As a Medicare expert with over three decades of experience, I’ve worked closely with countless individuals, families and professionals navigating the complexities of Medicare. One recurring issue I’ve identified is the gap in understanding that many financial and estate planners have regarding Medicare costs and how they impact their clients’ overall planning strategies. This disconnect can lead to significant financial repercussions for clients who rely on their advisors for guidance.
The Medicare Knowledge Gap
Medicare, the federal health insurance program primarily for individuals 65 and older, is often misunderstood. Many assume that Medicare will cover all health care expenses in retirement, which is far from the truth. Medicare has several parts, each with its own premiums, deductibles, copayments, and coverage limits. Understanding these intricacies is crucial for financial and estate planners to advise their clients effectively.
Medicare Basics
Medicare consists of multiple parts:
Part A (Hospital Insurance): Covers inpatient hospital stays, skilled nursing facility care, hospice care and some home health care. Most people don’t pay a premium for Part A if they or their spouse paid Medicare taxes while working.
Part B (Medical Insurance): Covers certain doctors’ services, outpatient care, medical supplies and preventive services. It requires a monthly premium, which is adjusted based on income.
Part C (Medicare Advantage): An alternative to original Medicare, offered by private companies approved by Medicare. These plans typically include Part A and Part B coverage and may offer additional benefits like vision, dental and prescription drugs.
Part D (Prescription Drug Coverage): Helps cover the cost of prescription drugs. Part D plans are offered by private insurers and require a monthly premium.
In addition to premiums, there are out-of-pocket costs such as deductibles, copayments and coinsurance. For example, the standard Part B deductible in 2024 is $233, after which beneficiaries typically pay 20% of the Medicare-approved amount for most doctor services.
Medigap: The Supplementary Insurance. Many beneficiaries purchase Medigap (Medicare Supplement Insurance) policies to cover costs not included in original Medicare, such as copayments, coinsurance and deductibles. Advisors must understand the nuances of different Medigap plans to guide their clients in making informed choices.
Financial and Estate Planning
For financial and estate planners, failing to account for Medicare costs can lead to inadequate planning and unexpected out-of-pocket expenses for clients. Here are four key considerations:
1. Income-related monthly adjustment amount. High-income beneficiaries pay higher premiums for Part B and Part D. Planners must consider how income affects these premiums and adjust strategies accordingly. For instance, managing withdrawals from retirement accounts to avoid exceeding income thresholds can result in significant savings.
2. Long-term care (LTC) planning. Medicare doesn’t cover most (LTC) services, such as extended stays in nursing homes or assisted living facilities. Integrating Medicaid planning and LTC insurance into clients’ strategies is vital to protect their assets.
3. Estate-planning documents. Including provisions for health care directives and powers of attorney ensures that clients’ medical wishes are honored and that someone can decide on their behalf if they become incapacitated. Advisors should also discuss the implications of health care costs on estate distribution. For example, significant healthcare costs, especially those associated with long-term care, can rapidly deplete an estate’s assets. This depletion may reduce the inheritance available to beneficiaries, potentially altering the client’s intended distribution plan. Advisors should also consider the tax implications of healthcare expenses and estate planning strategies. For instance, certain medical expenses may be tax-deductible, which can affect the overall tax liability of the estate.
4. Retirement income strategy. Planning for health care expenses in retirement involves more than just calculating the expected premiums and out-of-pocket costs. Advisors should also consider the timing of Social Security and other income sources to optimize clients’ overall financial well-being. For example, delaying Social Security benefits beyond the full retirement age (FRA) can result in higher monthly payments. Clients can receive an 8% increase in benefits for each year they delay up to age 70. Also, Delaying benefits can provide greater lifetime income for clients with a longer life expectancy. Advisors should help clients evaluate their health, family history and expected longevity when deciding on the timing.
Educating Clients and Advisors
Addressing this knowledge gap begins with education. I recommend that financial and estate planners:
Stay informed. Update your knowledge of Medicare rules, costs and coverage options regularly by subscribing to industry newsletters, attending workshops and participating in continuing education courses focused on Medicare.
Collaborate with experts. Work with Medicare specialists to provide comprehensive advice to your clients. Referring clients to trusted Medicare advisors can enhance your service and ensure they receive expert guidance.
Communicate proactively. Discuss Medicare costs and coverage options with clients well before they reach eligibility age. Early planning can help mitigate unexpected expenses and enable better decision-making.
Al Kushner is a leading authority in the medical insurance domain, renowned for his extensive experience, which includes nearly four decades focused on Medicare.
