Three Ways For Financial Advisors to Help Clients Cut Healthcare Costs in Retirement

Christine Simone
February 7, 2024

We all aspire to save enough to live comfortably in retirement. But as you age and your spending habits change, there can be a lot of uncertainty around how much money you will need for different things in retirement. Healthcare costs make up a big portion of this uncertainty, as it can be difficult to predict medical needs or health plan costs. 

Comprehensive financial advisors are in a position to help their clients avoid unnecessary costs by including healthcare in their customized retirement strategies.

For the average couple, standard healthcare costs in retirement are estimated to amount to approximately $300,000. Even the most comprehensive planning cannot eliminate risk entirely, but advisors who incorporate clients’ personalized healthcare costs have a better chance of helping their clients keep healthcare costs and medical expenses within a predictable range. Below, we’re sharing three ways financial advisors can help their clients minimize healthcare costs in retirement.

1. Medicare Expenses

Most individuals become eligible to enroll in Medicare at age 65, but if they don’t sign up at the right time or submit the right documentation, they can be on the hook for late enrollment penalties. 

Furthermore, Medicare Parts A and B are not sufficient to meet the needs of many retirees. Instead, many retirees opt for supplemental coverage, either a Medigap plan with a prescription drug plan (Part D) or a Medicare Advantage plan (Part C), which bundles supplemental coverage with Part A, Part B, and, in many cases, Part D. There are many of these plans available, so choosing the right one each year can be daunting.

However, your clients may not know how to start this conversation – or even whether it’s appropriate! It’s up to you to start the conversation early enough in their retirement planning so you can help them make preparations for their healthcare coverage when they still have enough time to do so. If you wait until they bring it up, they may already be facing extreme costs that they don’t know how to cover.

Avoid Late Enrollment Penalties

Some healthcare costs in retirement simply can’t be avoided. Others, like late enrollment penalties, can be easily avoided with the right planning. Financial advisors can help their clients avoid lifelong penalties by helping them understand when they need to start the enrollment process or what kind of documentation they need to submit for late enrollment without penalty. 

As stated above, Medicare enrollment can be delayed in certain circumstances, as in the case that someone is still covered by an employer-sponsored health plan past the age of 65. Once that coverage ends, they must enroll for Medicare A & B within eight months to avoid penalties, but a Medigap and prescription plan within two. Helping your clients to enroll in Medicare at the proper time will ensure they don’t have to pay unnecessary penalties.

Original Medicare and Medicare Advantage Plans

Original Medicare consists of Part A and Part B coverage, which includes hospital care, doctor’s visits, outpatient care, and some preventative care. Most people don’t pay a premium for Part A, but Part B premiums are typically deducted from Social Security. If a client enrolls in Medicare before taking Social Security, they’ll pay the Part B premium out-of-pocket. In 2022, the standard Part B premium will be $170.10, with higher-income retirees paying up to $578.30 per month. This is the largest premium increase we’ve seen in the history of Medicare.

There are shortfalls to Original Medicare, the most significant being the possibility of additional charges to your client for extended hospital stays, as well as 20% of the cost of most doctor’s visits once meeting the deductible for Part B. Drugs delivered in a doctor’s office or hospital can be covered, but most prescription drugs aren’t and require a standalone plan. 

Medicare Advantage plans are a private insurance alternative to Original Medicare. Medicare Advantage plans often bundle Parts A and B coverage with other benefits that Original Medicare doesn’t cover. Dental, hearing, and vision services, as well as benefits tailored to enrollees with known chronic conditions, may be available depending on the plan they choose. Most Medicare Advantage plans also bundle prescription drug coverage (Part D).

Medicare Supplemental Insurance, or Medigap, is an alternative offered through private insurance companies to fill the gap that Parts A and B don’t cover. Those costs can include copays, coinsurance, and some deductibles.

According to AARP, “many beneficiaries who elect original Medicare also purchase a supplemental – or Medigap – policy to help defray many out-of-pocket costs, which Medicare officials estimate could run in the thousands of dollars each year.” 

If your client can afford to spend a bit more on their premiums and they anticipate the need for extensive treatments or medical services, then this type of supplemental coverage could save them more money in the long run. That’s because, in comparison to a Medicare Advantage plan that has a higher out-of-pocket maximum that clients would be responsible to pay, the only other fees in addition to the Medigap premium are the $233 Part B deductible. 

As a comprehensive financial advisor, you can help your clients match the right Medicare Advantage or Medigap plan to their specific needs and circumstances while keeping the affordability of premiums in accordance with the rest of their retirement plan.

2. Prescription Drugs

Medicare Part D is prescription drug coverage, but Part D plans don’t cover all drugs. There is also no out-of-pocket maximum associated with Part D plans (unlike prescription drug coverage under most employer-sponsored healthcare plans). This is important for clients who take prescription drugs that are high-cost. Building the costs of these drugs into their retirement plan in advance is essential for them to avoid financial disaster.

As with Medicare Parts A and B, timely enrollment is important for Part D coverage to avoid lifetime penalties. For those who opt for Original Medicare to Medicare Advantage, they need to sign up for Part D within a specific window depending on their unique situation to avoid penalties, even if they aren’t currently taking any prescription drugs.

Financial advisors who make a habit of conducting annual coverage reviews with their clients are in a good position to help them avoid unnecessary healthcare costs in the following year. All plans are subject to change, so the cost of prescription drugs and/or medical services could be different. Drugs have different costs depending on the plan and could easily change from one year to the next. Your clients have the opportunity to make changes to their coverage as their needs change to ensure their costs are optimized.

3. Long-Term Care

Long-term care includes assisted living, nursing homes, and in-home care providers and is not covered by Medicare. It’s estimated that 70% of adults age 65 and older will need some form of long-term care later in life. Without insurance coverage, the cost could run from $20,000 to $100,000 per year. 

Long-term care expense strategies must be planned for well in advance of the dates clients actually need long-term care. Insurance companies won’t extend coverage once an applicant has been diagnosed with a debilitating condition, so if your client wants to incorporate this type of coverage into their financial plan, it should be done in their 50s or 60s.

The cost for long-term care insurance varies depending on age, gender, marital status, breadth of coverage, and more. Most long-term care insurance is expensive, but many contracts come with tax advantages. Some or all of an individual's long-term care insurance premiums may be deducted as a medical expense by federal and some state tax codes depending on the plan they choose.

Choosing and purchasing the right long-term care insurance isn’t an easy decision. Helping your clients weigh the pros and cons could help them avoid unnecessary – and potentially catastrophic – long-term care costs. Discussing your clients’ current health status, lifestyle, family health history, and preferences for the kind of care they may need will help them make the best decision. We like to say that not everyone needs long-term care insurance, but everyone needs a long-term care plan.

Partner With Caribou to Help Your Clients Avoid Unnecessary Healthcare Costs In Retirement

Helping your clients with insurance and healthcare planning in their retirement may seem daunting, but financial planning cannot be considered as comprehensive without it. The good news is you don’t have to become a health insurance expert to ensure that your clients are receiving the services they need. Instead, you can use a solution like Caribou. 

At Caribou, we partner with comprehensive financial advisors to help their clients build health insurance and medical costs into their comprehensive financial plans. We provide our partners with access to our integrated suite of tools that provide insights and planning opportunities based on their clients’ unique circumstances. 

We also provide exclusive access to our network of expert Healthcare Advisors so your clients have a trustworthy, knowledgeable, and carefully vetted expert to ask questions to. To see if we can help you add value to the services you already provide, click here to schedule a conversation today.

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.

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