VISION 2020 FOR HEALTH CARE Rx for Today and Tomorrow
A prescription for rising costs A High-Deductible Health Plan (HDHP) paired with a Health Savings Account (HSA) also known as an HSA-eligible health plan can be a key part of a strategy to help control costs. Here s a look at how employers are embracing these plans: 73% 57% 33% 62% 87% Are concerned they will trigger the Cadillac Tax if they retain current benefits 1 Have or are considering making an HSA part of their retiree medical strategy 1 Will only offer HDHPs to their employees in 2016 2 Made a contribution to their employees HSAs in 2014 3 Of those currently contributing to their employees HSAs plan to continue in 2016 2 2
The pressure on employees Your employees are feeling similar pressures as their costs rise and they are asked to take on more responsibility for their own health care. You can increase their comfort level by educating them on the benefits of an HSA, both today and far into the future. An HSA can help employees across the spectrum from those who use it to pay today s medical expenses to those who see it as a way to save for health care costs during retirement. The average amount a family pays for insurance in an employer-sponsored plan 6 $245,000 $5,000 <$50,000 6% What the average 65-year-old couple retiring in 2015 can expect to spend on health care during retirement, according to Fidelity s 2015 Retiree Health Care Cost Estimate 4 57% of pre-retirees estimate they will spend less than $50,000 per person on health care in retirement 5 The annual rate of inflation expected for health care through 2024 7 3
Learning to shop around Your employees are probably not accustomed to shopping around for health care, but as they shoulder more of the cost of care, they are becoming more careful of how they spend their money. Employees with HSA-eligible health plans have proven to be more cost-conscious, which can help both employees and employers save. WHAT EMPLOYEES SAID: 8 Participants in HSA-eligible health plans Those in traditional health plans HOW COSTS VARY Checked if plan would cover care 43% 55% Shopping around can pay off for both the employer and the employee in an HSA-eligible plan. Here s a look at the price range for four common medical services in Boston, Mass., in 2014: 9 Asked for generic prescription vs. brand name 35% 44% Lipid panel: $15-$94 Lower back MRI: $416-$3,238 Head/brain CT scan: $349-$1,686 Checked price of service before getting care 27% 37% 4
How HSAs help spenders save HSAs may help employees spend less on their out-of-pocket health care expenses today both because of their tax advantages and the notion that they are spending their own money on health care. They also help employees save for tomorrow. More than 90% of HSA account holders carried a balance into 2014 3. Even a small balance carried over from year to year can accumulate savings over time. TRIPLE TAX ADVANTAGE 11 Employees who fund an HSA can save money on taxes now and later: 1. When they contribute Those who spend 90% 10 SAVINGS AFTER 5 YEARS Those who spend 50% 10 $8,600 They don t pay federal income tax on their contribution. So, a $6,750 HSA contribution in 2016 could cut a family s tax bill by $1,687 (assuming a 25% federal income tax rate). 2. As the money grows $2,800 If they invest what they don t spend, they aren t taxed on any potential earnings as their balance grows. 3. When they pay their medical bills Spent Withdrawals made to pay qualified medical expenses are never taxed. Saved 5
Satisfaction grows over time Learning how to become a smart health care consumer is challenging and requires an extra level of employee communication support. But employees who participate in these plans are broadly satisfied with their health coverage and that comfort level rises over time. 12 My health plan was the best choice for me and my family. 76% 92% After one year in an HSA-eligible health plan After two or more years in an HSA-eligible plan I am comfortable about my ability to pay medical expenses in retirement. 55% 68% I am satisfied with the quality of coverage. 82% 89% I am satisfied with the overall ease of use of the plan. 68% 86% The plan is helping me manage health care costs. 64% 80% 6
How HSAs help savers Employees who are healthy or can afford to cover their current expenses out-of-pocket can save their HSA balances well into the future even into retirement. For savers, an HSA is another powerful tax-advantaged way to save for retirement. Average Defined Contribution (DC) plan deferral rates are higher for those who also have an HSA 3 Those who save at least 90% of their HSA contribution see their balance grow quickly 13 8.1% 10% $19,900 $6,400 No HSA HSA and DC After 1 year After 5 years Those with HSAs have $100,000 more in DC savings on average. 3 24% of Fidelity HSA account holders saved at least 90% of their contributions in 2014. 3 7
3 uses for an HSA during retirement Health care often is the second-biggest expense for retirees, after housing. Fidelity estimates an average 65-year-old couple retiring today will spend about $245,000 on health care during retirement. 4 Money saved in an HSA can help in three important ways during retirement: 14 TO HELP BRIDGE TO MEDICARE The average retirement age in 2014 was 62 15 three years before Medicare eligibility. That leaves an expensive gap to fill. Generally, HSAs can not be used to pay for health insurance, but there are two important exceptions: paying for health care coverage purchased through an employer-sponsored COBRA plan, and paying premiums while receiving unemployment compensation. TO COVER MEDICARE PREMIUMS Many pre-retirees don t know Medicare isn t free. Retirees are responsible for certain costs, including premiums and co-insurance. An HSA can be used to cover those costs. For those who have employer-sponsored health coverage in retirement, an HSA can be used to pay the employee s share of those costs as well. * HSA money can be withdrawn at any time after age 65 without penalty, but if it is not used for qualified medical expenses, it will be treated as part of the taxpayer s gross income. TO BUY LONG-TERM CARE INSURANCE Many choose to buy long-term care insurance than will cover costs if they can no longer care for themselves. HSA money can be used to cover a part of the cost for a tax-qualified long-term care policy. 8
