RETIREMENT PLANNING
• Healthcare Costs Terrify Rich Pre-retirees
• Linking Wellness Plans to Retirement Planning
• Women Are Saving More in their in 401(k) Plans
CALIFORNIA
• High-Performance Networks in California
DISABILITY
• Cancer, pregnancy are leading Causes of disability
EVENTS
• Insurance Marketing Trade Show
HEALTHCARE
• Powerful Hospitals Avert Cost Cutting by Insurers
• The Truth About the Individual market, Part Two
NEW PRODUCTS
• Fund Lineup
• Dialysis Cost Containment for Self Insured Plans
• Group Term Life
• Retirement Discussion Tool Kit
Healthcare Costs Terrify Rich Pre-retirees
A Nationwide Financial survey finds that nearly half of soon-to-be-retired, high-net-worth Americans say they are “terrified” of what health care costs may do to their retirement plans and nearly three in four say health care costs going out of control is among their top retirement fears. Retirees’ access to employer-sponsored health insurance continues to decline and there are potential changes in Medicare benefits due to the program’s projected funding shortfall.
However, among Americans with at least $250,000 in household assets, 38% of those nearing retirement have not discussed their retirement at all with a financial advisor. Of those who have, only one in five discussed health care costs in retirement not covered by Medicare. John Carter, president of Nationwide Financial Distributors said, “Even those who have diligently saved for their golden years are not prepared for the reality of health care costs in retirement and don’t really understand how Medicare works. Too many assume their employers will continue to pay their premiums during retirement or Medicare will cover all health care expenses.”
The soon-to-be-retirees lack confidence that financial advisors can help with this challenge; with 59% saying that most financial advisors are not equipped to discuss retirement health care costs with their clients. However, this lack of confidence may be unfounded. Two-thirds of those who discussed these issues with advisors said that the advisors were helpful in discussing information about their health and estimating their health care costs in retirement.
When it comes to Medicare, only one in five is confident in their knowledge of Medicare coverage. More than half say it is very or extremely important that they educate themselves on Medicare coverage when planning for retirement. Soon to be retired Americans who plan to enroll in Medicare estimated that Medicare will pay for 68% of their health care costs in retirement.However, Medicare only covers about 51% of the expenses associated with health care, according to the Employee Benefit Research Institute.
When asked how much they anticipate spending each year on health care in retirement, they said, on average, $5,621. A more accurate figure is nearly $11,000 a year. Kevin McGarry, director of the Nationwide Institute for Retirement Income said, “Workers do not think they will ever need long term care. But studies have found that 30% to 40% of those reaching age 65 will use nursing home care at some point. Americans also mistakenly believe that Medicare covers long term care; it does not.”
The survey also reveals an opportunity for advisors: 43% of soon-to-be-retired Americans plan to discuss health care costs with a financial advisor. Twelve percent are planning to switch financial advisors, but 54% of them would be more likely to stay with their current advisor if that advisor can help them plan for covering health care costs in retirement or discuss the role of Medicare in their retirement. “The good news is that consumers want help, presenting a big opportunity for advisors to step up in terms of education and preparedness in helping clients plan for health care in retirement,” McGarry said. Nationwide Financial launched the Personal Health Care Assessment program to help advisors estimate their clientsí health care expenses in retirement. For more information, visit www.nationwide.com.
Linking Wellness Plans to Retirement Planning
Employers understand that an effective wellness plan may help reduce health care costs, but they also need to understand that wellness plans can help boost the success of their retirement plans, according to a new white paper from the Principal Financial Group. The white paper, Wellness = Retirement Savings, makes the connection between health and wealth when it comes to helping employees plan for retirement. Lee Dukes, president of Principal Wellness Company said, “Instead of only focusing on saving more for retirement, employers can put a much greater emphasis on helping employees stay healthy so they spend less on health care. Spending less means they will potentially have more to save. We propose employers make wellness part of their workplace culture – For employees, wellness plans can help emplreduce out-of-pocket medical expenses leaving more discretionary income for retirement savings.” The white paper provides also addresses best practices for structuring a wellness plan. For more information, visit www.principal.com
Women Are Saving More in their in 401(k) Plans
For the first quarter of 2012, MassMutual’s Retirement Services finds women increased their deferral rates at twice the level of men (a four basis point average increase for women versus a two basis point average increase for men).
Women continue to favor age-based investments far more than risk-based options – in fact, more than 2.5 times as much – at 72% versus 28. Men remain more evenly divided on their preferences, with approximately 53% in age-based versus 46% in risk-based investments. Average account balances for women rose 7.93% for the quarter versus 7.27% for men. The gender gap is closing in terms of account balances. Average account balances for women now trail those of men by 38.8% compared to 40.5% in late 2010.
