Allianz Life Insurance Company of North America Allianz

Allianz Life Insurance Company of North America Allianz Life Insurance Company of New York Health Care Costs Options before and after retirement [Speaker name, title or date] ENT-1591 -N (R-2/2017)

Please note [Producer name, producer company name] is not an employee of Allianz Life Insurance Company of North America (Allianz), Allianz Life Insurance Company of New York (Allianz Life® of NY), or their subsidiaries or affiliated companies. This material is prepared by Allianz Life Insurance Company of North America and its affiliate Allianz Life Insurance of New York for use by financial professionals. This material should be regarded as educational information on health care and is not intended to provide specific advice. If you have questions regarding your particular situation, you should contact your legal or tax advisors. This material is prepared by Allianz Life Insurance Company of North America (Allianz) and its affiliate Allianz Life Insurance of New York (Allianz Life® of NY) for use by its financial professionals. 2

Before we begin This presentation is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Allianz Life Insurance Company of North America (Allianz), Allianz Life Insurance Company of New York (Allianz Life® of NY), and Allianz Life Financial Services, LLC, their affiliated companies, and their representatives and employees do not give legal or tax advice or advice related to health care or Social Security and Medicare. Allianz, Allianz Life of NY, and Allianz Life Financial Services, LLC are affiliated companies. • Not FDIC insured • May lose value • No bank or credit union guarantee • Not a deposit • Not insured by any federal government agency or NCUA/NCUSIF 3

Health care costs can have a dramatic effect on retirement Workers’ contributions to family coverage Health insurance premiums family coverage Workers’ earnings Overall inflation 221% 203% 56% 42% 1999 2015 “Cumulative Increases in Health Insurance Premiums, Workers’ Contributions to Premiums, Inflation, and Workers’ Earnings, 1999 -2015, ” Kaiser Family Foundation/HRET Survey of Employer-Sponsored Health Benefits, 2016. 4

Consumer spending by age group Percent distribution of expenditures for all consumer units, by age, 2013 annual averages 4. 6 5. 4 3. 1 34. 2 1 5 35. 8 35. 1 6. 3 7. 8 31. 4 32. 1 12. 2 34. 3 U. S. Bureau of Labor Statistics, The Economics Daily, Consumer spending by age group in 2013, March 18, 2015.

Agenda 1. Health care before retirement 2. Health care for retirees under age 65 3. Health care at age 65 and beyond 6

1 Health care before retirement 7

Managed care plans Health care plans that control costs by placing limits on physicians' fees and by restricting the patient's choice of physicians. Typically referred to as a network. Health Maintenance Organization (HMO) Preferred Provider Organization (PPO) Point of Service (POS) Copayments Yes Yes Deductibles Low or none Yes Low or none Network More restrictive – Less restrictive – can must choose primary work with physicians care provider and get within network referrals to specialists More restrictive – must choose primary care provider and get referrals to specialists Out of network Covered for emergencies only Works like PPO w/ copays and deductibles Costs are higher for out of network care

High deductible health plan (HDHP) and health savings account (HSA) combos § Lower premiums than managed care plans § Pre-tax money set aside for both current and future health care needs not covered by health insurance § Many employer plans include employer contributions to both the HDHP AND the HSA. IMPACT § Allows unused balance to roll over from one year to the next § Accumulate tax-deferred investment earnings on account balance § Accounts are portable – can be retained when there is a job change, or retirement § Withdrawals are income-tax-free if used for qualified medical expenses

Insurance premiums Generally NOT considered IRS-qualified medical expenses for HSAs unless they are for: IMPACT § Health coverage during unemployment At age 65, HSA money can be used for any expenses without a federal additional tax, but distributions will be taxed as ordinary income. § Coverage over age 65, including Medicare Part A or B or employer retirement health benefits, but excluding Medigap premiums May be a good option for those maximizing their retirement arrangement contributions. § Continuing COBRA coverage § Certain long term care insurance

