considered their health care coverage, you must ask the right questions to get them thinking seriously about it.
Life is full of surprises. One of the biggest surprises we have had as
advisors is learning that many pre- and post-retirees have thought very little
about health care, Medicare, and how they will manage health care costs in
retirement. While clients have saved for the future, they often neglect to
determine how they will manage their family’s health care needs once they stop
working.
We have asked a broad range of people what resources they have used to learn
about health care. While some said the best source was their employer’s benefits
department, others bought books and learned the old-fashioned way—by doing their
homework. However, a growing number of people report getting started because a
financial advisor asked them some basic questions about health care coverage and
got them thinking and planning. Have you discussed health care with your
clients?
Today, clients call on financial advisors for a variety of information
regarding retirement planning. Given the retirement wave of baby boomers, it’s
likely that more and more questions will focus on health care. Think about it:
do your clients’ retirement plans include the cost of health care coverage,
out-of-pocket costs, and an analysis of health care options available?
As employers, insurers, and government entities find ways to contain their
health care costs, financial risk is being shifted to your clients. Without
proper health care coverage planning, the best financial plan can be ruined and
a client’s bright future dramatically altered.
Questions for those retiring before age 65
Here are questions advisors should ask clients who plan to retire before age
65:
- Benefits through an employer or union. Advisors should ask,
“Are you or your spouse eligible for retiree health care benefits? If so,
when?”Those who can retire with group benefits through a former employer before
they are Medicare eligible are generally very fortunate. Your clients must know
when retiree health care is available to them or their spouse. Those who retire
before retiree health care is available must plan for any gap in coverage.Retiree health care is not a panacea. Not all plans are good or affordable,
not to mention that plans can change and coverage can be eliminated. Don’t
forget to talk about cost considerations and what options are available when
discussing retiree health care. - Pre-existing conditions. Advisors should ask, “Have you
considered whether any pre-existing conditions (serious illness and/or
treatment) might limit your coverage options?”This issue is critical for those who plan to purchase individual insurance
because they don’t have group retiree benefits or don’t have a working spouse
with coverage. Your client may not be insurable since individual insurance is
medically underwritten. A chronic illness, condition, or anything else in the
past medical history can be used to disqualify an applicant.Most states have programs that provide coverage protection to those not
insurable in the private marketplace. Although this is an important option,
coverage is often expensive, because the population covered typically won’t
qualify for more desirable alternatives. - Options and cost. Advisors should ask, “If you have several
options for coverage, including COBRA (extension of group coverage), how do the
options differ?”Those with coverage through a former employer must understand their coverage
and know how good it is.- Review the benefits
- What is the lifetime maximum?
- Is the spouse is covered?
- Are there survivor benefits?
- What will the client contribute toward the cost?
Giving up retiree coverage is a significant decision, because one generally
can’t get back on the plan. But sometimes it’s the best decision, either because
the plan isn’t very good or the cost is greater than options in the private
marketplace, assuming the client will qualify.For those without retiree coverage, opting for COBRA for 18 months may be a
good option if it bridges the gap to Medicare coverage. If it does not, then
pre-existing conditions must be considered. A healthy person who might qualify
for individual insurance but elects COBRA may find at the end of COBRA, that he
or she is not insurable in the private market due to a recent diagnosis or
condition.Anyone considering COBRA should get educated about what COBRA costs and what
the options are after COBRA ends. - Medicare enrollment. Advisors should ask, “Do you know when
and how to enroll in Medicare?”Almost every retiree (unless covered by an active working spouse’s large
group plan) should have Medicare at age 65. Companies providing retiree coverage
require retirees and their spouses to enroll in Medicare as soon as they are
eligible, typically at age 65.If the client receives Social Security benefits prior to age 65, he or she
will automatically be enrolled in Medicare. If on a spouse’s group plan, the
client must evaluate whether to opt out of Medicare Part B, which covers
physician and other outpatient services (there is a cost to Part B).If the client is not receiving Social Security benefits, he or she will need
to contact Social Security to enroll in Medicare within three months, but prior
to his or her 65th birthday.Some clients may not be eligible for Medicare because they lived and/or
worked outside the United States for most of their careers or are wealthy and
didn’t pay into Social Security. In these situations, whether or not to buy into
Medicare should be considered. Yes, individuals may buy insurance through
Medicare if they qualify.
