Controlling Medical Debt A Big Opportunity For Advisors

By Cyril Tuohy

Just as shrewd businessmen know that controlling costs is as important — perhaps even more so — than raising revenue, financial advisors who help clients control medical costs often have more value than advisors who spend their time chasing yield.

Ron Mastrogiovanni, CEO of the health advisory firm HealthView Services, likes to think of it as the airplane passenger litmus test.

Years ago, when he boarded planes for business trips, the discussion with the person next to him often turned to which stocks, bonds or funds were worth buying. These days, the discussion has turned to how to control medical expenses.

“The big issues are health care costs,” he told InsuranceNewsNet, and it’s up to the advisor to inquire about the client’s health care expenditure patterns.

The average family employer-sponsored group plan costs as much as $18,000 every year, he said. With the employer picking up $13,500 or 75 percent, the employee is on the hook for $4,500, not including the $1,200 deductible.

A $40,000-a-year employee paying $5,700 for family health coverage means 14.2 percent of their income is going toward health care. Many procedures are not covered by major medical insurance, critical illness, cancer or stroke, for example.

That’s a huge bite for the average employee. “So, as a nation we’re exposed,” Mastrogiovanni said.

Health care inflation, he added, is rising faster than salary increases or the rate at which companies can sell their goods and services. As a result, the burden that health care expenses exact on the family becomes heavier every year.

Sometimes that burden is too much to bear. A December report published by the Consumer Financial Protection Bureau found that medical debts accounted for 52 percent of debt collection action that appear on consumer credit reports.

Karen Pollitz, senior fellow at the Kaiser Family Foundation, wrote in a recent posting on Kff.org that cost-sharing levels under many health plans “now exceed the resources that most families have on hand.”

“Increasing deductibles and other cost sharing have helped to make insurance premiums more affordable, but the flip side has been to expose even people with insurance to risk of medical debt,” Pollitz wrote in her posting.

“When cost-sharing under health insurance exceeds the ability of consumers to pay their medical bills, cases of health-related bankruptcy and credit problems are inevitable,” she wrote.

A separate Kaiser Family Foundation report on medical debt among the insured published last January found that one in three Americans struggle to pay medical bills, and that 70 percent who say they have trouble paying medical bills are insured.

Among the findings of the January 2014 report were that cost-sharing, out-of-network charges, coverage limits and exclusions, and related medical issues only serve to exacerbate medical debt.

Once medical debt begins, debtors struggle for years, particularly for people with chronic conditions, Kaiser found.

Between helping families with health care budgeting to guiding families through the options available to them on health exchanges, advisors have a big opportunity to help clients, if for nothing else than to set a premium spending maximum.

A simple cost benefit analysis between a high deductible health plan and a plan offered through a health maintenance organization (HMO) would help a middle-class family make informed choices about future potential exposure of medical debt, Mastrogiovanni said.

He added that it’s no longer enough simply to manage money or insurance protection strategies for families. There’s no easy answer, but the point is that middle-class families are staring at a lot of “serious health care-related issues.”

For advisors in danger of ceding business of middle market clients to computer algorithms known as roboadvisors, which can perform simply asset allocation changes to a portfolio at the click of a button, managing the health care side of a family’s budget offers many areas for future growth, Mastrogiovanni said.

With health plan coverage terms changes from one year to the next, deductibles usually change as well, and explaining the implications of those changes and how that alters the exposures to the family budget provides fertile ground for advisors, he also said.

“Not only do we need to prepare for retirement, but we need to get to retirement,” he said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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].