New tool helps advisers estimate health care costs

Data analysis can illustrate how healthy behavior increases longevity and reduces retirement expenses

Jan 23, 2018 @ 1:00 am

By Mary Beth Franklin

The cost of health care in retirement consistently ranks as a leading concern among clients, yet it is a topic on which few financial advisers can offer specific guidance. That is about to change.

A new tool from HealthyCapital unveiled this week will help advisers provide more accurate projections to clients about how much money they will need to meet health care costs in retirement. It also demonstrates the financial and longevity benefits of improved health and illustrates how investing the potential savings resulting from healthy behaviors can offset future health care costs.

The bottom line: Health should be a key factor in retirement planning.

HealthyCapital is a new joint venture that combines the analytical health care cost data capabilities of HealthView Services and the extensive health management experience of Mercy, a leading health system that offers condition management services to employers.

"With retirement health care inflation projected to triple Social Security cost-of-living adjustments over the next several years, [clients'] concerns are valid," Ron Mastrogiovanni, chief executive officer of HealthyCapital and president of HealthView Services, wrote in a new white paper, Building Wealth Through Wellness.

"However, patients who follow doctor's orders will not only save money pre-retirement, but lower medical expenses during retirement because they will be healthier," Mr. Mastrogiovanni wrote.

As of 2012, about half of all adults in the United States — 117 million people — had one or more chronic health conditions, and one in four adults had two or more, according to the Centers for Disease Control and Prevention. The leading causes of poor health include not taking prescribed medicines, tobacco use, poor nutrition, lack of physical activity and excessive alcohol use. Treatments cost nearly $3 trillion annually, accounting for about 86% of the nation's annual health-related expenditures.

Unlike traditional wellness programs, which often rely on external enticements such as gym memberships or small financial rewards, data-driven analysis can show individuals how they can add years to their lives and save thousands of dollars annually just by following treatment protocols.

According to the case study section of the white paper, a typical 45-year-old man diagnosed with high blood pressure will spend $1,591 more out of pocket today than a healthy person. But with a few simple behavior adjustments, such as consistently taking his medication, reducing his sodium intake and exercising 30 minutes a day, the man can save an average of $3,285 annually over his lifetime. His new, healthier lifestyle will also extend his life expectancy by three years and reduce his pre-Medicare eligibility health care costs by $65,697.

To put this into perspective, if this man invested the annual savings into a typical retirement portfolio earning 6% per year, he could generate an additional $100,348 for retirement by age 65.

"We believe that the combination of actuarial-forecasted savings, strong condition management programs and remote patient support will incentivize patients to change their behaviors, experience lower medical-related outlays and live longer, healthier lives," Dr. Raymond Weick, chief medical officer of HealthyCapital and vice president of physician growth and business development at Mercy, wrote in the white paper.

Individuals with chronic health conditions are not the only ones who can benefit from this new health care analytic tool. Employers who are self-insured could reap enormous savings. Workers suffering from chronic conditions, as well as individuals who are obese, use tobacco products or are physically inactive, cost employers $567 billion annually, according to the Integrated Benefits Institute.

"Combining clear financial incentives with increased longevity will motivate people to make healthier choices — especially if the lifestyle changes are simple, manageable and easy to understand," Mr. Mastrogiovanni wrote.

"Lower annual costs translate into more disposable income," he added. "By choosing to invest, rather than spend, the annual savings, individuals can significantly increase their retirement income."

Financial services institutions, such as 401(k) record keepers, could also benefit if even a small percentage of individuals choose to dedicate part of their annual health care savings to long-term investments.

HealthyCapital plans to market its new software to broker-dealers, 401(k) record keepers and banks once it launches its website ( later this week. Financial advisers will be able to license the software. The cost will be based on the number of users.


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