of 2017 S. 403 (H.R. 1175) Consumer-Friendly Name Rename high deductible health plans as HSAqualified health plans Simplification of Use Allow both spouses to make catch-up contributions to the same HSA account Allow HSA-eligible expenses incurred if the HSA is established within first 60 days of insurance Allow HSA funds to be used tax-free to pay expenses for children under age 27 regardless of tax dependent status Allow unspent funds from employees FSAs or HRAs to be rolled over to their HSAs Continue to contribute if enrolled in Medicare Part A Increased Deposit Limits Increase HSA contribution limit to the out-of-pocket limit Expanded Qualified Expense List Allow more services at employer s on-site medical clinics to be HSA qualified Repeal the OTC drug prescription requirement Allow HSAs to pay HSA-qualified health plan premiums Expand the definition of preventive care services to include prescription and OTC drugs for chronic conditions Expand IRS definition of medical care to include: Equipment for physical exercise and physical fitness programs Nutritional and dietary supplements Fees for direct primary care arrangements 12

13 HSAs Continue Growing Estimated 150M people are covered group health insurance Of those 29% or 43M are enrolled in an HDHP with HSA or HRA HSA are most popular with 19% or 30M covered HSAs to continue rapid growth at 20% annualized rate Over 27M HSA with more than $50B in AUM estimated by the end of 2018 Sources: Kaiser-HRET Employer Health Benefits 2016 and HSA Consulting Services analysis of Devenir HSA Research Report Questions? 13

14 Contact Information Todd Berkley Global Leader BenefitWallet Conduent Human Resource Services Phone: Kathy Mertes Director BNY Mellon Treasury Services Phone: This presentation is for private circulation and for general information and reference purposes only and is not intended to provide legal, tax accounting, investment, financial or other professional advice on any matter. This information is owned by Conduent Human Resource Services. BNY Mellon does not undertake to update or amend this information and expressly disclaims any liability for any loss arising from this information or data. Trademarks and logos belong to their respective owners. 14