Clients Retiring This Summer? Remember This Important Step
February 7, 2024
Summer is a popular time of the year to take some well-deserved R&R — maybe that’s why it’s a common time for people to officially retire! If your client is retiring this summer, you’ve likely already been planning for this big milestone with them.
But, did you remember to go over their healthcare options with them?
Or maybe your client is retiring next summer and you’re doing all that you can to make the most of the year before they leave the workforce — does that planning include healthcare costs?
If you aren’t including healthcare costs in clients’ plans, you’re forgetting to account for an expense that takes up 15% of clients’ assets during retirement. Plus, healthcare is the third-highest area of spending in retirement.
But don’t panic, there’s still time to plan for these costs and clients' healthcare coverage options, and you’re in the perfect place to learn how. Just keep reading!
Clients Who Are 65+ and Retiring
For this blog, we’re going to break down our tips into two major categories: retirees who are 65 and older, and retirees who are under 65. You’ll see why in a moment.
Medicare is the obvious choice since individuals become eligible for Medicare coverage once they turn 65, but it’s not the only choice that needs to be made. Even within Medicare, you and your client will need to determine if Original Medicare or Medicare Advantage is best for them. So, let’s dive into all the healthcare coverage options for 65+ retirees.
Original Medicare includes Parts A, B, D, and a Medicare Supplemental (“Medigap”) plan. Clients pay a monthly premium, and for out-of-pocket costs, Medicare Part A + B covers 80% of healthcare costs. Put another way, enrollees have a 20% coinsurance. Enrollees can enroll in a Medicare Supplemental plan to help cover the 20% they are responsible for. If clients choose a drug plan, they’ll pay a separate monthly premium for that plan.
Original Medicare covers most medically necessary services and supplies in hospitals, doctors’ offices, and other healthcare facilities. Specifically, Part A covers facility-based healthcare costs, Part B covers medical services, and Part D covers drug costs.
A Medicare Advantage plan is a single, all-in-one plan that covers all the same basic benefits that are on Medicare Original from a single private insurance company. While Medicare Advantage plans are simpler to manage, they might not be the right choice for certain clients. The costs vary greatly depending on the plans and carriers offered where your client resides. The biggest impact on costs is the out-of-pocket maximum, which can be thousands of dollars. Clients will be responsible for paying up to that amount in the event they need to access healthcare services. Enrollees pay the monthly Part B premium (including any income adjustment on Parts B and D) and may also have to pay the plan’s premium unless they have a $0 premium. Most plans include Medicare drug coverage (Part D).
Medicare Advantage plans are required to cover all medically necessary services that Original Medicare covers. Some plans also offer extra benefits that Original Medicare doesn't cover, such as vision, hearing, and dental services.
Working Spouse’s Employer-Sponsored Health Insurance
If your client’s spouse is still actively employed and has employer-sponsored health insurance, your Medicare-eligible client who is retiring can delay Medicare enrollment and stay on their spouse’s plan. This can potentially save them money on monthly premiums, which are calculated based on income, and also allow them to continue contributing to their Health Savings Account (HSA) if they have one. However, the plan must be a large group plan that covers at least 20 or more employees and provides benefits that Medicare Parts B and D would cover. It’s important to check with the current plan administrator that the plan is eligible to delay Medicare enrollment because penalty fees for late enrollment can be costly and last the rest of your client’s life.
To delay Medicare enrollment, all your client has to do is not sign up when they’re first eligible. Or, if they’d only like Medicare Part A, which is generally free to most Americans, they simply enroll only in Part A and delay their Part B enrollment. The benefits of enrolling in Part A when they’re first eligible are:
- There is no cost to your client to do so.
- They’ll be assigned their permanent Medicare number so when they are ready to enroll in Part B they’ll already have their Medicare number which can expedite that process.
- Their employer coverage is primary for their out-patient care, and Medicare Part A is primary only if they are hospitalized and will coordinate with their employer benefits.
The disadvantage of enrolling in Part A, if your client or their spouse are still working, is that they can no longer contribute to an HSA account.
Whether your client chooses Original Medicare or Medicare Advantage, they’ll have fixed and variable costs. Fixed costs are their monthly premiums, whereas variable costs are their out-of-pocket costs. For example, if a client will pay 20% of a medical service, this cost varies depending on the total cost of the service.
Another cost to consider, for both Original Medicare and Medicare Advantage, is the IRMAA surcharge. The income-related monthly adjustment amount (IRMAA) is based on the client’s tax filing status, the current year’s adjustment amount, and their modified adjusted gross income from two years prior. For example, to calculate your client’s 2023 IRMAA, which is added to the base premiums, the Social Security Administration (SSA) will look at their tax return from 2021. In 2023, the standard base monthly premium for Part B is $164.90 and scales up from that amount based on income. The base premium for Part D depends on the plan chosen by your client and IRMAA adds a minimum of an extra $12.20 per month.
Lastly, you and your client will want to sit down and answer these questions together (most of these will apply to Medicare Advantage plans, but they’re still helpful to go through either way):
- Do you know of any plannable procedures or medical services you’ll have this year? Such as joint replacement surgery, LASIK eye surgery, or an MRI?
