Don’t Neglect Health Care in Your Retirement Planning

Occasionally, our firm gives presentations about retirement planning, and the topics can be somewhat predictable. How to grow your investments. The best ways of distribution. Social Security. Dealing with taxes. Managing risk.

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But what about health care?

Sometimes, it seems like the forgotten topic. Many people put it off. They don’t want to talk about it or think about it. They don’t understand the impact of health care on their retirement income. Yet it’s hugely important.

You could have the best income plan in the world. You could have accounted for inflation. You could have considered all the risk factors. You could be set up with great income coming to you each month. It all might look perfect. But if a health care crisis happens — or worse, if you didn’t plan for the cost of health care or the potential of needing long-term care — the best income plan could suddenly become insufficient.

Do you have $260,000 for health care?
According to Fidelity Investments, the average American couple will need $260,000 to cover out-of-pocket health care expenses during retirement. That’s up 6% from the previous year. And it doesn’t even account for any long-term care expenses.

Sometimes I refer to health care as the “great white shark’’ of retirement income. You think you’re fine, but medical expenses swoop in out of the blue and gobble everything up. In planning for retirement, people may consider their Social Security, their pension, their annuity and their investments; then they will factor in expenses. They may think, “Hey, I’m good to go,” even as they fail to consider those potential health care costs.

Even if it’s the traditional Medicare coverage, you need a general idea of the monthly costs to cover the premiums, co-pays and out-of-pocket prescription costs. I have several clients who have prescription costs of a few thousand dollars every month.

What about long-term care?
Then you must consider long-term care, which is a different animal altogether. Studies say anywhere from 1 in 3 to even half of us, will need some form of long-term care, whether it’s a full-service nursing home, adult day care, assisted living or home health care. These are sticker-shock numbers. In Florida, where our firm is located, a semi-private room in a nursing home runs $7,500 per month. It’s even higher in other locations. That’s not even for a private room or advanced nursing care. On average, home health care is $4,500 per month.

See the issues here? And remember, this is in addition to the $260,000 a couple would need for typical health care costs in retirement.

How do you plan for this? There’s the rub. It’s kind of a moving target and you’re not sure exactly what level of planning is needed. But awareness and communication are big steps toward finding a solution. Here are some ideas to consider:

Any financial adviser or retirement counselor worth their salt should take health care costs into consideration. But automatically, they often will focus on other things, such as retirement planning, wealth management, taxes and creating income streams. So you might need to be the one to open this dialogue. If the information is not being conveyed, you should ask questions and get it on the table.

I’ve observed financial advisers either avoiding the health care issue altogether or going straight to insurance as kind of an all-purpose fix-it tool. When you meet with your financial or retirement adviser, you should say, “Let’s talk about health care and how that’s going to affect my retirement income plan.” You need to explore all options in the system and make it work for you.

I would also suggest — and this is very important — that you work with financial advisers and attorneys who deal with these issues on a regular basis. They will know creative planning techniques. They may know how to qualify for all forms of aid if the need arises and how to start planning for that right now.

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Get the family involved.
Even more than your financial and retirement advisers, it’s important to talk openly and freely with your loved ones. It’s a very emotional time; not so much in the planning stages, but when the health need actually occurs. That’s when you’ll be grateful that planning was done.

You have to address what will happen if there’s a health issue. We’re all going to die, and up to 50% of us may require some long-term care. Our families need to know what to do in those situations. They need to know we’ve planned for it. It’s not a very comfortable conversation, but it’s a healthy thing to do and everyone is better for it.

Some people say, “Oh, my kids will take care of me.” Well, sometimes the kids are working, and they can’t take care of you.

Explore your options.
An obvious option is to buy long-term care insurance, but that can be expensive. People are hesitant because they aren’t sure if it will even be needed. But there’s a good chance long-term care insurance will be needed. Sometimes, you might just need enough insurance to offset part of the cost.

There are other possibilities, though:

You could consider asset-based long-term care insurance plans, where the premiums are leveled and don’t rise as steeply. There are some that are like life insurance, where you fund them and there’s a cash value. They have a long-term care benefit as well as a death benefit, so someone will ultimately get the money.

