How Financial Advisors Can Help Optimize Their Clients’ Healthcare Costs

Christine Simone
December 13, 2021

As the healthcare system becomes increasingly complex and expensive, a tremendous opportunity presents itself for financial advisors who are willing to dive in and address this growing challenge. 

Incorporating healthcare insurance and medical costs into comprehensive financial planning services gives advisors the chance to expand their offerings and, more importantly, to strengthen their client relationships.

According to Fidelity, the average 65-year-old retired couple will need to save approximately $300,000 after tax to cover health care expenses in retirement. With healthcare costs outpacing inflation, those expenses will continue to rise at an anticipated 5.4% annually. Taking these numbers into consideration, it’s no wonder healthcare costs are the number one financial concern for Americans nearing retirement. 

Why Financial Advisors Need to Focus on Healthcare Cost Optimization 

Healthcare cost optimization is more than simply picking the most affordable plan. The first step for financial advisors to bring healthcare cost optimization into their clients’ financial planning process is to open up the conversation. 


Despite increased concerns around outliving their retirement savings, many people are still reluctant to discuss their healthcare and medical needs and costs with their financial professionals. In fact, only 36% of future retirees plan to discuss their concerns about the cost of healthcare with their financial advisors.


However, don’t wait for clients to start this conversation. As their financial advisor, it’s important that you start this conversation early. If you wait until clients start the conversation, it’s often because there was an unexpected cost or they have a severe concern that may be difficult to plan for.


Not including healthcare in the conversation could have various downstream effects, such as leaving your clients vulnerable to paying more for plans that aren’t well suited to their needs or ending up with insufficient coverage for things they do need, resulting in unnecessary and sometimes catastrophic out-of-pocket expenses. 

Optimize Medicare Coverage to Keep Costs Down

Navigating Medicare is a challenge that most people need help with, so this is one of the simplest ways for financial advisors to start helping their clients optimize costs. One study found that only 7% of those aged 55-64 felt knowledgeable about Medicare coverage options. Of those surveyed who are already Medicare recipients, only one in five rated themselves as very knowledgeable about Medicare offerings. Essentially, this means that the vast majority of people are making their best guess for Medicare coverage and hoping they get it right. 


Financial advisors can help their clients optimize their costs moving forward by assisting them with two critical considerations: Correctly timing their initial enrollment and supporting decision-making for the optimal Medicare Advantage, Medicare Part D, and/or Medigap coverage based on their individual circumstances and needs (which is an annual exercise).

Timing Enrollment Correctly

Enrollment in Medicare is required – for most people – at the age of 65. Failing to enroll at the proper time for various components of Medicare can result in lifetime penalties (there are some circumstances that allow for a delay in enrollment without penalty). Additional considerations include understanding how Social Security benefits and existing healthcare coverage from an employer interact with their timeline.


Optimizing Medicare costs for your clients starts with identifying current coverage and establishing a timeline for life transitions that trigger the enrollment window, such as the termination of a group healthcare plan. There are also income-related considerations, like the sale of a house, that can be timed appropriately to avoid higher surcharges (IRMAA). 


Beginning the enrollment process with sufficient time to meet deadlines will help your clients avoid penalties or higher fees and ensure they have proper coverage when they need it.

Choosing Optimal Coverage

Knowing the specifics of your clients’ existing health issues and their lifestyles will help you make sure they are making the most appropriate choices. In addition to Parts A & B, many people will need to purchase Medicare Part D to cover prescription drugs, Medicare Advantage (Part C), or Medigap to cover gaps for what Medicare doesn’t cover.


For instance, a client who travels regularly or has extensive vision or dental issues will likely benefit from an appropriate Medicare Advantage or a stand-alone travel, vision, and/or dental policy to go with their Medigap plan. There are often dozens of options to choose from depending on their location. Selecting the right supplemental plan will provide additional protection and prevent unnecessary out-of-pocket expenses.


When you have a client who has a mix of Medicare and other insurance, you can optimize costs for your client by helping them understand who pays for what. For example, retirees covered under an employee health plan or inactive military personnel covered under TRICARE may have other insurance that will cover their costs before Medicare. When they submit claims, these clients will need to know who their primary payer is and who their secondary payer is.

Additional Considerations to Optimize Your Clients’ Healthcare Costs

In addition to assisting clients during the complex enrollment process, financial advisors can also help them plan for the high medical costs they are likely to experience during retirement.

Health Savings Accounts

A Health Savings Account (HSA) has similar advantages to retirement accounts in that participants can set aside funds (up to $3,600 annually for an individual and $7,200 for family coverage) on a pre-tax basis to cover qualified medical expenses. Assuming your clients’ employer offers this option, they must have a high-deductible health plan to be eligible.


Making a maximum tax-free contribution to this account annually can build a fund with a triple tax advantage. Contributions, earnings, and withdrawals for qualified medical expenses are not taxed. Although you cannot pay plan premiums from this account (COBRA premiums are an exception), funds can go towards copays, deductibles, and other qualified expenses, further optimizing overall health costs.

Long-Term Care Coverage

As stated above, most retirees can expect to pay at least $300,000 for healthcare costs in retirement. This does not include the cost of long-term care. Neither standard health insurance nor Medicare covers long-term care costs, even though the chance that someone turning 65 today will need some level of long-term care is estimated to be 70%.

Long-term care includes in-home care providers, assisted living services, nursing homes, memory care facilities, and more. On average, long-term care can cost retirees and their families anywhere from $20,000 to $100,000 per year that it is needed.

Discussing long-term care insurance with your clients and making sure they understand the likelihood that they will need this level of care at some point in their retirement years could prevent them from experiencing a financial catastrophe.

Revisit The Plan Annually And Remain Proactive In Addressing Evolving Healthcare Costs

When you conduct annual financial reviews with your clients, this is a good time to also review their health coverage and discuss any new needs that have arisen in terms of their medical situation. A client who develops a health condition requiring new medication could require adjustments to their financial plan. 

Additionally, Medicare Advantage, Medigap insurance, and Medicare Part D plans change. Changes to a client’s existing plan may result in the need to shop for a more appropriate plan each year. Simply put, a financial plan without healthcare cost data may not be accurate and that data will need to continually be updated, as clients’ health and financial situations evolve.

As the financial services industry moves towards more holistic approaches to financial planning, healthcare cost optimization adds enormous value to your firm. An advisor's willingness and ability to skillfully navigate conversations around client health and the costs associated with it will serve both parties. As you educate your clients about their options, they may be able to avoid many concerns and unnecessary costs.

How to Incorporate Healthcare Into Your Financial Planning Services 

You don’t have to be a healthcare expert to build health insurance and medical costs into your comprehensive financial planning services. Partnering with Caribou will enable you to access trustworthy, knowledgeable experts and resources to assist you in providing the best options and guidance to your clients. 


At Caribou, 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 you can be sure that your clients are getting the best information available to help them evaluate their options. To see if we can help you better serve your clients, 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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