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RetirementWellness
IS THERE A CURE-ALL SOLUTION?
Planning for Retirement Health Care CostsPresenter Name
Date
22
Agenda
01WHAT DOES THE HEALTH CARE
LANDSCAPE LOOK LIKE?
02HOW CAN EMPLOYEES SAVE / PLAN FOR HEALTH CARE EXPENSES?
03WHY INCLUDE HEALTH CARE IN YOUR RETIREMENT SAVINGS STRATEGY?
Health Care Landscape
44
The Average Employee Is Unprepared for Retirement
1T. Rowe Price Retirement Savings and Spending Study (2018). Representative national study of 3,005 adults 21 years old or greater, never retired, currently
contributing to a 401(k) plan or eligible to contribute and have a balance more than $1,000. Survey was conducted online July 24-August 14, 2018.2U.S. Census Bureau at al. 20143Sophie Bethune, “Money Stress Weights on Americans’ Health”, Monitor on Psychology, Volume 46, No. 4, Page 38, 2015, American Psychological Association.
Reprinted with permission.4Bankrate Money Pulse survey, December 2015
63%
expect to run out of money1
can’t afford to contribute more to their plans1
of wages go to consumer debt payments2
don’t have enough savings to cover a $1,000 emergency4
say finances are the largest source of stress
in their life3
24%
25% 57% 64%
55
Top Five Fears About Retirement
Source: Employee Financial Wellness Survey, PwC US, 2018.
PwC’s Employee Financial Wellness Survey tracks the financial and retirement well-being of working U.S. adults nationwide. The 2018 survey incorporates the views
of 1,600 full-time employed adults representative of the U.S. population by age and gender. The margin of error is +/- 3%. Participants are categorized by generation
using the following age groups: 21 to 36 (Millennials), 37 to 57 (Gen X) and 58 to 75 (Baby Boomers).
40%
Running out
of money
1
33%
Health issues
2
28%
Health care costs
3
17%
Inability to
meet monthly
expenses
4
17%
Inability to
maintain standard
of living
5
66
Health Care: One of The Greatest Expenses in Retirement
Source: U.S. Bureau of Labor Statistics, A Closer Look at Spending Patterns of Older Americans, 2016
36%
16%14%
12%
4%
2%
16%
Housing
Health Care
Transportation
Food
Entertainment
Clothing
Miscellaneous
EXPENSES FOR AMERICANS AGE 75+
77
How the Health Care Dollar Is Spent
Source: Centers for Medicare and Medicaid Services, National Health Expenditures, 2017
33%Hospital Care
28%Other
20%Doctor Visits
and Services
10%Prescription
Drugs
5%Nursing Home
4%Dental
Services
88
A Closer Look at Medicare
99
Medicare Alone Won’t Be Enough
Medicare is representative of Part A and Part B coverage.
Source: Medicare.gov 2018
MEDICARE COVERS MEDICARE DOES NOT COVER
Inpatient hospital costs
Surgeries
Doctor visits
Lab tests
Preventive screenings
Equipment, such as
wheelchairs
Hearing aids
Most vision care
Most dental care
Personal aid services to help you
stay in your home
Most nursing home and other
long-term care
Assisted living
1010
Health Care Costs in Retirement Fall Into Two Categories
Unpredictable
PredictableTHE
THE
1
2
1111
The Predictable: Medicare and Medigap
Source: T. Rowe Price estimates based on projected 2019 Medicare premiums and data from the Health and Retirement Study (HRS). Health and Retirement Study,
(HRS) public use dataset. Produced and distributed by the University of Michigan with funding from the National Institute on Aging (grant number NIA
U01AG009740). Ann Arbor, MI. All costs are rounded to the nearest hundred. Premium percentage of total health care expenses includes the median percentage
share of individual health insurance premiums (ages 65 and above) for Medicare Parts A, B, D and Medigap.