Recent industry reports have cited increased loan activity among retirement plan participants. However, since 2007, MassMutual saw the lowest percentage of participants who initiated loans (1.26%) or other withdrawals (0.66%).
Also of note for the quarter, there was no significant difference in loan and withdrawal rates between men and women. Historically, women have taken greater percentages of loans and withdrawals. These declining rates for women also contributed to helping close the average account balance disparity between male and female participants. For more information, visit www.massmutual.com.
IN CALIFORNIA
High-Performance Networks in California
UnitedHealthcare is offering “SignatureValue” Allianceî in California, a new health benefits plan featuring high-performance care provider networks committed to delivering effective, evidence-based and cost-efficient care. Employers and plan participants can save on their health care costs through lower premiums while still having access to a wide range of traditional and deductible HMO plans.
The Alliance network includes six large physician groups in Southern California and parts of Northern California that include 90 hospitals and about 26,000 physicians and specialists. Participating Alliance physician groups include HealthCare Partners Medical Group, Heritage Provider Network, Monarch HealthCare Medical Group, PrimeCare Medical Group, SantÈ Community Physicians, and Scripps Health. For more information, visit www.uhc.com.
Cancer, Pregnancy are Leading Causes of Disability
For more than a decade, cancer, pregnancy, and back disorders have been the top causes of disability claims for Unum. That trend continued in 2011, but new research reveals that most employees think injuries cause the most missed work, which reveals a misunderstanding of disability occurrences. According to the Council for Disability Awareness, 90% of all disability claims paid are for common illnesses and health conditions. And Unumís data also reflects that reality. In 2011, injuries prompted only 10% of Unumís long term disability claims and 11% of short term disability claims.
In 2011, Unumís leading causes of long term disability claims were the following:
• Cancer (15%)
• Back disorders (excluding injury) (14.6%)
• Injuries (10.4%)
• Behavioral health issues (10.1%)
• Circulatory system disorders (9.3%)
• Joint disorders (8.5%)
• The leading causes of short term disability were the following:
• Normal pregnancy (18.9%)
• Injuries (10.9%)
• Complications from pregnancy (8.8%)
• Digestive disorders (8%)
• Back disorders (7%)
• Cancer (6.6%)
The survey by Consumer Federation of America and Unum reveals that employees are far more likely to believe that injuries (66%), rather than illnesses (34%), cause the majority of disabilities that keep employees from work for at least three months.
Most employees also recognize that they do not understand group disability insurance. Only 13% said they know a lot about this insurance while 35% said they know only a little, and 52% said they know little or nothing at all. However, almost all employees recognize the importance of this insurance and desire its coverage.
For more information, visit www.unum.com
Americans Are Unprepared to Face a Disability
The majority of Americans lack basic knowledge about the likelihood of a disability and they are not prepared to handle this kind of life-changing event, according to a study by The State Farm Center for Women and Financial Services at The American College.
The risk of becoming disabled during one’s lifetime is higher than most people realize, particularly for women. The U.S. Social Security Administration estimates that one in four of todayís 20-year-olds will become disabled before they retire. Data from the Centers for Disease Control and Prevention (CDC) shows that women are increasingly more likely to experience a disabling condition during their working and senior years. The study found that 97% do not know that arthritis is the leading cause of disability and only 20% are aware of women’s increased risks. In fact, more than 30% of survey respondents believe accidents are the leading cause of disability.
The CDC confirms that females across all age groups report higher disability rates than males. As the leading cause of disability, arthritis affects women disproportionately, leaving them especially vulnerable to financial hardship stemming from a loss or reduction of income. Yet, the study found few are prepared.
A person with an annual income of $50,000, who works for 40 years, is projected to make more than $2 million in future earnings. A loss of these earnings can be devastating for an individual or family’s livelihood. The financial consequences are more alarming for women. Women (22%) are almost twice as likely as men (12%) to think their cash reserves would last less than a month. Unmarried women have an even bleaker outlook.
Fifty-nine percent of men and 63% of women are not concerned about becoming disabled and being unable to work for a year. Most say they would rely on cash reserves if they became disabled. However, 71% say their cash reserves would last less than a year.
Sixty-one percent of women and 46% of men have never researched disability insurance and less than 10% of people have purchased individual disability insurance plans. Almost half of employees get disability policies through their employers, but most don’t feel knowledgeable about their policies. Four in ten Americans are aware that disability insurance payments only last for a specified period of time and just 27% of people know that employer-provided benefits are typically taxed.
