Advisors’ New Job Description: Health Care Budgeting

By Cyril Tuohy

InsuranceNewsNet

For years, financial advisors have focused primarily on helping clients plan for and manage retirement by managing stocks, bonds and cash around a sound asset protection program anchored in insurance and guaranteed income. Managing health care costs was never in their job description.

Suddenly, however, such an approach seems so last century.             

Health care costs have gone through the roof. Meanwhile, insurance carriers have tightened coverage terms and shifted more of the cost burden onto employers and consumers through a crazy quilt of higher deductibles, copayments and co-insurance.

Thus was born a big, new opportunity for financial advisors around managing health care costs. Indeed, it may be just a matter of time before a new designation crops up: the certified health care financial advisor.

Advisors with experience managing health care costs may well be more valuable in the eyes of clients than advisors skilled at annuity or life insurance selection. Better yet, clients should hang on for dear life to the advisor who finds ways to cut health care costs.

The emerging role for financial advisors around household health care expenses was outlined in an article published earlier this year by HealthView Services, a Danvers, Mass.-based consulting firm that provides financial advisors with planning tools and marketing programs to address Medicare costs, long-term care costs and Social Security income at retirement.

The article, “The Role of Advisors in Addressing the Retirement Health Care Cost Crisis,” which is available on the company’s website, asks: What will health care cost? Is there a way to effectively manage those costs? How much does a client need to save to cover costs? Which products are best suited to serve as health care cost-savings vehicles?

“The advisors who address these questions will also be the best positioned to help their clients achieve the retirement security they seek,” the article states.

For years, the retirement planning industry has developed tools and features designed to build up nest eggs large enough to generate income. At the same time, a commensurate effort to plan for expenses related to health care has been lacking.

Health care expenses have injected some new household budgetary economics into traditional expense planning tools tied mostly to housing, food and transportation. Surveys reveal more people are worried about how to pay for health care in retirement.

Health care expenses comprise as much as 33 percent of all household expenditures for people over the age of 60, according to a recent survey by Credit Suisse. Cutting the health care slice of the household budget puts money in a client’s pocket.

“If you can lower one of my largest expenses and save me $4,000 to $6,000 a year, what’s wrong with that?” HealthView chief executive officer Ron Mastrogiovanni said in an interview with InsuranceNewsNet.

It’s important for advisors to look at health care and what financial products Medicare doesn’t consider as income because advisors who know where to look can reduce modified adjusted gross income levels and save clients $150,000 in health care costs in about 60 minutes, he said.

HealthView identifies what it calls a “retirement health care cost-planning gap,” which has developed in the shadows as the industry has focused more on retirement income planning. HealthView’s Retirement Health Care Cost Index, in fact, indicates that retirement health care costs, on average, are on a path to exceed the average Social Security benefit.

Health care costs alone are enough to keep a financial advisor busy as many signs point to the pressures retirees will feel as they age.

Here’s why: Health care cost inflation, of 5 percent to 7 percent annually, is three to four times Social Security’s cost of living adjustment of 1.7 percent annually.

A 55-year-old Massachusetts couple looking to start Medicare in 10 years for Parts A, B, D and Medigap, would have to pay $11,536 in annual premiums, an increase of more than 64 percent over what a 65-year-old couple pays today, according to HealthView’s analysis.

With rising Medicare costs, the government's trimming of Medicare benefits, and means-testing for Medicare Parts B and D, the only question is how much retirees can expect their health care costs to increase from one year to the next.

A financial advisor must do only two things, Mastrogiovanni said: reduce overall health care costs, and motivate current and future retirees to fund stable investment vehicles dedicated to paying for future health care costs.

That alone should help clients and advisors sleep at night.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].