Contribution limits High deductible health plan (HDHP) and health savings account (HSA) combos 2017 contributions and out-of-pocket limits HSA contribution limit (employer + employee) Individual: $3, 400 Family: $6, 750 HSA catch-up contributions (age 55 or older) $1, 000 HDHP minimum deductibles Individual: $1, 300 Family: $2, 600 HDHP maximum out-of-pocket amounts Individual: $6, 550 Family: $13, 100 (deductibles, co-payments, and other amounts, but not premiums) Rev. Proc. 2016 -28

Consolidated Omnibus Budget Reconciliation Act (COBRA) § Provides for 18 or 36 months of continued health insurance coverage depending upon the qualifying event § Typically will be required to pay full cost (employee plus employer portions) § Plans that are continued through COBRA may not offer coverage in other states § May benefit more from having own individual policy The Health Insurance Marketplace is a helpful resource when seeking individual coverage – even outside of the open enrollment period

Patient Protection and Affordable Care Act (PPACA) Focuses on provisions to expand coverage, control health care costs, and improve health care delivery system Minimum standards for qualifying plans § § § Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance use disorder services (including behavioral) Prescription drugs Rehabilitative/habilitative services and devices Laboratory services Preventive, wellness services, and chronic disease management Pediatric services, including oral and vision No annual or lifetime limits Cannot exclude individuals due to pre-existing conditions

Mandated health coverage § Individuals, their children, and dependents claimed on taxes must have health insurance or pay a penalty. § The penalty for not having insurance will be the greater of a flat dollar amount or a percentage of income The greater of Tax year Flat dollar penalty per adult Flat dollar penalty per child Maximum household penalty Percentage of income 1 2017 $695 $347. 50 $2085 2. 5% Fees are paid when filing federal tax return for year of no coverage. 1 Income is defined as total household income in excess of the threshold for filing a federal income tax return ($10, 300 individual/$20, 600 family in 2015). Health. Care. gov, The fee for not having health insurance, 2016.

Health Insurance Marketplace www. healthcare. gov § Some states utilize the website for enrollment while other states have their own sites that customers are routed to § Factors that impact pricing: - State of residence Plan category selected Age Family situation Smoking (depending upon the state) Subsidies are available to those with lower incomes § Pre-existing conditions cannot impact coverage options or costs

Important enrollment dates § November 1: open enrollment starts – first day you can enroll in an insurance plan through the Health Insurance Marketplace. Coverage can start as soon as January 1 the following year. § December 15: last day to enroll in or change plans for new coverage to start January 1 the following year. § January 1: coverage starts for those who enroll or change plans by December 15. § January 15: last day to enroll in or change plans for new coverage to start February 1. § January 31: open enrollment ends. Enrollments or changes between January 16 and January 31 take effect March 1. If you don’t enroll in a health insurance plan by January 31, you can’t enroll in a health insurance plan for the year unless you qualify for a Special Enrollment period.

Flex spending accounts (FSA) A benefit offered by an employer which allows a fixed amount of pre-tax wages to be set aside for qualified expenses § Contributions are limited to $2, 600 in 2017 § Qualified expenses may include child care or medical expenses not covered by insurance - Glasses, Lasik, deductibles, copayments, etc. § Employers decide whether FSA plans offer carryover option or maintain existing grace period Rev. Proc. 2016 -55 IMPACT § § § The IRS modified “use it or lose it” rule to allow carryover Carryovers limited to $500 of unused medical FSA funds to the next plan year Carryovers cannot be used if plan has a grace period that gives participants up to 2½ months to spend the unused funds after the close of the plan year.

What is the financial impact? 2016 average annual premium Contributions by covered workers § Single $1, 129 § Families $5, 277 Employer contributions § Single $5, 306 § Family $12, 865 The Kaiser Family Foundation and Health Research & Educational Trust, Employer Health Benefits 2016 Annual Survey. 18

What can you do? § Understand various health care options, premiums, and potential out-of-pocket costs § Consider an FSA when available, to lower adjusted gross income § Consider an HSA, which can grow tax-deferred and balances can carry over from one year to the next 19

2 Health care for retirees under age 65 20

Coverage options § Retiree health benefits through former employer, if available Employers offering retirees coverage § Benefits through spouse’s employer § Part-time job with health benefits § COBRA, up to 18 months § Health Insurance Marketplace, under special enrollment period 66% 24% 1988 2016 Employers include only large firms of 200 or more employees The Kaiser Family Foundation and Health Research & Educational Trust, Employer Health Benefits, 2016 Annual Survey.