Surprisingly, this lack of awareness and planning is even prevalent among those who work with financial professionals. Only Fewer than half (45%) have consulted with advisors about what might happen if they become disabled or about the potential consequences of their spouseís disability (42%). Furthermore, fewer women (37%) than men (52%) have had this discussion with an advisor. To get the study, visit WomensCenter.TheAmericanCollege.edu/DisabilityStudy.
Insurance Marketing Trade Show
The Professional Insurance Marketing Association (PIMA) is holding its Mid-Year Meeting and Trade Show July 19 to 22 in Santa Fe. PIMA’s conferences draw senior executives from the leading agencies, TPAs, brokerages, underwriters, and related product & distribution companies serving the affinity & direct marketing industry. Sessions will cover mobile adoption in insurance as well as online buying research and a regulatory & legislative update including implications of the
Supreme Court ruling on healthcare reform. For more information, visit http://www.pima-assn.org
Powerful Hospitals Avert Cost Cutting by Insurers
Given the negotiating clout of must-have hospitals and physician groups, even dominant health plans are wary of disrupting the status quo by trying to constrain prices, perhaps because insurers can simply pass along higher costs to employers and their workers, according to a study by the Center for Studying Health System Change (HSC) published in the May edition of Health Affairs. The study is based on HSC’s 2010 site visits to 12 nationally representative metropolitan communities including one in Orange County, Calif.
Although dominant health plans might be able to restrain prices and achieve other contracting advantages, they must be sensitive to their employers’ preferences for stable provider networks. Therefore, insurers are willing to tolerate large price increases from providers as long as other health plans also pay higher rates, according to the article by HSC.
While hospital consolidation is often cited as the reason for growing provider clout, another important factor is employer reluctance to limit workers’ choice of providers by excluding them from plan networks. Without a credible threat of excluding a provider, insurers lack a critical bargaining chip. Other factors contributing to provider market power include reputation, provision of specialized services and geographic location.
Possible responses to growing provider market power include market-oriented and regulatory approaches. Market-oriented approaches are generally based on benefit designs that make consumers more aware of costs and give them direct incentives to select low-cost options…. Alternatively, in the face of rising premiums, employers that are not willing to adopt more restrictive benefit designs might support more direct regulation of provider rates, perhaps setting upper bounds on permissible rates negotiated between health plans and providers in relation to Medicare rates. For more information, visit http://www.hschange.org/CONTENT/1289/
How Expanding Consumer-Directed Health Plans Could Help Cut Health Care Spending
If consumer-directed health plans grow to account for half of all employer-sponsored insurance in the United States, health costs could drop by $57 billion annually – about 4% of all health care spending among the nonelderly, according to a new RAND Corporation study.
Consumer-directed health plans, which include high deductibles and personal health Accounts now account for about 13% of all employer-sponsored health coverage. Aggressive expansion of such plans is not without risks. Increasing adoption of high-deductible plans could also reduce the use of preventive and other high value health care services, according to findings published in the May edition of the Journal Health Affairs.
Amelia M. Haviland, a statistician at Carnegie Mellon University and RAND thinks that a 50% enrollment level is plausible over the coming decade due to continued pressures to cut costs and incentives in the federal Affordable Care Act. “Given the limited information available to consumers about costs and quality, we need to carefully examine whether additional up-front patient costs will diminish the quality of health care,” she said.
The findings come from the most comprehensive study done on the effect and influence of consumer-directed and high-deductible health plans, which have grown rapidly over the past decade.
Researchers from RAND, Towers Watson and the University of Southern California examined the claims experience of 59 large employers across the United States from 2003 to 2007 to determine how consumer-directed health plans and other high-deductible plans influenced health care spending. Researchers estimate that, if consumer-directed health plans encompassed 25% of the policies selected by people with employer-based insurance, cost savings in the nonelderly population would be in the range of 1% to 2% of health care spending. At 75% penetration, savings would range from 5% to 9%. Consumer-directed health plans can clearly have a significant effect on costs, at least in the short term, Haviland said. “What we don’t yet know is whether the cutbacks in care they trigger could result in poorer health or health emergencies down the road,” she said.
For families enrolled in consumer-directed health plans, about two-thirds of the savings were the result of fewer encounters with health care providers. The remaining third was caused by lower spending per encounter, suggesting patients were making different choices about tests and treatments. Families in consumer-directed plans used fewer brand-name drugs, have fewer visits to specialists, and fewer hospital admissions compared to families in traditional plans.