2019 MONTHLY PREMIUM COSTS
Part A Subsidized premium
Part B $135.50 - $460
Part DVaries by state and plan
Median: $40
Medigap
(supplemental)
Varies by state and plan
Median: $200
81%of total health care
expenses go to
premium costs
1212
The Predictable: 2019 IRMAA Brackets
Source: Medicare Board of Trustees
INDIVIDUAL MAGI
COUPLES MAGI
PART B PART D
< $85k < $170k $135.50 Premium (varies)
$85k - $107k $170k - $214k $189.60 (40%) Premium + $12.40
$107k - $133k $214k - $267k $270.60 (100%) Premium + $31.90
$133k - $160k $267k - $320k $352.20 (160%) Premium + $51.40
$160k - $500k $320k - $750k $433.40 (220%) Premium + $70.90
>$500k >$750k $460.50 (240%) Premium + $77.40
13
Retirement Health Care Costs
Source: T. Rowe Price estimates based on projected 2019 Medicare premiums and data from the Health and Retirement Study (HRS). Health and Retirement Study,
(HRS) public use dataset. Produced and distributed by the University of Michigan with funding from the National Institute on Aging (grant number NIA
U01AG009740). Ann Arbor, MI. All costs are rounded to the nearest hundred. Premium percentage of total health care expenses includes the median percentage
share of individual health insurance premiums (ages 65 and above) for Medicare Parts A, B, D and Medigap. Medigap policies bought directly from an insurance
company, an insurance exchange, or group plans provided by AARP are considered for these calculations. Costs of long-term care are not included in the analysis.
2019 ESTIMATED ANNUAL EXPENSES (INDIVIDUAL)
$3,800
$500
$4,700 $4,500
$1,100
$5,800 $5,200
$2,200
$7,300
$6,100
$4,500
$10,200
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
Premium Out of Pocket Total
25th Percentile 50th Percentile 75th Percentile 90th Percentile
1414
Health Care Is A Huge Expense for Employers
.
Source: Mercer National Survey of Employer-Sponsored Health Plans, 2018; PSCA Health Savings Accounts and Retirement Plans, 2017. CDHP is Consumer
directed health plan.
▪ 75% of employers view HSAs as part of a retirement benefits strategy
$12,486
$11,580
$10,357$10,826
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
PPO HMO HSA-eligibleCDHP
PPO with deductiblegreater than $1,000
AVERAGE MEDICAL PLAN COST PER EMPLOYEE (LARGE EMPLOYERS)
How to Save / Plan for Health Care Expenses
1616
No One Option is Perfect
Reflects Roth and pretax employer-sponsored plans (as opposed to IRAs) unless noted. Advantages of account type (relative to the others) shown in blue. All three
types grow tax-deferred. These are not the only options when it comes to saving for healthcare and/or medical related expenses in retirement. Note that while HSAs
are structured for the individual to save or invest for health costs, this is not the intended primary purpose of a defined contribution plan or IRA. Individuals should
evaluate their health coverage needs and other factors before seeking tax benefits of an HSA. Source: IRS documents. 1Federal income taxes. State laws vary. HSA contributions through an employer may be excluded from FICA taxes. 2Subject to income limitations on participation
(Roth IRA) or deductibility (Traditional IRA). Amounts do not include catch-up contributions. 3Penalties end at age 65 for HSA and generally at age 59 ½ for Roth and
Pretax. Distributions of contributed assets from Roth accounts are tax- and penalty-free. 4Early distributions from retirement plans or IRAs may be subject to taxes
and penalties unless an exemption applies. 5Once you reach age 59 ½ with an account that has been opened for at least five years, you may qualify for tax-free
withdrawals of both Roth IRA contributions and any accumulated earnings. 6Roth IRAs have no RMDs for original owner.
For additional information please reference T. Rowe Price “Using Health Savings Accounts Wisely”.
ACCOUNT TYPES PRETAX ROTH HSA
ContributionsExcluded from
taxable income1 Not excluded1 Excluded from taxable income1
2019 Maximum AnnualContributions2
$19,000 retirement plan$6,000 IRA2
$19,000 retirement plan$6,000 IRA2
$3,500 individual$7,000 family
Early Distribution Penalty3 10% 10% 20%
Early Distributions Limited access4 Limited access4 Qualified medical expenses(QME): No tax or penalty
Taxes on Distributions Ordinary rate Tax-free if qualified5 Tax-free if used to pay QME
Required MinimumDistributions (RMDs)
Begin at the later of age 70½ or retirement
Begin at age 70½ forretirement plans6 None
Tax Treatment forNon-spouse Heirs
Ongoing tax deferral(subject to RMD requirement)
Ongoing tax-free(subject to RMD requirement)
Value immediately subject to ordinary income tax
Advantages
1717
Employers’ Adoption of High Deductible Health Plans
*Consumer-directed health plan (CDHP). HSAs require the use of a high deductible health plan (HDHP), which is a specific type of CDHP.