You can also do Medicaid planning. Remember: Medicare doesn’t pay for long-term care, but if you have spent down your assets enough, you could qualify for Medicaid, which does. Medicaid planning helps position you in a way that allows you to qualify for Medicaid, but your spouse can retain assets. The asset would need to be converted to an immediate annuity payout and income would need to be level (not increasing) and be received over the person’s lifetime. Moreover, the state Medicaid program would need to be the primary beneficiary, so they would be receiving the payments. At this point, the individual would be able to keep the asset, as the income is what is being recognized by Medicaid. Caveat: Some states don’t allow or have attempted to block the use of these annuities, so be sure to check with your adviser and your attorney (they should be working together on this for you) to make sure your state allows this planning.

There’s also a way to set up your IRA, where it’s paid out on a monthly basis to a tax-compliant Medicaid payout schedule. So, the IRA is treated as an income stream and no longer counts as an asset when qualifying for Medicaid. The person might look poor on paper in assets, but they have two income streams, the Social Security and IRA checks, and that’s where the government will look.

The point is you have options, especially when you give them thoughtful consideration and use your years of planning in the right way. Don’t procrastinate.

You can’t see a tornado coming. It’s violent and strikes quickly. But you know a hurricane is coming. It could be 1,000 miles away, and you have plenty of time to prepare. It’s a matter of whether you take it seriously and actually plan. It could miss you completely, but do you want to take that chance?

Retirement planning can be the same way when it comes to health care. You’re going to be sorry if you haven’t prepared. The health care issue is out there. We can all see it. With the proper preparation, you can reduce the odds of your hard-earned economic house being destroyed.

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Joey Johnston contributed to this article.

Michael Martin is the co-founder of South Florida-based Legacy Financial Partners, where he is the director of investments and insurance. He is a fiduciary and holds his Series 7 and Series 66 securities licenses. He also maintains life, health and variable annuity licenses in Florida, West Virginia, North Carolina and Illinois.

Securities and advisory services are offered through, Madison Avenue Securities, LLC (“MAS”) Member FINRA/SIPC and a Registered Investment Adviser. MAS and Legacy Financial Partners are not affiliated entities.

Comments are suppressed in compliance with industry guidelines. Click here to learn more and read more articles from the author.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.


Congress: Act now to protect rural seniors’ access to home health care

Medicare’s home health care benefit is essential to keeping aging Americans healthy at home– particularly for seniors living in rural America where health care options are limited. By enabling rural seniors to age with dignity and comfort in their own homes, Medicare is also reducing health care spending by preventing avoidable hospitalizations that drive up costs and put seniors at greater risk.

Yet, despite the tremendous value of home health to rural America, Medicare payments designed to cover the higher costs of reaching rural beneficiaries expired at the end of last year, which is why it is time for Congress to restore these vital Medicare payments.

For nearly 20 years, Medicare has recognized that providing care in non-urban areas carries higher costs because of travel and staffing expenses. To address the issue, since 2000, Congress has funded the “rural safeguard” – a 3 percent additional payment to providers to account for these higher costs. While the rural safeguard has been renewed at least five times over the past 17 years, Congress has yet to pass the “Medicare extenders” – leaving rural patients and their providers uncertain about the future.
Thanks to Medicare’s home health benefit, rural patients and their families face less of a burden when illness or injury occurs, since quality care comes to them. The value is also felt by Medicare, which saves money when patients receive prompt, thorough care to avoid costly hospitalizations.

Data show rural seniors face greater health care obstacles than their urban counterparts. According to a study by the Moran Company, the average rural Medicare beneficiary must travel twice as far to see a doctor or to reach the nearest hospital. Also, home health beneficiaries living in rural areas are also older, sicker, have lower incomes, and are living with more chronic conditions than the general Medicare population.

The rural safeguard is also essential for home health providers that deliver care in remote communities. Smaller agencies in rural America often mean smaller scale operations, and higher costs. Travel alone is 36 percent higher than in non-rural areas ($229 vs $168 per episode). Furthermore, sicker, more chronically ill rural patients are more expensive to care for – and depend heavily on home health providers as their primary caregivers. It’s a delicate system that works as it is, but that can’t withstand destabilizations in funding.

The challenges and obstacles rural home health beneficiaries already face demonstrate the critical importance of ensuring the availability of home health in underserved, rural communities across the country. Reduced access to home health, which could happen if funding is not restored, will surely force more patients in need of emergent care into more expensive care settings.

The good news is that there’s still time to restore the rural safeguard payment to support the continued delivery of quality, efficient, patient preferred home health care. I urge Congress to quickly pass the crucial Medicare extenders package, including the home health rural safeguard provision. If we wait any longer, we risk the quality, uninterrupted home health care our most vulnerable American seniors deserve.