Estimating health care costs http: //kff. org/interactive/subsidy-calculator/ 2017 health insurance premium (Silver plan, before tax credit): As premiums and eligibility requirements may vary, clients should contact their state’s dedicated office or exchange with enrollment questions. 22 $9, 997 per year

What can you do? § Look at your various health care options, premiums, and potential out-of-pocket costs § Utilize the Kaiser Family Foundation subsidy calculator to estimate costs § Review your retirement expenses, including health care, to ensure you have adequate retirement income § Consider long term care insurance policies and riders 23

3 Health care at age 65 and beyond 24

Medicare § Eligible first day of the month you turn age 65 § Must enroll to receive Medicare benefits if not currently receiving Social Security benefits § When you enroll can affect Medicare Part B premiums § Part B and D premiums are means-tested - Be aware of activities that could increase your modified adjusted gross income in retirement (such as Roth IRA conversions) - Consult your tax advisor 2017 Medicare & You, Centers for Medicare & Medicaid Services, November, 2016.

3 2017 Medicare Part B monthly premium Hold harmless rule: Protects Social Security from Medicare premium increases § Ensures that SS benefits will not decline due to Medicare Part B premium increases § All recipients in 2017, except those who pay more than the standard Part B premium amounts, and including - Individuals turning age 65 in 2017 and starting Medicare in 2017 - Individuals age 65 and over on Medicare in 2016 but were not yet receiving Social Security benefits - Individuals age 65 and over who were not on Medicare in 2016 but starting Medicare in 2017 Modified adjusted gross income (MAGI) Individual ≤$85, 000 Married, filing jointly ≤$170, 000 2016 monthly premium $104. 90 HH or $121. 80 not HH 2017 held harmless (HH) 2017 Not held harmless Premium level $109 $134. 00 Standard premium (average) Individual >$85, 000 up to $107, 000 Married, filing jointly >$170, 000 up to $214, 000 $170. 50 $187. 50 1. 4 x standard Individual >$107, 000 up to $160, 000 Married, filing jointly >$214, 000 up to $320, 000 $243. 60 $267. 90 2. 0 x standard Individual >$160, 000 up to $214, 000 Married, filing jointly >$320, 000 up to $428, 000 $316. 70 $348. 30 2. 6 x standard Individual >$214, 000 Married, filing jointly >$428, 000 $389. 80 $428. 60 3. 2 x standard Centers for Medicare and Medicaid Services, Medicare 2016 & 2017 costs at a glance, 2017. 26

Medicare income brackets for determining monthly premiums starting in 2018 Modified adjusted gross income (MAGI) 2018 premium year Individual ≤$85, 000 Married, filing jointly ≤$170, 000 Individual >$85, 000 up to $107, 000 Married, filing jointly >$170, 000 up to $214, 000 Individual >$107, 000 up to $133, 500 Married, filing jointly >$214, 000 up to $267, 000 Individual >$133, 500 up to $160, 000 Married, filing jointly >$267, 000 up to $320, 000 Individual >$160, 000 Married, filing jointly >$320, 000 It is not clear how the Medicare Access and CHIP Re-authorization Act of 2015 will be applied to married, filing separately, in 2018. Katy Votava, Ph. D, RN, President of Goodcare. com, “Big changes coming soon for high income Medicare beneficiaries, ” May 13, 2015 27 3

3 Medicare Part D monthly premiums Modified adjust gross income (MAGI) 2015 tax year Individual income ≤$85, 000 Married couple income ≤$170, 000 PART D 2017 monthly premium Plan premium Individual income >$85, 000 up to $107, 000 Married couple income >$170, 000 up to $214, 000 $13. 30 + plan premium Individual income >$107, 000 up to $160, 000 Married couple income >$214, 000 up to $320, 000 $34. 20 + plan premium Individual income >$160, 000 up to $214, 000 Married couple income >$320, 000 up to $428, 000 $55. 20 + plan premium Individual income >$214, 000 Married couple income >$428, 000 $76. 20 + plan premium “income” = Modified adjusted gross income National Center On Aging (NCOA), Center for Benefits Access, Medicare Part D: Beneficiary Costs in 2017 28

