Most likely, you are seeing your role as a financial advisor become more involved when it comes to healthcare planning. In terms of potential expenditures and the overall impact on the client’s financial well-being, the stakes are huge. According to Genworth’s 2013 Cost of Care Survey, the median annual cost of private nursing home care has jumped 24 percent, from $67,527 to $83,950. Major medical expenses like surgery can put a significant dent in any portfolio. Through it all, the financial risks for your clients continue to increase as the population lives longer and needs progressively more comprehensive levels of care.
While discussing healthcare costs in retirement with clients is new territory for many financial advisors, it is becoming part of the norm. Once relegated to insurance agents and brokers, the healthcare talk is now taking center stage in the financial planning process. Advisors are being asked for objective advice in an environment full of controversy and change. The passage of the Affordable Care Act has brought about changes and confusion to government programs like Medicare. In a rapidly changing healthcare environment, it is vital you understand the rules and your role, before having the healthcare conversation with your clients.
Today’s senior citizens and Baby Boomers – those who are or will be turning 65 – lack Medicare knowledge. A study by Bankers Life and Casualty Company’s Center for a Secure Retirement shows one-third of seniors are unaware of the level of coverage Medicare offers for hospitalization and doctor visits. Three out of four Boomers don’t know what part of Medicare covers doctor visits. Less than one in 10 understand the Medicare Advantage Part C benefits.
A survey by Social Security Timing in partnership with Qualtrics of married couples, age 60 to 66, shows many feel uneducated about their Medicare choices and are actively searching for more information. The survey also revealed 43 percent want their financial advisors to be able to address specific Medicare health plan choices.
“The transition to Medicare is the biggest source of confusion,” says Elaine Floyd, certified financial planner (CFP®) and director of retirement and life planning for Horsesmouth, an online resource for financial advisors.
Through her Savvy Medicare Planning program, Floyd shows advisors how to build Medicare into their business, ultimately helping grow their practice. Floyd says there are many things financial advisors can do to help their clients: educate and guide them about Medicare; alert them to enrollment periods; guide them on supplemental insurance; help them evaluate options for paying for long-term care; and help them build future healthcare costs into the retirement income plan. Below, she offers some advice to advisors:
It is mandatory once your client is retired. Floyd’s research suggests unless your clients over 65 are covered in an employer plan with more than 20 employees, they must sign up at age 65 or pay penalties, later. This includes people on a retiree plan, COBRA or individual health insurance policies. “Private health insurers don’t want to lose their customers,” she says. “No one is telling people turning 65 years old they need to enroll in Medicare and it isn’t automatic.”
It’s not automatic – if your clients don’t sign-up they will face penalties. If your clients don’t sign up on time they may face a late enrollment penalty. Signing up is not necessarily automatic, however. Parts A and B are automatic if your client is on Social Security. If she/he is not on Social Security then the client must proactively enroll in Parts A and B during the initial or special enrollment period. For Part D, she/he must select a private insurer. If they will use Part C (Medicare Advantage) the client must also choose a private insurer.
Medicare won’t cover everything. “Supplement insurance is essential,” Floyd says. Medicare Parts A and B do not cover vision care, dental care, hearing aids or long-term care. “Medicare leaves too many gaps and with Medicare, alone, there is no limit to out-of-pocket spending,” she adds.
Selecting a supplemental insurance can be confusing, however. One way you can help your client is by providing a list of resources for her/him to turn to when selecting a supplemental insurance policy.
Your clients’ out-of-pocket expenses will be higher than they expected. Medicare is not free for most Americans. Even your affluent clients may experience higher out-of-pocket expenses than they would like. Floyd recommends you “build future healthcare costs into the retirement income plan.” The challenge is estimating those healthcare expenses.
Medicare doesn’t cover your clients’ long-term care needs. According to a 2012 study by Bankers Life and Casualty Company Center for a Secure Retirement, Retirement Healthcare for Middle-Income Americans, most retirees don’t understand that long-term care is not covered under Medicare, yet, retirees and Baby Boomers are worried about long-term care.
As a financial advisor, you can offer valuable guidance to your clients and attract new ones by helping them understand and prepare for the healthcare costs they will face in retirement.
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