“As they approach retirement, baby boomers are asking, ‘What am I going to do for my health insurance?’ They are anxious and want to know.”
That is how Eugene Rowe describes the mood among older boomers (age 50 to 59) when they visit his office.
Financial advisors must decide how to assist boomers with this, says the chief executive officer of R&R Retirement Insurance Services LLC, Encino, Cal.
He and other experts say the strategy will vary by age and situation, but the advisor does need a strategy.
It starts with discussing the boomer client’s health status, says Rowe. “Ask how they have been taking care of themselves. Getting annual check-ups? Regular exercise? Eating healthy? What about drinking and smoking? Lifestyle issues?
“The carriers do want to know about these factors,” he says. And it opens up the door to discussing insurance options, several of which are highlighted below.
Advisors say boomers are facing several critical factors that are fueling a sense of urgency related to health care planning.
“It’s like the ‘perfect storm,’” says Carroll Busher, owner of Financial Care Services, Grand Rapids, Mich.
“The government has been consistently sending a message that ‘you have to be responsible for yourself,’” says Busher. “The government won’t do it for you.”
He points to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. That signaled that the federal government is moving away from defined health care benefits under Medicare and toward defined contribution health care plans, Busher says. “It’s the same as what happened when the country moved from defined benefit pension plans to 401(k) (defined contribution) retirement plans.”
There will be a continual shift to private methods of funding health care, he says.
Rowe offers a laundry list of other pressures at work on boomers: “Increasing numbers of boomers are living alone. Many are aware that people are living longer than in previous eras. Many are also caught in the middle of the ‘sandwich,’ between helping aging parents and putting their older children through college. And many are now seeing friends, co-workers and family members go through health crises of one kind or another.”
In addition, the ‘birth dearth’ in the early 1970s means there are fewer nurses and caregivers who are, and will be, available to care for boomers as they move through retirement, says Busher.
“The good news is that many older boomers have awakened to their situation,” says Peter Gelbwaks, president of Gelbwaks Insurance Services Inc., Plantation, Fla. “They show a lot more concern than they did in the 1990s.”
Experts generally agree that this awareness is helping build boomer receptivity to hearing ideas about how to finance their care as they move into retirement. For instance, Gelbwaks sees more and more boomers who now want to buy long term care insurance.
But matching the awareness of need with the appropriate financial solution requires that advisors understand boomer preferences and finances, he says. It is a point made by other advisors, again and again. Here are examples:
Simplicity and affordability. Boomers will reject coverage if it’s seen as too complicated or too expensive, says Gelbwaks. So, with that in mind, he often offers boomers a type of LTC policy that uses a cash, rather than reimbursement, model. Boomers consider these to be more understandable and affordable, he says.
Similarly, Alan Shoff, a partner at Shoff & Shoff Insurance Agency, Santa Monica, Cal., who sells health insurance, concentrates on offering affordable health coverage. In fact, he says, “my advice to boomers is to ‘spend as little on premium as you can.’”
This often translates into recommending a Health Savings Account (HSA) plan. This gives boomers more control over their health care dollars, Shoff says, because the boomer can choose when and if to take funds out of the HSA to pay for health expenses (up to the deductible in the companion high-deductible health insurance policy). When it makes things better for the client, “I’ll recommend this, even is it means less commission for me,” says Shoff.
Busher, too, likes using HSAs for boomers. “You can bank dollars in the HSA account, pre-tax, and the money comes out free for health care expenses–and you can take the money out all through retirement.”
That corresponds with the message that the government is not going to guarantee a set of benefits for people, he says. “With these plans, the client is now the payer… That gets the consumer’s competitive juices flowing. The boomer is looking at the provider, how much the care costs and the quality of care. This is a revolution in health care funding, redefining the system.”
Individual situation. The solution needs to fit with the boomer’s experience and expectations, Shoff stresses. For instance, if a boomer has never paid for health care expenses this way, the person may not want an HSA. The advisor needs to be aware of that, he says.
In addition, a client may not be healthy enough to qualify for a private HSA/high deductible plan, notes Busher. In that case, he looks for a managed care plan–either an HMO or a PPO (which is good for boomers who travel a lot, he says).
If the health problems are complex, he investigates the state-run plans.
“For mid-income clients, I use programming (arranging components in stages),” Busher says. “For wealthy clients, I blanket them with care plans. Either way, it’s a holistic approach.”
Educational need. The agent also needs to develop understanding in the client about needs and options, says Rowe of Encino, Cal. That’s the best way to help boomers with their anxiety related to funding health care, he says.
The educational discussions don’t always lead to a commission check on the first visit, he allows, “but agents don’t have to close a sale every time. If I do my job right, I will get my reward financially. It just works.”
Retiree health care situation. For boomers who are expecting to receive retiree health care benefits from an employer, “enjoy it,” quips Busher.
But also, “start looking,” he says, explaining that even the best health care plans do not cover all the needs. “What the boomer and advisor should be asking is, ‘what will it cost if the boomer has an acute care episode not covered by the health plan?”
It’s important to explore this, he says, because hospitals don’t keep people for long. “The hospital has become too expensive a venue for acute care, and the hospitals now operate on a case management system–they get a fee from the payer and that’s it. If the person needs more care, they need to move on to a skilled care, extended care, etc.”
Short- and long term care insurance. For the post-hospital acute care exposure, Busher recommends buying “short term care” insurance (“pays for 90 days and is dirt cheap”). For the longer-term exposure, he recommends LTC insurance (“tax-qualified; be sure the wife has coverage, and be sure the husband’s coverage includes home care”).
Retirement date. Explore with boomers when they want or expect to start taking Social Security, suggests Rowe. If they start at 62, what health insurance will they need, and will the reduced Social Security benefit hamper the ability to pay for it. And, if at 65, what type of Medicare plan are they thinking about? And what about Medicare supplement?
Health plans will change in the future, but boomers should start “working the numbers,” to see where they might stand, Rowe says. For instance, if they are planning to be an entrepreneur after they retire from full-time work, they need to factor this into the business planning.
Employment and critical health issues. Some boomers develop such serious health problems that they much terminate employment, says Rowe. In this case the advisor needs to examine COBRA plans and/or conversion to whatever state plan is available after that runs out.
The boomer market is wide open, says Gelbwaks. “Boomers are not looking for their children to take care of them. They have working spouses. They have needs, and they are looking for solutions.”
The financial advisor needs a strategy for discussing health care needs with older boomers
Adult day care is one post-hospital care option that communities offer. Adults go to these centers during the day to receive care and support, while family members work.
Now, the Centers for Medicare and Medicaid Services is starting to pilot a plan that will allow for such care under Medicare’s home health benefit.
To learn more about the pilot, go to http://www.cms.hhs.gov/researchers/demos/MADCS/default.asp