Source: Mercer National Survey of Employer-Sponsored Health Plans.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2012 2013 2014 2015 2016 Expect to offerin 2019
Small employers (10-499 employees)
All large employers (500+ employees)
Jumbo employers (20,000+ employees)
PERCENT OF EMPLOYERS OFFERING/LIKELY TO OFFER CDHP*
(BY EMPLOYER SIZE)
1818
$3 $5 $7 $9 $11 $14$17
$21$26
$32$37
$44$50
$58
$3
$4
$6
$8
$10
$14
$17
$0
$10
$20
$30
$40
$50
$60
$70
$80
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (est)
2020 (est)
Deposits Investments
HSA Asset Growth
Source: Devenir Research, 2018 Year-End HSA Market Statistics & Trends Executive Summary
TOTAL HSA ASSETS (BILLIONS)
$1.7$3
$5 $7$10
$64
$54
$45
$38
$30
$24
$19
$16$12
$75
1919
HSA Overview
KEY FACTS (2019) Individual Family
Eligibility: Under 65, Enrolled in HDHP
HSA Annual Contribution Limit $3,500 $7,000
HSA per-person catch-up contribution
limit (age 55)$1,000 $1,000
Minimum deductible for HDHP $1,350 $2,700
Maximum out-of-pocket expense for
HDHP$6,750 $13,500
Source: IRS documents
TAX-PREFERRED SAVINGS FOR INDIVIDUALS COVERED BY
HIGH-DEDUCTIBLE HEALTH PLANS (HDHP)
▪ Triple tax advantage
▪ Contributions excluded from income
▪ Assets grow tax-deferred
▪ Withdrawals for qualified medical expenses are tax-free
▪ Portable and not “use it or lose it”
2020
HSA Contributions
Source: PSCA Health Savings Accounts and Retirement Plans, 2017; includes employers who have HSAs. Devenir Research, 2018 Year-End HSA Market Statistics
& Trends Executive Summary.
AVERAGE ANNUAL
HSA CONTRIBUTIONEmployer Contributions
▪ 81% contribute to HSAs
▪ 39% front-load contributions at the
beginning of the year
▪ 30% contribute with each pay check$839
$1,872
Employer Employee
2121
Profile of HSA Investments
Source: 2018 Year-End Devenir HSA Research Report
39%
12%9%
9%
8%
7%
7%
6% 1%1%
Large-Cap
Lifestyle/Allocation
Small-Cap
International
Money Market
Bonds/Fixed Income
Mid-Cap
Target Date
Real Estate
Other
AVERAGE ALLOCATION (PARTICIPANTS AGE 60+)
2222
VERY BAD
Employee HSA Scenarios
HSA’S CAN HAVE A RANGE OF OUTCOMES
SUBOPTIMAL
Leaving large balance to
non-spouse beneficiary
▪ Ordinary tax for heirs
FAIR
Using for nonqualified
expenses after age 65
▪ Pay ordinary tax
Early nonqualified
distributions
▪ 20% penalty
2323
Employee HSA Scenarios
GOOD
Contribute the amount
of medical expenses
for current year
(only spending account)
BETTER
Contribute more than
expected medical
expenses for year and
build cushion by only
using assets for large or
unusual medical
expenses
BEST
Contribute at or near
the maximum and
invest for long term
▪ Full triple-tax benefit
HSA’S CAN HAVE A RANGE OF OUTCOMES
2424
HSA Appropriateness
Source: T. Rowe Price “Using Health Savings Accounts Wisely. “High-Deductible vs. Low-Deductible Plans”; “HSA Contributions Based on Potential Qualified
Medical Expenses”; “Contribution Strategy Example”. Examples are for illustrative purposes only and are generic in nature.
FOR PEOPLE WITH A CHOICE OF TRADITIONAL AND HIGH-
DEDUCTIBLE HEALTH PLANS
Couple with young kids,
high medical expenses and
limited saving capacity
KEY DECISION FACTORS:
▪ Will HDHP cost more than a
traditional plan?
▪ Would they really invest in
HSA or use it for annual expenses?
