For families and seniors, the soaring cost of medical care means less money in their pockets and can force hard choices about balancing food, rent, and needed care. Medicare premiums, deductibles, and out-of-pocket costs keep going up and the stark reality of the real cost comes into play quickly, for many. Unexpected medical expenses not only bring sticker shock but can cause a person to wipe out their life savings.
According to the Employee Benefit Research Institute (EBRI), a couple, both 65 years old, with median prescription-drug expenses and who retired in 2013 will need $295,000 to enjoy a 75 percent chance of being able to pay all their remaining lifetime medical bills and $360,000 to have a 90 percent chance.
Those figures factor in the premiums for Medigap and Medicare Part D outpatient drug benefits, to supplement basic Medicare, along with out-of-pocket expenses for prescription drugs. They do not include the cost of nursing homes or long-term care insurance.
A 2013 study by Fidelity Investments, however, found that 48 percent of respondents, ages 55 to 65, believe they will need just $50,000 to pay for healthcare costs in retirement. Many assume Medicare will cover the rest. Financial experts say that is not the case.
According to EBRI, Medicare currently covers only 62 percent of the expenses associated with healthcare services. Seniors can expect to pay a greater share of their costs, as Medicare limits coverage and employment-based retiree health programs disappear.
For those not ready to retire, rising healthcare costs are making healthcare coverage more expensive. Premium rates are rising faster than income. Government data show the growth in premiums has tracked, directly, with the growth in underlying medical costs. Thus, as healthcare costs increase, so do premiums.
The plans offered through the Affordable Care Act’s market exchange are playing an important role in lowering healthcare costs. People who can benefit from purchasing insurance through the marketplace are likely to come from a range of circumstances, including individuals who own their own business, self-employed professionals, early retirees who have a few years to go before they are Medicare-eligible, and families with large households and adult dependents.
The Affordable Care Act – though a great help to millions – is making retirement planning challenging for financial advisors and confusing a majority of consumers, as they try to figure out the best plan. People need guidance navigating the insurance world – before and after retirement. Now may be a great time for advisors to play an important role in the healthcare coverage choices their clients make. The key for any advisor is to take a 360-degree view of the healthcare choices and understand the risks and tax consequences.
Dr. Carolyn McClanahan, a certified financial planner and former emergency medicine physician, told NBR.com it’s important for financial advisors to get healthcare information from clients when helping them come up with a long-term strategy to meet their retirement goals.
“I find that most people are more comfortable talking about their healthcare problems than they are about their financial issues, because health problems aren’t under your control,” says McClanahan of Life Planning Partners in Jacksonville, FL. She says a financial planner should be comfortable asking basic questions, such as “What medications are you on?” or “Have you ever been in the hospital?” and “How often do you go to the doctor?” Those are all questions that clients, when they know what you are planning for, are happy to answer for you, says McClanahan, who is also a member of the CNBC Digital Financial Advisors Council.
Education is the key. Many people are familiar with the concept of co-pay, but once those financial concepts expand to include deductibles, embedded deductibles, coinsurance, and cost-sharing, consumers often become lost.
The industry jargon can be challenging. For instance, four of 10 uninsured individuals could not correctly identify health insurance terms such as “provider network,” “annual deductible,” and “premium,” according to a Kaiser Family Foundation survey of nearly 1,300 people. The objective for you is to help your clients understand that using this knowledge to their advantage will result in real-dollar savings.
Another way to help your clients with healthcare is by navigating and shopping for Medicare and the health marketplace. Some financial advisors are partnering with marketplace specialists for these types of comparison shopping services, similar to the services available for Medicare plan selection. They offer clients their expertise about the public exchanges and the financial benefits they may realize through their choice of healthcare plans. Some of these specialists work with their clients, side-by-side, online, and by telephone to make the shopping experience easier to manage and the information more digestible.
Helping clients plan for and navigate healthcare may involve a lot of information gathering and research, but doing so could save them a lot of headaches and a lot of money and make your firm a winner.
Summit Brokerage Services is a member of Cetera Financial Group, RCS Capital Corporation’s (NYSE: RCAP) retail investment advice platform.
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