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Paper Quantifies Lost Retirement Savings Due to Chronic Health Conditions

In an attempt to lower health care costs, companies have initiated wellness programs, but there does not appear to be a universally accepted, empirical method to measure overall effectiveness and return on investment. HealthyCapital – a new joint venture of Mercy and HealthView Services – seeks to address that void.

The firm has released a new white paper that addresses the issue of lowering health care costs through wellness from a financially motivated perspective by calculating the amount of savings individuals can generate through effective management of chronic conditions.

The paper explains that, as of 2012, about half of all U.S. adults (117 million) had one or more chronic health conditions, and one in four adults had two or more, with annual treatments costing approximately $2.9 trillion – amounting to approximately 86% of the nation’s annual health-related expenditures.

Building Wealth Through Wellness: Incentivizing Healthy Behaviors to Reduce Healthcare Costs and Increase Retirement Savings” contends that, by making minor changes to daily routines and reducing risk factors, individuals could potentially add years to their lives and save more than $100,000 in lifetime medical expenses. The paper draws upon data from clinicians, 70 million health care cases, actuarial data and government statistics to determine and project health care costs.

As an example, a case study in the paper explains how a 45-year-old male who effectively manages his high blood pressure can save $3,285 annually and reduce pre-retirement expenditures by nearly $66,000 and in-retirement outlays by almost $24,000, in addition to increasing his life expectancy by three years.

To demonstrate potential long-term financial implications, the paper suggests that if that person allocates his annual health savings to his 401(k) plan (with a projected 6% rate of return) instead of spending it, he will have earned $100,348 by age 65.

The paper also shows how the approach can be applied across conditions. For example, a 45-year-old with Type 2 diabetes, who is in the well managed category, will gain nine years in life expectancy and save an average of $2,800 annually in out-of-pocket health care expenses before retiring, compared to someone who only partially follows treatment protocols.

“As individuals realize the financial benefits of healthier behaviors, and how investing these savings can increase retirement income, we see significant opportunities for financial institutions to simultaneously help their clients save for the future while growing assets under management,” says Ron Mastrogiovanni, CEO of HealthyCapital.

Mastrogiovanni observes that one result of the cost-projection tool has become very clear — compelling data can drive behavior. “When employees are informed about how much medical care will cost in retirement, they have increased their 401(k) contributions by as much as 25%,” he says.

And it’s not just individuals who are benefiting. The paper also highlights the value of healthier employees for employers. Assuming the national average rate of diabetes of 9.3%, a company with 5,000 employees could reduce its annual health care expenditures by more than $927,000, for this disease alone, through the implementation of an effective condition management program, according to the paper.