LIKELY CONCLUSION:
▪ HDHP/HSA not beneficial
Healthy empty nesters
in high tax bracket
KEY DECISION FACTORS:
▪ Factoring tax rate and time
horizon, does value of HSA tax
treatment outweigh risk of high
out-of-pocket costs?
LIKELY CONCLUSION:
▪ Choose HDHP and invest the
maximum allowed in HSA
Healthy, successful young
person with saving capacity
KEY DECISION FACTORS:
▪ Given young age, is there a
possibility of accumulating too
much in an HSA?
▪ Are there other financial
priorities to consider?
LIKELY CONCLUSION:
▪ Invest in HSA, but possibly not
at maximum level
Why Include Health Care in Retirement Savings Strategy
2626
Considerations For Adding HDHP
Potential Action Items
▪ Review HSA providers
▪ Educate employees periodically on health care savings options
▪ Explore ways to provide employees with HSA investment
education or guidance
Review Current Health Care Offerings
▪ Cost
▪ Usage
▪ Employee Input
AssessDemographics
▪ % younger, healthier
workforce
▪ % HNW employees
2727
Ample Retirement and Health Care Saving
Savings Goals
Reframe Your Benefits Philosophy
Financial Wellness
Recruit: Attract the best employees
with a comprehensive and flexible
benefits package
Retain: Healthy executives appreciate the potential HSA tax advantages
Retire: HDHP/HSA may provide
added financial support for retirees
without a DB/Pension.
RETIRE
2828
HSAs Paired with a HDHP Can Be Part of a Competitive Benefits Package
1Mercer National Survey of Employer-Sponsored Health Plans. Small employers have 10-499 employees; large employers 500-19,999 employees; jumbo employer is
20,000+ employees. 2 ©Society for Human Resource Management (SHRM), Talent Acquisition Benchmarking Report, 2017. 3 T. Rowe Price/Brightwork Partners, LLC,
Plan Sponsor Pulse Survey, April 2016. Survey of 155 401(k) plan sponsors with assets of $100 million or more, conducted online, March 22–April 1, 2016. 4Employee
Financial Wellness Survey, PwC US, 2018.
Retain
▪ $4,425 is the average
cost of onboarding a
new hire2
▪ 69% of employers
consider retaining
employees a major
objective3
Retire
▪ 61% of employees think
health care costs will
impact their retirement4
– 59% Millennials
– 64% Gen X
– 57% Baby Boomers
▪ Employees delaying
their retirement is a
significant financial
burden for employers
Recruit
▪ Potential to lose talent to
employers who already
offer HSA
– 87% of jumbo employers,
and 72% of large employers
plan to offer HSAs
by 20191
▪ Differentiate your company
by offering HSAs
– 34% of small employers
plan to offer HSAs
by 20191
2929
Considerations for Plans With HDHP
Arrange for fair and balanced reviews of health care savings
options, strategies, and benefits to employees
Review education materials to ensure they are clear and
comprehensive
Connect the health care conversation to retirement and
financial wellness
Evaluate adoption and usage data
Explore ways to provide employees with HSA investment
education or guidance
3030
Current Health Care Savings Advice
Source: T. Rowe Price Retirement Savings and Spending study, 2018
of those saving to fund health care expenses in retirement would
benefit from advice
74%Of people who have used an advisor have received
advice from them on health care expense planning
16%Only
3131
Summary
Health care expenses are very top of mind
▪ Huge concern for employees; with waning confidence
▪ Biggest (and growing) benefits expense for employers
▪ Consist of predictable (Medicare) and unpredictable (long-term care)
Several savings options exist
▪ Pretax and Roth contributions
▪ Health Savings Accounts (HSAs)
▪ Increased savings levels
Health Savings Accounts (HSAs)
▪ Increasing employer and employee adoption
▪ Offer triple tax advantage
▪ Appropriate for many—but not all—who have access to them
Considerations for plan sponsors
▪ Evaluate and analyze work force health care needs and options
▪ Reframe your benefits package
▪ Work with your retirement plan advisor to provide transparent education and communication
▪ Explore holistic financial guidance
THANK YOU
C1QCTP2Y3
201904-823956
©2019 T. Rowe Price. All Rights Reserved. T. ROWE PRICE, INVEST WITH
CONFIDENCE, and the Bighorn Sheep design are, collectively and/or apart,
trademarks of T. Rowe Price Group, Inc.
T. Rowe Price Investment Services, Inc., Distributor.