From the May 2008 issue of Boomer Market Advisor • Subscribe!

Don't pull the plug on health care planning

There's no shortage of commentary and complaint surrounding health care. Whether it's skyrocketing costs, cuts in employer-sponsored coverage or the strain longer life spans put on the system, Americans are getting ?? 1/2 and giving ?? 1/2 an earful. And because it's a particularly contentious election year, the issue is earning that much more attention.

Why, then, do so many advisors shy away from the topic, relegating it to tier two or even tier three status in the planning process?

"We're as guilty as most in not dealing directly with health insurance," says Louisville, Ky.-based wealth manager Mark Lamkin. "The margins are low and it's a very complicated issue."

How complicated? In recent decades, health care costs have risen two to three times faster than inflation, according a report from the Economic Policy Institute, "Health insurance coverage in retirement: The erosion of retiree income security."

At the same time, fewer employers offer retirees health insurance. Firms that do are reducing access to retiree health care because of the climbing costs. In 1988, 66 percent of large firms (those with more than 200 employees) offered health coverage to retirees, compared with only 34 percent in 2002. As coverage shrinks, the issue?? 1/2 s complexity grows, and so does the need for educated advisors.

"If someone retires early, so-called Medigap issues come into play," says Ron Fiske, managing director of product management and development with Jersey City, N.J.-based Pershing. "Clients have to figure out how their going to bridge their retirement start date with Medicare eligibility. Advisors have to be familiar with client options. "Should I have a HSA or some other sort of high-deductible health plan? If not, what else is available? What about taking a lower-paying job to keep coverage?" These are the questions that will be asked and must be answered. ?? 1/2

Fiske says it's a different conversation than advisors are used to, but it's a skill set and knowledge base that is increasingly critical moving forward.

Lamkin agrees, saying that one of the primary reasons people ages 55 to 60 continue to work is for the heath insurance coverage. He emphasizes that he doesn't ignore the health insurance issue, but rather refers his clients to a specialist he knows and trusts.

"It's not an area of expertise for me and therefore I can?? 1/2 t do the best job for my clients," he adds. "I'm honest with my clients and tell them up front that their investments will keep me awake at night but their health insurance will not. It's not a passion of mine. But I will bring in someone who will do the best job possible for them, someone for whom it is a passion."

As Lamkin notes, it's all part of the team approach to offering comprehensive planning. If he doesn't specialize in a particular area, he'll bring in someone who will; as it would be with a CPA for tax issues or a long term care agent for LTCI issues.

"And when I say a specialist, I mean specialist," he says. "I don't want just a general insurance agent. I want someone whose only interest is in the health insurance space."

Referring clients to a trusted specialist is the preferred method of most advisors who are unfamiliar with the issue. Bob Enright with San Francisco-based Burton/Enright offers multiple referrals so the client can decide with whom they feel most comfortable. For Enright, it's about involving the client as much as possible in the decision-making process and clearly understanding client issues even if he doesn't deal with them directly.

"Health care and insurance issues should all be part of the initial due diligence," he says. "Any problems they have should be thoroughly discussed up front. That's part of getting to know the client before any strategies, and certainly products, are recommended. You, as the advisor, have to ask these questions."

After initially dealing with health care in-house, Chicago-based advisor Terrance Herr now also refers his clients to specialists. The reason, he says, is that every client he ever lost was over the issue of health insurance. If the carrier fails to pay a claim, Herr says, the client blames the advisor. If it can?? 1/2 t be resolved, the client walks, and takes his assets with him.

"We check to make sure health care coverage is in place, and if it is not we refer them to someone we know," he says.

But despite his past poor experience with offering health care planning and insurance, Herr agrees with Fiske on the problem of Medigap.

"We're thinking about offering Medicare supplement policies to those clients age 65 and up because they're relatively straightforward. They spell out what they do and do not cover, and that' it. But we're still debating whether or not to cross that threshold."

Both Enright and Herr warn, however, that when the client is referred to a specialist, it doesn' mean the advisor can wash his or her hands of the issue.

"We refer them out, but we handhold the process, we stay in the loop," Enright says.

Herr points to one client as an example. She has cancer, which is now in remission, and her husband has heart problems. She has coverage through a group plan, but it doesn?? 1/2 t pay for every treatment she wants to try, so she?? 1/2 ll have to pay for that herself. This means that in some years, a higher withdrawal rate will be necessary to cover their cost. Because it?'s unforeseeable if ?? 1/2 or when ?? 1/2 the cancer will return, he must still plan for all possible scenarios.

"If she has to increase the withdrawal rate, it will seriously affect the performance of the portfolio moving forward," he says. "That's something we have to stay on top of. The advisor really has to understand the employee benefits that the client receives and consider how the overall portfolio will be affected by either catastrophic or chronic illness. The employer might offer some things that, yes, the client might be able to get cheaper somewhere else, but will they actually get the coverage. This is where the forward thinking comes in and it might be worth paying the extra to know they have it."

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