When developing a retirement plan, top-of-mind items like Social Security or 401(k)s take center stage, but another key component of a sound retirement plan is health care planning. If financial advisors strive to develop the most comprehensive retirement plan for their clients, the consideration of Medicare is also vital when planning for the future, because medical insurance and medical expenses can become costly — especially for those on a limited retirement budget.
Many financial advisors miss the opportunity to talk to their clients about Medicare and should take better care to aid clients in their Medicare preparation. The right combination of medical protection ultimately contributes to the most effective retirement plan.
When considering medical coverage for a retiree, the best choice of protection isn’t black and white. Choosing protection can be especially challenging because all considerations must be made on an individual basis. Personal budget and individual medical needs obscure the decision-making process. For clients, navigating this confusing health care insurance environment is overwhelming. Without good advice, the incorrect plan could lead to unexpected or excessive costs that cut into a retirement budget. No matter how diligently an advisor prepares a retirement plan, poor medical insurance planning could derail years of careful preparation.
Through Medicare, the federal government offers health insurance for individuals over the age of 65, but Medicare isn’t a one-stop shop for all of a retiree’s medical expenses. Medicare offers different kinds of plans that serve (and, in some cases, fail to serve) different medical needs. In addition to Medicare, there are three health insurance add-ons and alternatives: Medicare supplements, prescription drug insurance plans and Medicare Advantage.
With so many Americans retiring, Federal Medicare administrators cannot offer individualized advice about Medicare, so the responsibility falls on individuals to ensure they select the best plan for themselves. The government makes it easy for individuals to pick a Medicare plan online and sign up for it, but considering the decision might have major financial implications, individuals should seek the help of an advisor when selecting coverage. As a financial advisor, there are four key points to know about Medicare:
1.) Age is a chief consideration in regard to Medicare. Americans cannot sign up for Medicare until they are 65 years of age unless they are disabled and qualify for Social Security Disability Insurance. However, clients choosing to retire before age 65 may have alternative health insurance options in the meantime, such as COBRA continuation coverage, retirement health insurance benefits through the former employer, and plans purchased through the Affordable Care Act exchanges. The premiums and out-of-pocket costs of these options can be quite high, so estimating a premium amount is often not good enough.
2.) Once an individual reaches age 65, navigating the Medicare world doesn’t become any simpler. Choosing the right Medicare products or combination of Medicare products becomes the next task at hand. Medicare parts A and B are considered the more traditional Medicare options, where part A covers most hospitalization expenses and part B covers items beyond hospitalization, like doctors’ bills and medical tests. 3.) It’s critical to realize Medicare alone will not cover all medical expenses in most cases, so advising a Medicare supplement or Medigap insurance plan to a client helps provide protection where Medicare does not. Additionally, prescription drug insurance plans, also known as Part D plans, specifically help offset the cost of prescriptions. Part D plan options can often be very expensive and are not automatically renewed on an annual basis. Medicare supplements and prescription drug insurance plans are not independent of Medicare; rather they work with Medicare, so recommending the best combination of these plans provides strong protection for clients.
4.) Beyond Medicare parts A and B, Medicare Part C (Medicare Advantage) offers yet an additional alternative to traditional Medicare. Offered through independent insurance companies regulated by the government, Medicare Advantage plans offer increased flexibility over Medicare parts A and B. The federal government establishes a maximum out-of-pocket limit Medicare Advantage companies can require an individual to pay within a year’s time. This regulation limits out-of-pocket expenses to a set amount — perhaps the plan’s most distinguishing and alluring characteristic. However, Medicare Advantage also invokes higher co-pays, and in some cases, it limits plan participants to only certain doctors and medical networks.
As a financial advisor, there is a major opportunity to offer Medicare planning services — especially for preexisting retirement clients, because Medicare planning and retirement planning go hand in hand. Different Medicare solutions have different financial repercussions — making Medicare advising financial advising in disguise. If offering holistic retirement planning services is the aim, then incorporating Medicare advising in that planning process is a must.