“People in consumer-directed plans initiate health care less often and when they do, they get fewer or less costly health services than individuals in other health plans,” said co-author Neeraj Sood, an associate professor at USC and a RAND economist. “What we don’t yet know is whether the health care that was eliminated was unnecessary.”
The study found modest first-year reductions in use of highly recommended care, such as cancer screenings and routine testing to monitor patients with diabetes. This was despite the fact some preventive care was offered at no cost. “There needs to be better education of enrollees about plan features and how to navigate medical decision-making. The goal is to get patients to think critically about their care, not reduce high-value care that can help keep them healthy,” Haviland said.
The study authors are also concerned that increased use of consumer-directed plans raise increase premiums for those who remain in traditional health insurance plans since healthier people tend to drop traditional coverage in favor of less-costly, high-deductible plans. This could pose a challenge for the health plans offered through the new insurance exchanges created by health care reform. Roland McDevitt, a study co-author and director of health care research at Towers Watson said, “The adverse selection we found for traditional plans was not severe and there are mechanisms in the Affordable Care Act that should address this risk.” For more information, visit http://www.rand.org/newsletters.html
The Truth About the Individual market, Part Two
by Greg Scandlen
(Reprinted with permission from Health Alerts)
So, what is the problem with the individual market? Premiums are lower, administrative costs are similar, there is somewhat more competition, and most applicants who are rejected can find coverage in a risk pool, or would be able to if the pools had more financial support. Why does it continue to be the ugly step-child of the health care system? The answer is simple: it isnít subsidized.
Every other form of insurance coverage gets massive subsidies. Obviously Medicare and Medicaid, being government programs, get most of their funding from taxpayers. Government spending on Medicare was $555 billion in 2011 and $387 billion on Medicaid in 2009. Employer-sponsored health insurance is also subsidized ó to the tune of over $300 billion a year, according to the Congressional Research Service (CRS). This is because the value of coverage provided by the employer is excluded from employeesí income. Unlike wages, employees escape income taxes and payroll taxes on this benefit. Even the uninsured are subsidized. The Kaiser Family Foundation found that, while the uninsured paid $30 billion for their own care in 2008, they incurred another $56 billion in costs, three-quarters of which was compensated for by government.
Only people who buy their own coverage in the individual market get no tax break whatsoever. Actually, even that isnít quite true. In recent years the self-employed have been allowed to take a deduction of their health insurance premiums from their income, provided they make at least enough self-employment income to cover the expense. I havenít been able to track down the value of this tax break, but because they donít get to avoid the payroll tax the subsidy for the self-employed is still less generous than the complete exclusion from income of employer-sponsored coverage.
So who is left? Only those people who do not get coverage on the job, who are not self-employed, and who buy individual health insurance. These are the only people in America whose health insurance is not subsidized by the government.
Who are these unfortunates? They tend to be people of lower incomes. They may be unemployed or working only part time. They may be early retirees. If they are working, they are likely to be in low-paid jobs like retail clerks in small grocery stores, gardeners, busboys in restaurants, and the like.
Somehow the government has never seen fit to extend to these folks the kind of health insurance support the rest of us take for granted. Say what you will about ObamaCare, but for the first time in history it will provide some premium support to this segment of the population.
Unfortunately, ObamaCare leaps over many less drastic steps that might have solved the problem without the wrenching contortions imposed by this law. We might have, for example, improved the individual market without a mandate.
This might have been done simply by extending the same sort of subsidy to people who buy their own coverage as we give to those with employer-based coverage. Or, because the tax treatment of employer-based coverage is extremely regressive (higher-income people get more benefit than those with lower incomes), we might have reformed the whole thing to extend the same dollar amount to all who purchase health insurance. Or we might have provided a sliding scale subsidy to all who are covered, so that lower-income citizens get more help than those with higher incomes.
But let’s assume for a minute that all private health insurance is treated the same way for tax purposes, whatever that treatment might be. What would happen then? For most people nothing would change. Employers who find value in providing coverage would continue to do so. These might include companies in very competitive labor markets, or companies that are quite large and able to effectively pool their own risks, or companies with strong commitments to improving the health of their workforce through wellness programs and the like.
But, many other employers do not benefit from providing coverage. They may not have expertise on staff, or they might have high turnover, or be in relatively low-wage industries where cash wages are more attractive than insurance benefits. These companies could stop providing health insurance (many already have) and contribute to the cost of coverage for their employees instead. The employees would no longer be disadvantaged by the tax code because the same tax benefit would be available whether they secured their own coverage or got it from the employer. This would be particularly beneficial for two-income families. They would be able to merge the resources of two employers into a single program for the entire family. But the greatest benefit would accrue to people who struggle to maintain their individual coverage. They may be only marginally attached to the workforce or work in jobs where the employer has no interest or few resources to finance health care. They might also be retired or physically unable to work. In all of these cases there would be tax support available that wasnít there before.
