Helping clients plan for health care costs in retirement

There are many considerations that benefits advisors and their clients need to consider about Medicare coverage – well before clients think about retiring.

It’s critical to plan ahead, says Ari Parker, lead advisor at Chapter, a nationwide Medicare advisory based in New York City. Indeed, Fidelity recently released a survey report that found couples, each age 65, retiring this year will spend on average $315,000 in health care and medical expenses until the end of their lives – and 70 percent of the survey responses felt unprepared.

Parker shares best practices that benefits advisors need to take when helping their clients determine what’s best for them.

BenefitsPRO: What should clients consider when transitioning from a personal or employer-sponsored health plan to Medicare?

Medicare coverage typically starts at 65 and the time to apply is three months before that. If people don’t start Medicare, they face two possible penalties, one for Part B, which covers outpatient visits and durable medical equipment, and another for Part D, which covers medications. The penalties are cumulative and lifetime.

Whether you’re required to enroll in Medicare depends on the size of your company and whether or not you choose to continue working with the same employer. People who work at employers with fewer than 20 employees will in most cases need to sign up for Medicare as it will become their primary coverage. Anyone who works at companies with 20 or more employees can choose to remain on their employer-issued coverage since these larger companies must continue to provide the insurance to all their employees, regardless of age.

It’s important for anyone who is approaching Medicare eligibility to recognize that it’s always a good idea to compare all their various health care options to decide on the right plan for their needs – regardless of whether they choose to retire. Benefits advisors often do not know that Medicare can offer more cost-effective options with affordable coverage.

When reviewing employer-sponsored coverage, we look at how much the client is paying for it, whether it also covers their spouse and dependents and how much their deductibles are. Many people on such plans have very high deductibles, whereas Medicare’s deductible is only $233 per year.

Finally we look at the type of employer-sponsored plan they have, if it’s an HMO or PPO with restrictions within the provider networks. With Medicare there are no restrictions on which physician people can go to, as long as their physicians accept Medicare and are accepting new patients.

Travel is one of the biggest considerations – many people want to travel for leisure or to visit their grandchildren, and many people in colder climates want to spend part of the year in a warmer climate like Florida or Arizona. In these situations, the type of Medicare coverage they should get is a huge factor, because Medicare Supplement would allow them to see any doctor who accepts Medicare nationwide.

Another factor to consider is whether the client also wants dental, vision or other non-medical health care benefits, particularly those who are on fixed income. In that case, it might be wise to consider Medicare Advantage ‘All-in-One’ plans.

What should clients know about Medicare and health savings accounts?

It’s very important to understand this rule: You cannot continue to contribute to an HSA once you start Medicare. You have to stop contributing the month before you turn 65 if you’re starting Medicare by way of turning 65, or if you’re continuing to work, then you have to stop contributing 6 months before you start Medicare Part A. If you continue to contribute to an HSA, then you won’t get a tax break – and you’ll owe a penalty.

What about supplemental coverage?

A significant majority – 75 percent – of people consider some type of additional coverage, even those on a lower income enroll in both Medicaid and Medicare.

There are four factors to consider when determining which supplemental coverage to choose. The first is cost, and whether a client would prefer to pay more upfront, or would they prefer to pay as they go. The second factor is whether a client is okay with the network within their supplemental plan.

The third consideration is their need for medications, particularly if they’re traveling outside their network. This is something that people should review every year as supplemental plans, clients needs and their preferred pharmacy on the supplement plans change. The fourth factor is lifestyle preferences – if they spend the winter elsewhere or if they want to travel.

Any other advice?

This is a topic that benefits advisors must address with their clients. Health care costs are one of the largest expenses in retirement. It helps to work with an independent advisor to avoid signing up too late or choosing the wrong plan.