How HSAs Can Boost Retirement Plans. September 2017

Transcription

1 How HSAs Can Boost Retirement Plans September 2017

2 HSA Market Overview The Importance knowing where the HSA Market is Going

3 Deductible Trends Percent of covered workers enrolled in a Plan with a Deductible of $1,000 or More +40% in 2 years Source: KFF / HRET September 2016

4 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

5 Employer Participation 72% Percent of employers offering CDHPs Percent of covered employees enrolled in CDHPs 48% 59% 61% 20% 8% 23% 10% 32% 13% 36% 15% 39% 18% 23% 28% 33% By 2019 (projected) By 2019, 72% of Large Employers to Offer an HSA Eligible Plan

6 HDHP with an HSA 50% Percentage Under Age 65 Enrolled in an HDHP 40% 30% 20% 40.0% 36.9% 36.7% 33.9% 31.1% 29.0% 15.3% 13.3% 13.3% 25.3% 11.7% 9.2% 10.8% 7.7% 17.6% 19.9% 20.3% 22.2% 23.6% 23.4% 24.7% 10% HDHP 2014 no HSA CDHP 2015 (HDHP with 2016 HSA) (Jan-Mar) Source: CDC National Center for Health Statistics September 2016

7 HSA Cash and Investments Devenir HSA RESEARCH REPORT - 8/16/2017

8 HSA Savings

9 HSA Buzz and Retirement more than 75% of plan sponsors view the HSA as part of their retirement benefits strategy. 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 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 May 9 th,

10 HSA Plan Design

11 Why Embark upon Consumer Driven Health Plan Strategy? Converging factors Demographic shifts and rising health care costs Financially unprepared workforce Fragmented employee benefits experience Demand for simple, single source solutions FUNDING Yesterday Employer as Benefits Funder Today Employer as Benefits Facilitator $$$ $ $$$$$ $$ Employer s share Employee s share Employee s share Employee s share Outcomes Transfers first $1 spent to consumer (deductible) Lowers future healthcare cost through consumerism Savings realized over time RISK $ A Retirement Potential liability of a financially unprepared workplace Protection Health Retirement Source: MassMutual, Revealing Financial Risk 11

12 HSA Up to $3,400 HSA Plan Design Example Employee-only Coverage High Deductible Health Plan Design $5,000 $3,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 Coinsurance 80% Plan/20% EE Deductible HDHP with HSA Out of pocket maximum Individual trust account with employee or optional employer funding Note: Family coverage is 2X the employee coverage 12

13 Design Facts Minimum annual deductible Maximum out- ofpocket HSA contribution limits HSA catch-up HSA eligible expenses $1,300 Individual $2,600 Family Minimum $6,650 Individual $13,100 Family $3,350 Individual $6,750 Family $1,000 more for ages 55 or older Most medical, dental and vision Medicare and LTC premiums ER/EE Contributions Tax-exempt from: FICA/FUTA Federal income State/local income Key ER Savings EE Withdrawals Tax-free for most medical, dental and vision (earnings tax-free too) Can withdraw on past receipts Withdrawal at 65 for any reason(taxed) 13

14 14 Healthcare costs and its effects on retirement

15 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, 2013 (published in 2016), J.P. Morgan Asset Management. Table: Social Security Administration 2016 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%.

16 Income Replacement Needs In Retirement Retired Worker Age 65, 2015 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, Source: Social Security Administration, 2015 Retirement Rates for Hypothetical Retired Workers.

17 Income Replacement Needs Vary by Household Income 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. Source: J.P. Morgan Asset Management analysis, Household income replacement rates are derived from an inflation-adjusted analysis of: Consumer Expenditure Survey (BLS) data ( ); Social Security benefits using modified scaled earnings in 2016 for a single wage earner at age 65 and a spousal benefit at age 62 reduced by Medicare Part B premiums; and 2016 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.

18 Income Replacement Needs Vary by Household Income 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. Notes: Age 85 estimated total median cost in 2017 is $7,195. 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 Medigap Plan F (the most comprehensive plan). 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 Guide to Retirement slide 36. *Additional premium includes a projection of 2018 costs for a 65-year-old beneficiary in 2018 ($5,076), plus the surcharge percentage specified in the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA / doc fix bill ). Source: Employee Benefit Research Institute (EBRI) data as of December 31, 2016; SelectQuote data as of January 16, 2017; Centers for Medicare and Medicaid Services website, January 25, 2017; 2016 Medicare Trustees Report, June 22, 2016; J.P. Morgan analysis.

19 19 Boosting Retirement Plans with Health Savings Accounts

20 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. Can use cash on hand to pay and wait to withdraw later 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

21 Increased Purchasing Power With An HSA 21 Source: Fidelity Benefits Consulting; 2016

22 Retirement Savings 275K Individuals need to save 10x their salary to retire comfortable at age 67 A 65 year old couple who retired in 2017 needs nearly $275,000 to cover medical bills in retirement 22

23 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

24 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

25 Q&A