how financial advisors are increasingly making themselves a resource for guidance on health insurance, especially Medicare for retirees, as the number of retirees covered by employer health insurance has declined from more than 60% in the 1980s to only about 25% today, and the trend is expected to continue (or even accelerate) as retirees are now assured of health insurance after retirement (on health insurance exchanges up to age 65, and via Medicare thereafter).
Retirees need to navigate the "Medicare maze" of Part A (hospital inpatient care), Part B (outpatient care, including doctors visits and diagnostic testing), and Part D (prescription drug plans), to understand what's covered, what's not, and what kinds of premiums (for Parts B and D, with higher means-tested premiums once AGI exceeds $85k for individuals or $170k for married couples) and out-of-pocket costs may be on the table.
In addition, retirees must decide whether to opt out of the 'traditional' Medicare Parts A and B to go with a Part C (Medicare Advantage) plan (which may have lower premiums but also more restrictive HMO-style benefits), or buy a Medigap supplemental plan for the gaps in Part A and B coverage.
Retirees unhappy with Medicare Advantage can switch from it back to the traditional Medicare system during the annual open enrollment period, but may have trouble getting a Medigap supplemental policy now (as those who apply outside of their initial Medicare window at age 65 must be medically underwritten and may be declined for coverage).
Most financial advisers spend years developing expertise in the likes of asset allocation and investment fund selection. Until recently, they barely addressed the second-largest budget item of their older clients: health-related costs.
This is beginning to change, though, as demand for help with health-care planning drives more advisers to add another line to their resume: Medicare consultant.
Underlying this trend is the decline in employer-sponsored retirement health plans. “People didn’t used to have to worry about retirement health care,” said Katy Votava, president of Goodcare.com, a Rochester, N.Y., firm that works with financial advisers and their clients to help the latter save money on health care. But roughly 25% of employers that provide health insurance offer retiree health benefits, down from more than 60% in the 1980s, according to Bryce Williams, managing director of Exchange Solutions for Towers Watson.
And most of the retiree medical benefits that remain aren't as generous as in the past. In the plans of old, an employer would typically provide comprehensive drug benefits to accompany original Medicare for those 65 and over, leaving the retiree with low out-of-pocket costs and few decisions to make.
Retirees under the Medicare-eligibility age might have continued on the company’s regular medical plan. The Affordable Care Act is expected to accelerate the decline in companies providing this benefit, since retirees under 65 have a new option for guaranteed coverage on the state exchanges.
It’s no wonder consumers are clamoring for help planning for and managing health-care expenses. The price tag is enormous: For a married couple that wants a 90% chance of having enough money by age 65 to fund health-care expenses throughout retirement, and who both have drug expenses at the 90th percentile, the savings target is $360,000, according to a recent report by the Employee Benefit Research Institute. (The fact that that’s down from $387,000 in 2012 will likely come as cold comfort to most pre-retirees).
Navigating the Medicare mazeFor most advisers, experts say, educating their clients about Medicare is one of the most important factors in keeping those costs manageable.
For starters, savers need to know—well before they retire—that Medicare doesn’t cover everything. Needs that the original government program doesn’t cover include routine dental care, dentures, hearing aids, and—the biggie—long-term care. What’s more, Medicare isn’t free. While most beneficiaries don’t have to pay premiums for Part A (hospital inpatient care), people must pay premiums for Part B (outpatient, including doctors visits and diagnostic testing), Part D (drugs) and, usually, for Part C (Medicare Advantage plans, offered as an option in lieu of original Parts A and B.) Beneficiaries also incur out-of-pocket costs for copayments, coinsurance and deductibles.
But these basics are just the tip of the iceberg. Medicare coverage also requires complex decision-making. Enrollees must pick their type of coverage—original Medicare or a Medicare Advantage plan. Those who opt for original Medicare often choose to buy a Medigap supplement plan to help cover out-of-pocket expenses, as well as a separate drug plan.
This might seem straightforward enough, but the plan choices are many and the stakes are high. What’s more, there’s evidence that many consumers aren’t doing enough comparison-shopping. According to a study released last month by eHealth, which operates eHealthInsurance, the country’s largest private health insurance exchange, less than 6% of people who used eHealth’s online tools to compare prices in stand-alone Medicare prescription drug plans were in the plan with the lowest total out-of-pocket costs available to them. Users who switched to the plan with the lowest costs in 2013 could have saved an average of $649 for the year, eHealth found.