How would the insurance industry respond?
This is where our scenario gets really interesting. Let’s assume that one-third of the current employer market switches to individual health insurance, in many cases with a contribution from the employer along with a tax credit from the government. That would mean 50 million new customers in the individual market. Most of these people would be well-subsidized and relatively healthy since they are at least able to work. Would that be an attractive market? You betcha it would!
Suddenly the individual market would not be confined to the handful of people who simply cannot qualify for employer-sponsored coverage – people with sketchy work and health histories and dubious finances. Suddenly there would be a very large number of potential customers who are gainfully employed and financially secure. The insurance industry would be eager to enroll them.
The industry would immediately take several steps to gain a share of this attractive market;
It would simplify the enrollment process to avoid alienating prospective customers.
It would design benefit programs to be more appealing to specific market segments.
It would start advertising directly to consumers, much as the auto insurance industry does.
New and innovative competitors would enter the market.
It would relax underwriting restrictions because the cost of underwriting would not be justified by the risk profile of the pool of applicants.
The last point needs to be explained a bit. As we’ve said, the current pool of applicants for coverage is very small and tends to be financially insecure and often of poor health. Carriers are cautious with this population because a handful of expensive people can have a large effect on the small enrollment base and the proportion of high risks is greater than in the general population. It is worth the expense of medical screening to protect the enrolled population from the cost of a few high-cost cases. Once the pool of applicants is more like the general population it is no longer worth the cost of screening 100% of the applicants to keep out the very small number of high risks. Medical screening also tends to alienate the good risks the company would like to attract.
There might still be a very simplified health statement required, but this might be confined to a checklist of ten (or so) questions looking for active cases of cancer or heart disease. These applicants would be referred to the high-risk pool. Every voluntary insurance market has some form of high-risk pool, usually referred to as a residual market.
This simple change in tax policy would lead to a much more competitive and innovative insurance market, and would make health insurance coverage far more affordable to people not benefitting from employer-sponsored care. It could lead to expanded insurance coverage as ObamaCare hopes to, but with far fewer regulations, mandates, and complexity, and much lower system-wide costs.
Fund Lineup
The Hartford is introducing three new investment managers and 16 new investment options to its defined contribution retirement program offerings. Calamos Investments and Delaware Investments have been added to retirement plans for corporate and nonprofit sponsors. A third manager, TIAA-CREF, has been added for nonprofit sponsors, including schools, charities, government entities and others. In addition, 16 new investment options are available through The Hartford’s retirement investment platform, have been added. For more information, visit http://www.thehartford.com.
Dialysis Cost Containment for Self Insured Plans
American CareSource introduced its DiaSource solution for containment of dialysis costs. Dialysis Providers in the DiaSource a network have agreed to offer low, competitive rates. The patient’s dialysis costs are covered at 100%, and the employer has low predictable costs throughout the course of treatment. Employers also get member education resources, screening services, and individual disease management programs designed to maximize the quality care provided while helping to contain its costs. These value-added services are provided at no additional cost to DiaSource clients. For more information, visit www.diasourcesolution.com.
Group Term Life
Colonial’s group term life product offers an affordable way for employees to purchase this much-needed coverage. Insureds can use an accelerated death benefit to help offset the expenses associated with a terminal illness. A covered person diagnosed with a terminal illness can get up to 75% of the death benefit of the policy, up to a maximum of $150,000. Employees can access a 24-hour confidential service for help with personal or work-related challenges. This service includes face-to-face sessions with mental health professionals and attorneys, and well as referrals for state-specific legal information and services. Employees can get assistance with preparing wills at no additional cost. A covered person diagnosed with a terminal illness can get financial, legal and grief support and referrals for up to 12 months. There is additional coverage for accidental death or dismemberment. Employees, spouses and dependent children can add this optional coverage to the group term life policy. Coverage under most policies can be converted to whole life coverage if employees leave their jobs. For more information, visit www.ColonialLife.com.
Retirement Discussion Tool Kit
Transamerica is offering non-product-specific materials for advisors to use
in client meetings. The Retirement Redefined toolkit includes six conversation cards, a PowerPoint presentation, an easy-to-read brochure, and a workbook The Retirement Redefined program is designed to help financial professional to ease Baby Boomers’ retirement anxiety and expertly address the thousands of potential clients who have the same concerns. For more information, visit www.transamerica.com.
