Healthcare Costs and Complexity: How Financial Firms (Houston) Can Help

Your costs for healthcare in retirement are a very important consideration when planning for retirement, equal in importance to your retirement savings and lifestyle plans. A qualified fiduciary financial advisor can help. How? Why? Let’s take a look.

Why?

Healthcare costs are high. It doesn’t matter if you’re healthy, young or covered by your current company – the general consensus is people pay a lot for healthcare. A couple may need a savings of $363,000 at the age of 65 to pay for their healthcare costs throughout retirement. And costs are rising by a lot in some categories: Out-of-pocket costs for prescription drugs, for example, rose 188 percent between 2000 and 2018, far outpacing inflation.

Planning for healthcare costs is important because insurance can be complicated. It can require a lot of time and research just to analyze the options and ensure you have the healthcare coverage you want at the most reasonable price possible.

 

At Linscomb & Williams, we take a look at your entire situation when establishing a comprehensive financial plan, and that includes healthcare costs. Let’s start a conversation to see how we can help.

 

Medicare

All Americans 65 and older who have worked at least 10 years are eligible for Medicare. There is a widespread belief that Medicare is free, but it’s not. Medicare is very similar to other insurance plans: It requires premiums, deductibles and copays, for the most part.

In addition, standard Medicare coverage (called “original Medicare”) includes only hospital coverage (Part A) and physician and medical coverage (Part B). It does not include coverage beyond this. Prescription drug coverage, for example, isn’t covered under Part A or Part B, so you need to sign up and pay for prescription drug coverage (called Part D) separately if you want to be covered for these costs.

Currently, there are no premiums for Medicare Part A (the only part of Medicare that is free of charge). The deductible is $1,364 per year for 2019. In 2019, coinsurance will cost $341 each day if you are hospitalized for anywhere from 61 to 90 days, and rises if you need a longer stay.

For Part B, the monthly premium is currently $135.50 if your annual income as a single filer is $85,000 or below ($170,000 or below for a married couple filing jointly). Premiums rise according to income after that. The deductible is currently $185 per year, and most services require a 20 percent copay. Part B covers routine expenses like doctor visits.

Prescription drug plans are known as Part D. Part D is offered through private insurers working with Medicare. Costs vary widely according to the plan and your needs. It’s a good idea to assess your costs before making a choice. Talk with your financial advisor first (you should use a 100 percent fiduciary financial advisor) to avoid being sold certain policies that you may not need.

Enrollment Penalties

Several parts of Medicare are subject to financial penalties if you don’t enroll during the Initial Enrollment Period (IEP) – and the penalties last for the entire time you are enrolled, not just one year. In other words, if you are hit with a 10 percent higher premium as a penalty, you will be paying the higher rate for as long as you have Medicare, so knowing the enrollment periods and deadlines is part of good financial planning.

The IEP is a seven-month span that begins three months before the birthday on which you’ll turn 65, includes that birthday month, and extends another three months after it.

If you don’t enroll by the end of the IEP, your Part B premiums can be hit with a late enrollment penalty of 10 percent for each full 12-month period in which you were eligible but not enrolled.

You may also be assessed a late penalty for Part D coverage if you eventually elect it, but don’t enroll during the IEP. If you didn’t have prescription drug coverage for a continuous period that equals 63 days or more after the end of your IEP, a complicated formula kicks in. It’s 1 percent of the national base beneficiary premium multiplied by the number of full months you didn’t have Part D or substantively similar coverage.

Medigap Plans

Although monthly Medicare costs can be relatively affordable, the uninsured portion of medical costs can add up, especially if you have a serious illness. Medicare Supplement Insurance plans (called Medigap plans), are supplements that can be purchased to help pay the costs that original Medicare (Plan A and Plan B) doesn’t cover.

Medigap plans are offered by private insurers. They require monthly premiums, but many will cover Medicare’s deductible and copay charges. Medigap plans vary widely in their costs and coverage, so it’s essential to research them carefully to pick one that will fill your needs.

Enrollment Periods for Medigap Plans

While folks who enroll in original Medicare have the option of either enrolling or declining to enroll in a Medigap plan, there are potential penalties for not enrolling in one within a specific period. Private insurers are required to enroll you in a Medigap plan if you are enrolled in Part B within the first six months of turning 65. You will also be charged the same premium as everyone else with the plan you choose, with no reference to any individual health conditions you may have.

But if you don’t enroll within those six months, the insurers can reject your application for coverage. They can also require you to take a physical or charge higher premiums. It’s important to assess these potential risks when considering whether to enroll in Medigap.

Medicare Advantage Plans

Medicare Advantage plans, known as Part C, can be chosen as an alternative to Parts A and B. Medicare Advantage plans are also offered by private insurers who contract with Medicare. They are required to cover as much as Part A and Part B do. They can be more comprehensive than original Medicare, offering vision and dental coverage that Parts A and B do not, for example. Some also include prescription drug coverage, so that enrollees don’t need to get Part D.

While many Medicare Advantage plans offer low premiums, the total cost of premiums, copays and deductibles vary widely among these plans, as do the coverage offered. As a result of the wide variation and individual health needs, it’s wise to compare all the types of plans under several different health scenarios. A Medicare Advantage plan that has very reasonable costs in periods of good or average health may require much higher copays and out-of-pocket costs if you suddenly require a high level of healthcare.

If you want either Medigap or Medicare Advantage plans, you are required to choose between them at the time of enrollment. It is possible to change your coverage during open enrollment periods every year (Medicare Advantage plans have a separate open enrollment period), but you can’t at any point have both Medigap and Medicare Advantage plans.

How Financial Firms Can Help

Now let’s get back to the “how” part of the question – how can financial firms (Houston) help with all this?

First of all, as you can see, choosing the right insurance for your needs can be complicated. And costly! A financial advisor who is aware of your financial situation, financial goals and overall position in retirement can offer a lot of support as you decide what coverage you definitely need and what coverages you might be able to do without. 

Secondly, most insurance companies and insurance agents have a major conflict of interest in providing you with recommendations. Instead of working exclusively in your best interest, they may be focused on commissions, sales quotas and/or pleasing their board of directors or stockholders.

When you’re working with a fee-only fiduciary financial advisor, you can be confident that he or she does not have that conflict of interest. Fiduciary standards require the advisor by law to act in your best interest.

This can obviously be a huge reason why financial firms (Houston) that act on a fiduciary level can be of help when choosing the right healthcare plans for you in retirement.

 

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J. Harold Williams, CPA/PFS, CFP®

J. Harold Williams, CPA/PFS, CFP®

J. Harold Williams is Linscomb & Williams' Managing Director, Chief Executive Officer and Chairman.

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