Missing open enrollment for Medicare Part B means a 10% penalty for each year they wait.

Clients are concerned advisors don’t have all the information they need to help them plan for health care in retirement, according to Peter Stahl, president of Bedrock Business Results. Unfortunately, they’re not doing much better on their own.

Stahl told attendees at Schwab Impact on Thursday that 85% of women and 70% of men are guessing at how much of their health care costs will be covered by Medicare. Only 2% of women and 5% of men actually asked their advisor about it.

It’s important for advisors to guide their clients through their Medicare decisions, Stahl said, because “Medicare is mandatory. It can be delayed or deferred,” but you have to claim it. Once clients file for Social Security, even if they file and suspend, they’ve already pulled the trigger on Medicare.

Part B premiums are paid out of clients’ Social Security benefits, Stahl said, but they’re based on the client’s salary from two years prior to claiming benefits. Stahl encouraged attendees to help their clients apply for reconsideration to have their premiums based on their current income, as retirement, loss of a spouse or divorce can all have a serious impact on income.

Clients generally have two options for Medicare coverage, Stahl said. They can use traditional coverage with Parts A, B and D and a Medigap plan to fill the holes in Parts A and B, or they can opt for a Medicare Advantage plan.

Stahl suggested advisors make a checklist of items to discuss with their clients regarding health care. Obviously, advisors aren’t health care consultants, he said, but “clients want to connect.” Advisors should help them calculate the potential costs and create a plan for income to pay for those costs.

They should also discuss using tax deferral to reduce the modified adjusted gross income used to determine Part B premiums. The problem for clients who have been faithfully saving in their 401(k) plans is that they have “80% to 90% of their income tied up in qualified plans.” Stahl suggesting looking at tax deferred products to shelter clients’ income.

While they’re protecting their income they also need to keep growing it, he said. “Make sure they don’t get too conservative” once they stop working, Stahl said. “They need to grow assets all the way through retirement.”

Health savings accounts are another good way for clients to pay for health care costs in retirement, Stahl said. The money saved in health savings accounts grows tax free and rolls over from year to year, so Stahl suggested clients don’t use it while they are working. Instead, “let it grow until retirement”; then they can “pay Medicare premiums with tax-free dollars.”

Timing of enrollment matters, too. If clients want to defer Medicare, they have to defer Social Security. They have to be working at a firm with at least 20 employees, and prove that they have “creditable” coverage to replace Medicare.

Pay close attention to special enrollment periods, Stahl stressed. For example, if clients miss open enrollment for Part B when they retire, they incur a 10% penalty for every year they didn’t sign up that they must pay every year. COBRA, he pointed out, is not creditable coverage to replace Medicare, so clients who plan on paying for COBRA coverage for 18 months after they stop working could end up with a 20% Part B penalty.

Finally, Stahl pointed out 401(h) plans as a “wonderful niche” for small business owners. These plans are offered in addition to cash balance or defined benefit plans and can be used for medical expenses incurred by retirees and their spouses and dependents.

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