1 Medicare Hospital insurance Part A pays some of the costs of hospitalization, limited skilled nursing home care, hospice care, and home health services. Part B § Usually premium-free, but there are co-pays and deductibles Part A Medical insurance Part B primarily covers physicians’ services, most outpatient hospital services, and certain related services. § Long-term nursing home care is currently not covered § Part B coverage has a premium 2017 Medicare & You, Centers for Medicare & Medicaid Services, November, 2016. 29

Medicare Part A Hospital insurance Part B Medical insurance Part C Medicare Advantage plans Part C includes managed care plans, private fee-for-service plans, and medical savings accounts. § It may offer extra coverage such as vision, dental, and/or health and wellness programs Part D is voluntary prescription drug coverage. Part D Prescription drug coverage 30 2017 Medicare & You, Centers for Medicare & Medicaid Services, November, 2016.

Decision 1: Choose original Medicare or Medicare Advantage Original Medicare OR Medicare Advantage Plan Like an HMO or PPO Part A Part B Part C Medical insurance Hospital insurance Combo A, B & usually D 1 Decision 2: Is prescription drug coverage needed? Part D Prescription drugs 1 Decision 3: Do you need to add supplemental coverage? Medigap End 31 1 Most plans cover but you may be able to add coverage in some plan types, if not already included. End 2017 Medicare & You, Centers for Medicare & Medicaid Services, November, 2016. This illustration is for illustrative purposes only.

Medigap policy A policy purchased separately to cover what Medicare does not MEDIGAP POLICY § Covers certain expenses depending on the policy Co-payments § Premiums vary depending on insurance company and extent of coverage Co-insurance Deductibles 32

Medigap policy examples Community rated (also called no-age rated) Generally, the same monthly premium is charged to everyone who has this type of Medigap policy, regardless of age. Mr. Smith Age 65 $165 monthly premium Mrs. Johnson Age 72 $165 monthly premium This hypothetical example is provided for illustrative purposes only and does not represent actual clients. “Costs of Medigap policies, ” Centers for Medicare & Medicaid Services, 2017. 33

Medigap policy examples Issue-age rated (also called entry-age rated) Premium is based on the age you are when you buy (are “issued”) the Medigap policy. Mr. Smith Age 65 $145 monthly premium Mrs. Johnson Age 72 $175 monthly premium This hypothetical example is provided for illustrative purposes only and does not represent actual clients. “Costs of Medigap policies, ” Centers for Medicare & Medicaid Services, 2017. 34

Medigap policy examples Attained-age rated Premium is based on your current age (the age you “attained”), so your premium goes up as you get older. Mr. Smith Age 65 Mrs. Johnson Age 72 Age 66, $126 Age 67, $132 Age 72, $165 Age 73, $171 Age 74, $177 $120 monthly premium $165 monthly premium This hypothetical example is provided for illustrative purposes only and does not represent actual clients. “Costs of Medigap policies, ” Centers for Medicare & Medicaid Services, 2017. 35

Medicare does not cover nursing home costs Medicaid is a joint federal-state program for low-income individuals for nursing home and some other costs § Qualifications - Vary from state to state - Subject to federal and state guidelines - Program options and names vary from state to state (e. g. , Medical Assistance or Medi-Cal) - Income and resource requirements also vary between states § Long term care insurance policies and riders may be needed 2017 Medicare & You, Centers for Medicare & Medicaid Services, November, 2016. 36

Annual long term care costs can be significant Medicare does not cover nursing home costs 2016 average annual nursing home cost in the U. S. $92, 378 Based on 365 days of care and private room. 3. 51% increase Percent increase represents a 5 -year annual growth rate Genworth, 2016 Cost of Care Survey. 37