Questions for those retiring after age 65
Here’s a list of questions advisors should ask clients who plan to retire
after the age of 65:
- Benefits through an employer/union. Advisors should ask,
“Are you or your spouse eligible for retiree benefits? If so, when?”Like clients under 65, those eligible for retiree coverage need to understand
the value of the benefits offered. Plans in the private sector are not similar.
The lifetime maximum may be anything from $100,000 to unlimited. Deductibles
vary dramatically. The former employer may be subsidizing the plan or passing
along more than the employer’s cost. Clients need to find out what they’re
dealing with.Someone retiring from a large group with retiree health care should plan to
enroll in Medicare to coincide with retirement. Retiree plans are designed to
pay after Medicare pays. - Pre-existing conditions. Advisors should ask, “Did you know
that pre-existing medical conditions do not apply to Medicare when there is no
gap in coverage and Medicare enrollment rules have been followed?”This is wonderful news for those who have been concerned about pre-existing
issues. However, to ensure coverage, it is absolutely necessary to follow the
Medicare enrollment rules discussed below. - Options and cost. Advisors should ask, “If you have several
options for coverage including COBRA (extension of group coverage), how do the
options differ?”For those without retiree coverage secondary to Medicare and not on a
spouse’s large group plan, the options generally include enrolling in a Medicare
Part D plan for drugs and, if desired, a Medicare supplement. Enrolling in a
Medicare Advantage Plan—a Medicare HMO—is another option. COBRA is rarely a
desirable option for someone over age 65. Medicare Advantage Plans offer the
advantages and disadvantages of any other HMO. The member pays somewhat less for
more benefits while accepting limited physician choice.Buying a Medicare supplement is optional, but because there is almost always
a balance after Medicare, many retirees purchase a supplement. Although Medicare
supplement plans A through L have standard benefits, companies charge very
different premiums for plans with the same benefits. Medicare private
fee-for-service plans are new and have received negative publicity. It is
probably best to adopt a “wait and see” approach until these products have a
track record.Unless your client has other drug coverage through a spouse’s plan, he or she
should definitely enroll in a Medicare Part D Plan. Prescription drug expenses
can be catastrophic. - Knowing when and how to enroll in Medicare. Advisors should
ask, “Do you understand Medicare enrollment rules?”Enrollment in Medicare Part B must be timed to coincide with retirement, or
there will be a gap in coverage. Clients must have Medicare Part A to enroll in
Part B. Everyone eligible for Part A at age 65 should take advantage of it. The
period around age 65 is referred to as the open-enrollment period. Retirement or
losing group coverage as an active worker creates a special enrollment period.
If your client doesn’t enroll at 65 or during a special enrollment period, the
only way to get Part B is through the annual enrollment period, which is the
first quarter of every year. Waiting for the annual enrollment period results in
a coverage gap and premium penalties for life. The government is very
unforgiving in this regard. - Getting help. Advisors should ask, “Do you know how to get
additional help?”Both public and private resources are available for assistance depending on
your client’s situation and preferences.Public resources
- State Insurance Department
- Local Administration on Aging office (www.aoa.gov,
or 800-677-1116 for information on local service) - Social Security, 800-772-1213, www.ssa.gov
- Medicare 800-Medicare (800-633-4227),
www.medicare.gov
Private resources
- Certified insurance consultants
- Employer or union benefits staff (often outsourced)
- Local health and life insurance broker and/or www.ehealthinsurance.com
While a financial advisor is always measured by portfolio results, clients
really appreciate the extra personal service they receive. Serve your clients
well—they’ll tell their friends!
