Client Service September 8, 2017

Worried About Health Care Cost Inflation? It Has Only Just Begun

The health care cost inflation projections contained in HealthView Services’ latest reporting are simply astounding; accounting for projected lifetime inflation, a healthy retired couple at 65 can expect $600,000 in health-related expenses alone. 
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HealthView Services has published the 2017 Retirement Health Care Costs Data Report.

Similar to other recent research results, the findings frankly are grim in many respects for retirement savers. At a minimum, the research suggests retiree health care expenses will rise at an average annual rate of 5.47% for the next decade or more. Such a rate is almost triple the U.S. inflation rate from 2012 to 2016, which stood at a mere 1.9%, and more than double annual projected Social Security cost-of-living adjustments retirees can depend on.

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Other findings show, because of longer life expectancies, women will continue to pay more for total lifetime health care than men.

It’s not all bad news, however. Beyond making a strong argument for the use of long-term health savings accounts to address the massive amounts of cash retirees are expected to spend on health care, for the first time, the 2017 Report highlights and quantifies the real and measurable financial benefits associated with behavior modification.

“Americans are not powerless when it comes to reducing costs … Current data show that Americans with specific medical conditions, such as type II diabetes or high blood pressure, have some control over their longevity and health expenditures if they actively change behaviors and follow prescribed treatments,” the firm reports. “Those who manage their conditions can extend life expectancies, save money, and offset future medical expenses.”

The report points to one case study involving a 50-year-old with type II diabetes. Proactive management of the condition can mitigate the associated treatment expense and increase annual in-retirement income by almost $17,000. Naturally, some potentially difficult lifestyle changes and careful adherence to diabetes-care protocols will be required, but it should be encouraging to see that real solutions are possible, even for those with challenging medical conditions.

NEXT: Specific expense projections are sobering 

According to HealthView Services, total projected lifetime health care premiums for Medicare Parts B and D, supplemental insurance, and dental insurance for “a healthy 65-year-old couple retiring this year” are expected to be $321,994 in today’s dollars, or $485,246 in future dollars that account for inflation projections.

“Adding deductibles, copays, hearing, vision, and dental cost sharing, that number grows to $607,662 in future dollars,” the research states. “Medicare Part B premiums grew by 16% in 2016. The Medicare Board of Trustees originally projected a 24% Part-B decrease for 2017, but instead, premiums increased 10%.” The Trustees estimate a 1.3% decrease in 2018, the report clarifies. Also, the average cost of supplemental insurance will rise at 7.12% per year, driven by annual projected premium inflation of 3.80% and an additional annual age-based increase of 3.32%.

HealthView’s Retirement Health Care Cost Index shows that a 66-year-old couple retiring this year will require 59% of their Social Security benefits to cover total retirement health care costs.

“A 55-year-old couple will need 92% of benefits, and 45-year-old couple, 122%,” the report warns. “Women will face higher lifetime health care costs because they will live, on average, two years longer than men. Expected health care costs (for Medicare Parts B and D, a supplemental insurance policy, and all out-of-pockets) for a healthy 63-year-old woman retiring this year (living to age 89) are projected to be $362,607 in future dollars, or 29.9% more than a 65-year-old male ($279,176).”

The report concludes that health care will undoubtedly be one of the most significant retirement expenditures for many; however, the annual savings required to cover this expense may seem more reasonable if individuals consider investing more aggressively for retirement over longer periods of time. For example, a Millennial entering the work force has a fairly good chance of meeting these worrying figures if they invest regularly in a health savings account (HSA) during the course of their working lifetime. 

The full research report can be downloaded here. 

Products September 7, 2017

RiXtrema Launches Plan Monitor to Minimize Fiduciary Risk

In an ever-evolving fiduciary landscape, the tool aims to identify in real time issues that may put plan advisers at risk, such as the availability of lower-cost share classes.
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RiXtrema, a provider of risk management tools and analysis to the financial advisory community, has added a new Plan Monitor solution to its 401kFiduciaryOptimizer 2.0.

The new feature monitors retirement plans daily for instances that may raise fiduciary risk including the availability of better share classes and lower cost funds identical to plan menu funds.

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“Ten years after the initial filing in a Los Angeles federal court, the Supreme Court recently ruled that a fiduciary must monitor ‘at regular intervals’ and make decisions with the same vigor as if it was the decision to first admit a fund into the plan,” explains RiXtrema President Daniel Satchkov. “This further raises the bar in terms of plan fiduciaries’ responsibility to plan participants and our objective is to help facilitate advisers’ and their plan sponsor clients’ ability to make timely decisions in accordance with the mandate of the courts.”

Initially ruled on by the Supreme Court in 2015, the case of Tibble v. Edison established that under trust law, a trustee has a continuing duty to monitor trust investments and remove imprudent ones. This continuing duty exists separate and apart from the trustee’s duty to exercise prudence in selecting investments at the outset. The trustee must systematically consider all the investments of the trust at regular intervals to ensure that they are appropriate.

RiXtrema emphasizes, “Virtually anyone accepting compensation for plans for any sort of financial advice is now an ERISA fiduciary. Significant attorney fee awards have increased incentives to litigate. This means that not only large, but also medium, small and even ‘micro’ plans will be the focus of legal action. Recruiting of plaintiffs for ERISA litigation is now done through billboards and TV ads. ERISA courts expect immediate action when the problem is known and fiduciaries are expected to know their plan.”

Satchkov adds, “The key question that advisers and plan sponsors must ask themselves is: ‘How quickly should I fix my plan?’ The answer from Tibble v. Edison is, right now. Defendants in argued that two to five months were necessary for them to fix the problem with share classes once identified, which doesn’t seem unreasonable. But Judge Wilson’s opinion actually makes it clear that for most plan menu problems, the fix should be done ‘immediately’. We recognized a need in the industry for a whole new set of tools to ensure that problems could be quickly identified and remedied. That is why we created Plan Monitor which will watch your plans continuously.”

To learn more about Plan Monitor and the 401kFiduciaryOptimizer, visit rixtrema.net/401k/index.

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