Keith Myers is chairman of the Partnership for Quality Home Healthcare.


Three ways to cut — and improve — Medicare

The Republicans are right. We should cut Medicare. And I know how: Keep Medicare’s funding for actual health care but eliminate bureaucratic waste, profits, and the expensive and preposterous ban on negotiating drug prices. In other words, get rid of Part C and Part D and absorb the extra features into traditional Medicare.

Strong majorities of Americans across the political spectrum agree that Medicare needs to negotiate the price of prescription drugs. Prices here are roughly double what patients in other countries pay for the same drugs. Over the next ten years, Medicare is projected to spend $1.5 trillion on prescription drugs. Clearly, negotiating drug prices would save a lot of money.

Medicare Advantage, formally known as Medicare Part C, was created as a way for the private insurance industry to help control the cost of Medicare. But instead of saving taxpayers money, these for-profit insurers successfully lobbied the federal government to pay them significantly more than would have been paid for comparable patients in “traditional” Medicare.

Although Advantage plans aren’t allowed to overtly exclude costly (read: unprofitable) patients, they have found ways to push high-cost patients back into traditional Medicare by charging high copayments for drugs and services that are mostly used by high-cost patients. For instance, the Advantage plans have raised copayments particularly quickly for ambulance services, home health care, partial hospitalization, and inpatient services. A new analysis shows that the resulting shift of high-cost Advantage patients to the traditional Medicare program saved the for-profit Advantage plans $5.2 billion in 2007-2009.

Advantage plans save additional money by limiting care. Compared to traditional Medicare enrollees, seniors on Advantage plans received 24 percent fewer diagnostic tests, 38 percent fewer flu shots, and 15 percent fewer colon cancer screening tests. That’s just not good medicine.

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Because Medicare pays Advantage plans a higher premium for sicker seniors, Advantage plans have learned to cherry-pick healthier seniors and lemon-drop the sicker ones. For example, Medicare pays Advantage plans several thousand dollars extra for patients with heart failure. But insurers know that heart failure ranges from nearly undetectable (and inexpensive to care for) to overwhelming (and very expensive to care for). Insurers have become remarkably effective at attracting the undetectable and shunning the overwhelming. Witness the mobile echocardiogram units that provide free screening for heart failure, a strategy guaranteed to identify trivial — but reimbursable — disease.

And what is the “advantage” of throwing tax dollars at private insurers whose overhead averages 30 percent, compared to a bit over 3 percent for traditional Medicare?

Medicare Advantage insurers have learned how to maximize their payments from the federal government. They have learned to “upcode” — overestimating their members’ disease burden and justifying higher federal reimbursements — to the tune of $2 billion a year. Between upcoding and other schemes, Medicare Advantage plans are paid an average of 105 percent of what comparable patients would cost the traditional Medicare program.

Medicare Advantage is an increasingly popular choice among seniors, and now attracts more than 18 million members. The growth is easy to understand: These plans often come with richer benefit designs and reduced financial exposure for patients. But the trade-off is narrow networks of physicians and hospitals. More than one third of Advantage plans fail to include even a single National Cancer Institute center. None of the Advantage plan networks in the New York City area, for example, include Memorial Sloan Kettering Cancer Center.

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Patients with short-term nursing home stays are nearly three times more likely to switch out of an Advantage plan and those with long-term nursing home stays are five times more likely. Twenty-seven percent of those leaving plans with relatively high disenrollment rates do so because of problems getting needed care; 41 percent leave because their preferred provider is not in the plan’s network. The sicker you are, and the more you actually need access to your choice of health care, the less advantage you see to an Advantage plan.

Medicare Advantage plans continue to grow in popularity, now attracting 31 percent of all Medicare beneficiaries. People make this choice because most Advantage plans offer reductions in copays and deductibles, along with enhanced benefits like membership in gym clubs or including a Medicare Part D pharmacy benefit. We could embed these modest features into traditional Medicare and still reap substantial savings for the national budget.

The arithmetic is easy, the benefits are clear, and the money is there. Take the profit motive out of Medicare to save billions. It’s just a matter of political will.

Ed Weisbart, M.D., is a family physician and chair of the Missouri chapter of Physicians for a National Health Program.

About the Author
Ed Weisbart