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Life Health > Health Insurance > Your Practice

How advisors can help solve the health care cost crisis

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When it comes to planning for retirement, no hurdle appears to loom larger for consumers than how to account for potentially crippling healthcare costs down the road, a survey by Deloitte’s Center for Financial Services revealed.

Our prior blogs about this survey of nearly 4,500 Americans from a wide range of age and income groups focused on a number of other barriers discouraging consumers from putting in place a formal plan to generate savings and income for retirement, as well as from seeking professional help to do so. Included are conflicting financial priorities, lack of awareness about retirement products, mistrust of the financial services industry, a failure to communicate effectively with prospects (particularly via the workplace), and a potentially misplaced confidence that consumers can “do it myself” when it comes to retirement planning.

But figuring out how to pay what are expected to be ever-rising medical costs over the long term turned out to be one of the biggest concerns confronting respondents when trying to address their retirement needs.

Indeed, next to saving money for retirement, the second-most important financial priority among those Deloitte surveyed was how to pay healthcare costs, with a smaller but not insignificant segment listing a related challenge — financing long-term care expenses — as another top priority. Healthcare concerns, which rise along with the age of the respondent, is not surprising given that 70 percent of those surveyed expect their medical costs to increase during retirement — a logical assumption for most.

Fear about the ability to cover future medical costs often undermines consumer confidence when it comes to retirement security. One-third of respondents within five years of their expected retirement said that no matter how well they prepare, they believe healthcare and/or long-term care expenses could overwhelm their retirement nest eggs. That percentage of doubters increases to 40 percent for those more than five years from retirement.

Digging into the survey data a bit deeper, Deloitte found the following:

1. One-third of consumers making more than $100k worry about affording healthcare.
It’s no surprise that those with higher incomes are less likely to feel concerned about healthcare costs overwhelming their retirement savings than are those with lower incomes. But it was a surprise that such a large segment — one-third — of those in the higher-income brackets (more than $100,000 in annual income) shared this fear. This means that even many of the affluents and emerging affluents are skeptical about their ability to generate adequate savings to cover their healthcare costs.

2. Working with a financial professional doesn’t always boost perceived security when it comes to healthcare costs.
Another telling point is that just about the same percentage of those who work with a professional to plan for retirement as among those who do not believe that healthcare expenses might overtake their savings. This indicates that many financial planners are either not addressing their client’s medical- and long-term care needs as they put together retirement savings and income plans, or are failing to account for such concerns to the satisfaction of their clients.

We believe there are a number of ways financial services providers can help alleviate these healthcare cost worries as part of a broader retirement planning process.

One is to at least deal with medical- and long-term care considerations in tandem with retirement savings and income planning. If such issues are addressed in the same conversation, that might go a long way toward reconciling the dual (and often dueling) problems of providing for both income and medical care needs in retirement.

To start, financial planners should explain how Medicare works, as well as discuss “medigap” options — policies offered by private carriers to pay for whatever Medicare does not cover, such as co-payments, deductibles and coinsurance — and budget for such coverage accordingly.

A second step might be to recommend the purchase of, and budget for, stand-alone long-term care insurance — or perhaps a hybrid product that combines life insurance with a long-term care option. If the cost of long-term care insurance is an issue, short-term care coverage might offer a partial solution.

However it is packaged, long-term care coverage should be presented as part of a broader retirement plan to provide asset-protection, with policies designed to prevent a lifetime of savings from being prematurely depleted by treatment or aftercare for a severe medical condition.

The purchase of critical or catastrophic illness coverage might accomplish the same goal — to provide a backstop in case unanticipated medical expenses threaten to drain the retirement savings of an individual and their family.

In terms of product development, perhaps the addition of a new type of “stop-loss” insurance, capping a policyholder’s medical costs, might also be offered. At present, “stop-loss” coverage is often purchased by companies that self-insure their health benefit plans, with a private “excess” insurer picking up aggregate costs if they exceed a certain level. Such coverage might benefit individual consumers as well by providing some certainty about their maximum probable loss on medical- or long-term care expenses in a given year.

Any of these policies might in effect provide “sleep insurance,” so buyers can rest assured that medical costs won’t devour their retirement nest eggs, allowing them to set aside savings with added confidence it will actually go toward their retirement income needs.

To put consumers on the road to a financially secure retirement, planners and insurance agents should make clients aware of potential hazards that could crop up along the way — such as unforeseen medical expenses — which might puncture their tires and leave them flat broke if they don’t have a spare in the trunk in the form of asset protection policies.

By taking such concerns into account as part of a broader holistic approach — addressing multiple, often conflicting financial priorities in one sitting — consumers might not only have a firmer foundation on which to retire, but are likely to be more open to working with a financial services professional to put such a plan in place. 

Meeting the Retirement Challenge: New Approaches and Solutions for the Financial Services Industry”—a full report on what else the Deloitte survey results suggest in terms of how to overcome the various barriers keeping life insurers, annuities companies and their intermediaries from more effectively connecting with retirement planning prospects — can be accessed here.


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