Can Health Care Cost Data Incentivize Retirement Savings?

Moving the needle when it comes to increasing retirement savings is a major challenge, but a new report suggests that sharing health care cost data can incentivize employees to both manage health conditions and increase retirement savings.

According to data from HealthView Services, whose clients serve approximately 30 million plan participants, when the projected costs for a specific goal — meeting health care needs in retirement — are shared, the average employee increases their 401(k) contributions by as much as 25%.

That finding is included in HealthyCapital’s white paper, “Health & Retirement Savings: Leveraging Healthcare Costs to Drive 401(k) Contributions & Improve Health.” HealthyCapital is a joint venture between HealthView Services and Mercy, a health system serving Arkansas, Kansas, Missouri and Oklahoma.

“In a behavioral context, the reasoning behind the larger contributions is consistent with what we might expect: people are normally far better at saving for important and tangible financial goals (such as a house, car, or health care expenses) than for retirement in general,” the white paper states. It goes on to explain that when the projected cost data is shown, it provides participants with a specific objective to motivate them to increase their savings.

The authors emphasize that it’s important to recognize that the savings required for health care costs in retirement are largely dependent upon the management level of an individual’s health conditions.

A healthy 65-year-old couple will need $228,771 in today’s dollars to cover their future health care costs, but a couple with chronic health conditions — such as diabetes, high blood pressure, high cholesterol and obesity — may pay significantly higher annual out-of-pocket costs.

Case in Point

The paper includes a number of case studies outlining how health improvements can create financial opportunities. For example, it notes that a 50-year-old man with high blood pressure could save an average of $2,234 per year in out-of-pocket health care costs and add three years to his life expectancy by properly managing his health.

A 45-year-old woman with type 2 diabetes and high cholesterol, meanwhile, could add more than $100,000 to her 401(k) retirement savings and eight years to her life expectancy through changes such as moderating alcohol intake and continuing to take medication as prescribed.

The woman can reduce her average annual pre-retirement health care costs by $3,371 (totaling more than $67,000 by the time she reaches age 65). If she were to invest the savings from managing her condition into her 401(k) — with a 6% annual return — she would increase her balance by $108,639 at age 65, the paper notes.

“With 401(k) savings falling short of what many will need in retirement, the opportunity to add to retirement savings through improved health has the potential to be a game-changer,” the authors contend.

Moreover, they note that employer savings from improved health condition management can also be substantial. A self-insured company with 5,000 employees could save more than $2.5 million in health care costs by promoting workplace programs, the findings show.

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