Creating engagement What s stopping employees who don t sign up for an HSA-eligible health plan? And what s helping enrollees embrace the change? What employees tell us can help inform how we communicate with them. 12 Those who enroll ARE INFORMED... Recognize the value of basic HSA features, including tax advantages and portability Cite employer as biggest influence in decision AND INVOLVED Weigh the options Are highly likely to stay enrolled year over year Are more likely to have covered dependents 24% of employees enrolled in an HSA-eligible health plan in 2015, up from 20% in 2014 16 Those who decline NEED EDUCATION... Don t understand that the HSA-eligible health plan comes with an HSA to help offset the higher deductible costs Are confused about what an HSA is and how it works Want more information when chronic conditions exist AND ENCOURAGEMENT Get overwhelmed by having to learn about all their options and make a decision all during annual enrollment Typically don t make changes during enrollment 9
How you can help Across the spectrum, you as an employer can help your employees make the most of an HSA, no matter where they are on the spending-to-saving spectrum. ENCOURAGE ADOPTION Keep your messages simple, direct and frequent. Provide cost comparisons so employees understand the bottom line for them. Use a variety of channels to communicate send emails as well as postcards to their home, provide videos, webinars and online experiences, and offer access to live help when needed. HELP SPENDERS SPEND LESS Don t stop educating your employees once they have selected an HSA-eligible health plan. Make sure they open their HSA to get the triple tax advantage. And begin to show employees how to be better health care consumers, so they can spend less on current health care costs and save more for the future. HELP SAVERS SAVE MORE As employees build up a balance that is larger than what they need to cover immediate expenses help them understand the role an HSA can play in preparing for retirement and that they may be able to invest some of their HSA balance in an appropriate investment option, potentially helping their savings grow even more. ADDITIONAL RESOURCES Read a case study of how one company drove adoption of its HSAeligible health plan to 50%. Download our infographic, 4 keys to Health Savings Accounts, to help employees understand the key features of HSAs. 10
1 Towers Watson, 2014 Health Care Changes Ahead Report, September 2014 2 National Business Group on Health Annual Health Care Benefits Survey, August, 2015 3 Fidelity recordkept data of 227,000 HSA accounts as of 12/31/2014 4 2015 Fidelity analysis performed by its Benefits Consulting group. Estimate based on a hypothetical couple retiring in 2015, 65 years or older, with average life expectancies of 85 for a male and 87 for a female. Estimates are calculated for average retirees, but may be more or less depending on actual health status, area of residence, and longevity. The Fidelity Retiree Health Care Costs Estimate assumes individuals do not have employer-provided retiree health care coverage, but do qualify for the federal government s insurance program, Original Medicare. The calculation takes into account cost-sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by Original Medicare. The estimate does not include other health-related expenses, such as over-the-counter medications, most dental services and long-term care. Life expectancies based on research and analysis by Fidelity Investments Benefits Consulting group and data from the Society of Actuaries, 2014. 5 Fidelity Retiree Health Survey conducted by GfK Public Affairs of 1007 pre-retirees and recent retirees, March 2014. 6 Kaiser Family Foundation/Health Research & Educational Trust (HRET) 2015 Employer Health Benefits Survey 7 Congressional Budget Office, An Update to the Budget and Economic Outlook: 2015 to 2025 8 2014 EBRI/Greenwald & Associates Consumer Engagement Health Care Survey 9 Castlight Health (http://www.castlighthealth.com/price-variation-map/). The primary source of data used for this analysis is medical claims data. Castlight augments this data with other data including: publicly available data, provider information, and actual provider rate sheets that list the negotiated price between a provider and an insurer. Castlight then applies proprietary algorithms to obtain the provider prices used for this analysis. Prices are defined as the employee cost-sharing plus the amount paid by the employer. Displayed prices are representative of in-network providers. 10 Fidelity recordkept data of HSA Accounts Jan. 1, 2009 through Dec. 31, 2013. Contributions averaged about $2,700 a year and money not spent remained in cash. Participants spent at least the percentage noted (90% or 50%) on qualified health care expenses during a five-year period. 11 With respect to federal taxation only. Contributions, investment earnings, and distributions may or may not be subject to state taxation. The triple tax advantages are only applicable if the money is used to pay for qualified medical expenses. 12 The Fidelity-sponsored 2014 HSA survey was conducted by GfK Public Affairs & Corporate Communications from April 30 to May 9, 2014, using GfK s KnowledgePanel, a nationally representative online panel composed of 1,247 U.S. adults who are age 25-65, have household income of $25,000 or more, have primary or shared responsibility for household financial decisions, and receive health care benefits through their own or their spouse/partner s employer. Of these respondents, 332 self-identified as being enrolled in an HSA-eligible health plan. 13 Fidelity recordkept data of HSA Accounts Jan. 1, 2009 through Dec. 31, 2013. Contributions averaged about $2,700 a year and money not spent remained in cash. Participants saved at least 90% of their contributions during the five-year period. 14 IRS Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans (http://www.irs.gov/publications/p969/ar02.html#en_us_2014_publink1000204081) 15 Gallup s annual Economy and Personal Finance survey, conducted April 3-6, 2014 16 2015 Kaiser Family Foundation and the Health Research & Educational Trust Employer Health Benefits Survey, September, 2015 All investing involves risk, including the risk of loss. Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation. For Plan Sponsor and investment professional use only. Not for use with plan participants. Approved for use in the advisor and 401(k) markets. Firm review may apply. Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917 2015 FMR LLC. All rights reserved. 740239.1.1