- Are your current doctors and specialists in the plan’s network?
- Is your current pharmacy in-network?
- Are your current prescription medications in-network?
- What’s your maximum for out-of-pocket expenses?
- Are you comfortable with needing a referral from my primary care doctor to see a specialist? Or would you rather be able to see a specialist whenever you want to?
- How much are you willing to pay in monthly premiums?
- Would you prefer to have a higher monthly premium but a lower cost for individual medical services received, or would you prefer to pay less each month in premiums, but have a higher cost responsibility when you receive medical care?
- Do you have any preferences for insurance carriers?
Clients Who Are Under 65 and Retiring
Retiring before 65 is a goal that many people have (and accomplish!) Make sure this celebratory event isn't derailed by a lapse in healthcare coverage:
There are far more options for people retiring before the age of 65, and without conducting a HealthPlanning Analysis, it can be difficult to determine which option is best. The information below though will make it easier for you, and your client, to determine which coverage is the optimal choice for their health needs and financial goals.
Retirees can also shop for health insurance policies on the public exchange Marketplace (The Affordable Care Act). Depending on the state they live in, they may have to use a state-specific Marketplace, rather than the federal Healthcare.gov website. Premiums for policies sold on the Marketplace can be subsidized through premium tax credits based on income, where they live, and the size of their household. The American Rescue Act, implemented as a result of the COVID pandemic, substantially raised the income levels that qualify for premium assistance, so it’s always worthwhile to check if your clients qualify. Early retirement often creates changes in adjusted gross income, so individuals who might not have been eligible for premium assistance are finding that premiums that were previously quite high have been significantly reduced for them based on their lower, post-retirement income.
Working Spouse’s Employer-Sponsored Health Insurance
If one spouse will continue to work, enrolling the retiring spouse in their spouse’s plan is an excellent option to consider. Loss of coverage is considered a trigger for special enrollment periods so if properly planned, gaps in coverage can be avoided. However, it’s important to note that many employers don’t subsidize the premiums for spousal coverage, and not all employers offer coverage for anyone other than the employee. This is especially true for smaller employers. If this is an option, evaluating provider networks, fixed costs, and maximum exposure is an important analysis to undertake.
COBRA is the continuation of the plan that an individual had coverage while employed. Since there are thousands of different employer-sponsored health plans available, one client’s COBRA coverage is not another client’s COBRA coverage. For retirees, this coverage usually extends for 18 months. That means that if your client has more than 18 months between losing their employer-sponsored health insurance and receiving Medicare coverage, they’ll need to find other coverage. An important note about this type of insurance is that it can be expensive. This is because your client pays the entire premium (plus a 2% administration fee) whereas before, their employer likely paid a portion of it. It may be less expensive, however, than a Marketplace plan.
If your client's income is too high to be eligible for premium assistance, they can still purchase Affordable Care Act-compliant plans. Some choose to access these plans in the ‘Off-Market’, or privately. Clients can contact an insurer directly to enroll or go to an independent agent who sells these policies. Clients may find that the premiums are marked up because commissions to individual agents on these plans are quite low. The plan designs and coverage are identical to what is offered under a Marketplace plan, whether it’s subsidized by a premium tax credit or not.
Pre-65 Retiree Benefits
Some employers, including public entities and most larger, multi-state employers, offer pre-65 retiree benefits. Although this can be a great solution, your client might be reluctant to let their employer know they’re considering retirement by inquiring about these benefits. Luckily, companies that offer pre-65 retiree benefits often have outsourced benefit managers that are independent of the employer — so the inquiry can be made confidentially to obtain rates and plan designs. The pre-65 options are usually the same options offered to active employees but with different overall costs and varying coverage for spouses and dependents. It’s important to evaluate these options and any post-65 benefits that may be available so you and your client can coordinate those options without experiencing a lapse in coverage.
Once again, you and your pre-65 retiree clients will need to take fixed and variable costs into consideration when deciding between healthcare coverage options. You’ll also want to ask clients about any preferences, healthcare needs, and goals they have. For a full list of questions to ask clients to help them choose a health plan option, click here.
The #1 factor retirees report as the key to a happy and fulfilling retirement is good health. That alone is reason enough to introduce healthcare planning into your clients’ retirement plans. You can take the information from this article into client meetings to discuss the details of their retirement and all of its associated costs — including healthcare costs. If your client is retiring this summer, you’ll want to talk to them about healthcare coverage ASAP. If they’re retiring next summer, one year out is also a good time to discuss their healthcare costs and coverage options. You can approach the topic by contacting your client and telling them you’d like to talk about their upcoming retirement. Mention that you want to set them up for a successful retirement, which is why you’d like to have a conversation with them about health insurance and costs.
If it sounds daunting to do all of this on your own, the good news is that you don’t have to do it alone! Caribou’s healthcare planning software does everything mentioned in this blog (and more) to make it easier for you and your clients to incorporate healthcare costs into the financial plan. If you’re interested in learning more, book a call with our team here.