Advisors Must Understand The Details In Healthcare, Long-Term Care And Medicare To Provide The Best Advice For Clients
Being able to pay for medical expenses is a major retirement concern for most. That includes the wealthy. Understandably, healthcare is an intimidating topic for many Americans, and advisors are no exception.
Indeed, conversations about healthcare can be off-putting – if for no other reason than it forces someone to think about their own mortality. But if you turn a blind eye to it until it’s too late, the result is often sticker shock and a sense of bewilderment.
Here are the top five most overlooked considerations for healthcare and Medicare costs that every advisor should be aware of:
How Medicare Works And What It Covers
Medicare Part B coverage under original (traditional) Medicare is affordable for most at $164 per month. But many high net worth individuals will need to pay much more – over $500 per month – because their premiums are subject to an Income-Related Monthly Adjustment Amount (IRMAA). Furthermore, as with employer-based insurance, out-of-pocket expenses can pile up quickly due to a lack of coverage.
For example, Medicare Part A and B do not cover eye exams, dental care, hearing aids, custodial care, services covered by workers’ compensation or physical exams not required by the Affordable Care Act.
Unpredictable Outcomes With Medicare Advantage
The Medicare Advantage (Medicare Part C) monthly premiums tend to be lower. The problem is that copays and high deductibles can make that option more expensive. This is important for clients who seem healthy now but have underlying conditions that may trigger long-term healthcare needs. In addition, once someone is on Medicare Advantage, getting on another Medicare plan can be complicated, often subject to enrollment periods or, in some cases, requiring enrollees to meet medical underwriting requirements.
Early Retirement Gap Period Before Medicare Takes Effect
If a client stops working before age 65, COBRA health insurance can be a good option, resulting in hundreds of dollars in monthly savings compared to a marketplace plan. The bad news is that such plans don’t cover many standard treatments, nor do they allow someone to pick certain doctors or hospitals.
Another thing to consider for early retiree clients is that if their spouse is an older dependent, they must sign up for Medicare within eight months of retirement. That’s true regardless of whether they have COBRA or a marketplace plan during their “gap” period. Failing to do so can result in financial penalties because those plans are not considered “creditable” coverage for Medicare.
Medicare Long-Term Care Misconceptions
Medicare does not provide long-term care insurance. However, Medicare Part A can provide fleeting access to so-called “long-term care hospital services,” which have different costs depending on how long someone uses them. There is a $1,600 deductible for the first 60 days, then a $400 copayment each day for days 61 to 90, then an $800 copay per each “lifetime reserve day” up to a maximum of 60 such days over their lifetime.
However, given that the average person who needs long-term care requires it for two to three years (ranging in cost from $50,000 to $250,000 annually), there is a massive gap between what’s covered by Medicare Part A and what someone needs.
Self-Funding Long-Term Care
Per the above, long-term care is expensive. Naturally, so is long-term care insurance. Traditional plans are the costliest, with the focus being on care. In other words, these are use-it-or-lose-it plans.
As an alternative, many prefer either a hybrid product, which combines long-term care insurance with a death benefit or universal life insurance with a long-term care rider, in which the death benefit depends on how much care someone spends on their needs. Beyond insurance, a creative way to self-fund long-term care is to leverage a Roth IRA and leave what’s left over to heirs since those assets are tax-free.
Whether someone counts every dollar or is well off financially, getting older brings joy and struggles. Thinking about medical issues and how to pay for them is part of that experience. Fortunately, a bit of foresight and preparation on your end can enable them and their families to navigate Medicare, long-term care and Roth IRAs – as well as how healthcare generally fits into their overall financial picture.
Joy Budnik is an Investment Advisor with Jackson Square Capital, a San Francisco-based RIA.