Many Medicare enrollees are drawn to Medicare Advantage for the plans’ affordable premiums. The average monthly premium for 2014 is projected to be $32.60, according to the Centers for Medicare & Medicaid Services, although some plans charge zero premiums, said David M. Anthony, founder of Anthony Capital in Broomfield, Colo. Yet they do this without fully understanding the trade-offs, he said; “They’re paying less and getting less.” Plans with zero premiums are often health maintenance organizations that have restricted choices of doctors, for example.
People who don’t like their Medicare Advantage plan have the option of switching during certain times of the year—now is one of those times, during the open enrollment period that lasts through December 7—but there’s a potential risk for those who have serious health issues: In most states, Medicare supplement plans require medical underwriting, and outside of certain special circumstances those in poor health can be denied coverage if they try to enroll outside their Medigap open enrollment period (the window around a person’s 65th birthday when coverage is guaranteed at the same price that someone in good health would pay). In other words, some people seeking to switch from a Medicare Advantage plan to original Medicare with supplemental insurance might find themselves paying more or even shut out of coverage.
Health-insurance helpAnthony offers a review of clients’ Medicare coverage as part of his financial planning services. He has more experience than most in the topic, having briefly sold Medicare supplement plans right out of college. But that didn’t stop Anthony from being “flabbergasted” by the array of choices when it came time to help his parents with their Medicare enrollment. That’s when he decided to add a separate division to his firm, which advises on and sells a wide range of Medicare plans and long-term care insurance. “We’ve got more business than we can handle right now,” he said.
Many advisers decide it isn’t cost-effective to develop that level of expertise in-house, and that’s when they tap experts like Votava of Goodcare.com, who has worked as a nurse practitioner and holds a Ph.D. in health economics and nursing. She will conduct a Medicare review and provide other consulting services for advisers’ clients, at an hourly rate of $195 with a two-hour minimum; she also offers smart-shopping webinars for $45 each.
Clients of Morgan Stanley Wealth Management have access to the services of PinnacleCare, a private health advisory firm based in Baltimore. The firm’s comprehensive Medicare evaluation costs $750 as a stand-alone service. The firm’s services aren’t available to the general public directly; they’re accessible to clients of partner advisers, to members who pay annual fees, and to those whose workplaces offer some of the firm’s services as a group benefit.
When PinnacleCare began, the company focused exclusively on helping clients manage the clinical aspects of their medical care—for example, by having on-staff researchers dig into scientific data on the medical procedures clients were considering. The firm didn’t tackle the financial aspects of health care at first. “We kind of said it’s someone else’s problem, then we realized we needed to embrace it,” said Bruce Spector, chairman.
One of the biggest mistakes that people make when it comes to retirement health care is simply failing to plan in advance, Votava said. One shock to higher-income people is the additional amount they’ll have to pay for certain parts of Medicare.
Individuals with modified adjusted gross incomes exceeding $85,000 and married couples filing jointly with incomes over $170,000 face higher premiums for Part B and prescription drug coverage (premiums rise on a sliding scale). Medicare’s MAGI is the total of adjusted gross income plus tax-exempt interest income. There may be ways to lower this amount and avoid paying more, but even if there aren’t people should understand their outlay in advance, Votava said. Otherwise, “That’s a bitter pill to swallow when you’re on the threshold of retirement,” she added.
Many advisers are unsure of how to broach health-care issues with their clients, said Dr. Carolyn McClanahan, the founder of Life Planning Partners, a financial advisory practice in Jacksonville, Fla. McClanahan regularly speaks to groups of advisers on health-care-related topics and has taught them the kind of open-ended questions they can use to initiate a discussion.
Because of her medical background—she keeps her credentials current volunteering her medical services at a homeless shelter—McClanahan sometimes even hears from clients looking for medical diagnoses. One called her with heart palpitations once, but she referred him on to the emergency room. She’ll help clients find specialists and get they kind of care they want, but when it comes to the clinical stuff, “I don’t practice medicine on my clients.”