Health care costs for 65 -year-old couple Hypothetical example of projected lifetime expenses in future dollars Premiums Male Female Hospitals, Doctors, & Tests $58, 266 $67, 588 Prescription Drugs $34, 635 $41, 582 Supplemental $91, 950 $108, 012 Dental $13, 943 $16, 063 Hospitals, Doctors, & Tests $11, 345 $12, 040 Prescription Drugs $13, 038 $15, 184 Hearing and Vision $43, 080 $48, 552 Dental $8, 777 $9, 813 TOTAL $275, 035 $294, 975 Other out-of-pocket expenses/costs Hypothetical example only, does not represent an actual client. Health. View Services: 2015 Retirement Health Care Costs Data Report©, 2015. $570, 010

Retirement will last longer Probability of survival at age 65 94% Age 80 Either Female Male Age 93 50 50 50% 8% To age Either = probability at least one member of male-female couple (both age 65) could survive to approximate age Insured Retirement Institute (IRI), IRI Fact Book, 2016. 39

Cost-of-living adjustments and inflation Social Security Medicare Part B Average annual cost-of-living increase last 30 years Average annual premium increase last 30 years 2. 60% 6. 21% Social Security Administration, Cost-of-living Adjustments, January 1988 – January 2017. Centers for Medicare and Medicaid Services, Part B Premiums, January 1988 – January 2017.

What can you do? § Understand the impact of your health care costs in retirement § Consider the amount and type of health care needed § Calculate the impact of inflation and longevity on medical costs § Consider strategies that include increasing income potential § Consider long term care insurance riders and policies § Inquire about guaranteed lifetime income annuities as a possible funding source for a portion of an overall portfolio for health care Guarantees are backed by the financial strength and claims-paying ability of the issuing company. Variable annuity guarantees do not apply to the performance of the variable subaccounts, which will fluctuate with market conditions.

Summary 1. Health care before retirement 2. Health care for retirees under age 65 3. Health care at age 65 and beyond 42

Next steps 43

Next steps § Evaluate your basic income needs § Understand the impact health care costs could have on your retirement income strategies. § Let’s meet to review your specific situation. 44 It’s important to consider health care in your retirement strategies.

In closing This presentation is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, their affiliated companies, and their representatives and employees do not give legal or tax advice or advice related to health care or Social Security and Medicare. Clients are encouraged to seek advice for their personal situations from their tax and legal professionals or local Social Security and Medicare Administration office. Purchasing an annuity within a retirement plan that provides tax deferral under sections of the Internal Revenue Code results in no additional tax benefit. An annuity should be used to fund a qualified plan based upon the annuity’s features other than tax deferral. All annuity features, risks, limitations, and costs should be considered prior to purchasing an annuity within a tax-qualified retirement plan. All annuity contract and rider guarantees, or annuity payout rates, are backed by the claims-paying ability of the issuing insurance company. They are not backed by the broker/dealer from which this annuity is purchased, by the insurance agency from which this annuity is purchased, or any affiliates of those entities, and none makes any representations or guarantees regarding the claims-paying ability of Allianz Life Insurance Company of North America or Allianz Life Insurance Company of New York. Guarantees do not apply to the performance of the variable subaccounts, which will fluctuate with market conditions. • Not FDIC insured • May lose value • No bank or credit union guarantee • Not a deposit • Not insured by any federal government agency or NCUA/NCUSIF Products are issued by Allianz Life Insurance Company of North America, 5701 Golden Hills Drive, Minneapolis, MN 554161297. www. allianzlife. com. In New York, products are issued by Allianz Life Insurance Company of New York, 28 Liberty Street, 38 th Floor, New York, NY 10005 -1422. www. allianzlife. com/new-york/. Variable products are distributed by their affiliate, Allianz Life Financial Services, LLC, member FINRA, 5701 Golden Hills Drive, Minneapolis, MN 55416 -1297. www. allianzlife. com. Only Allianz Life Insurance Company of New York is authorized to offer annuities and life insurance in the state of New York. 45

Thank you! Questions? 46