These days, retirement planning isn't complete without a healthy dose of health-care planning. The reason is twofold: Health-care costs are rising at a faster clip than inflation, and, at the same time, people are living longer and relying on prescriptions and therapeutic treatments for more years than ever before.

That said, how are financial advisors addressing this issue? What exactly are they recommending to their clients?

The answers are as widely varied and eclectic as the clients themselves. "Health-care planning is becoming a more significant part of retirement planning, and an area that needs to be addressed," contends Ginger Snyder, a financial planner and senior vice president at Raymond James' 360 Wealth Management Group in Tampa, Fla. "Because of the increasing costs and possible longevity of retirement, establishing a 'bucket' of money for health-care expenses must be part of the planning picture."

Health-Care Savings
How big a bucket is enough? Quantifying a client's health-care risk isn't easy. "The costs are inestimable, and therefore you need to overinflate the amount needed for health care," says Michael Kay, a certified financial planner in Livingston, N.J., and author of The Business of Life. "Planners cannot use historic inflation rates when it comes to health care. Being ultraconservative is necessary to make sure there are sufficient resources to meet potential needs."

One recommended way to save is through a health savings account, available to anyone with a high-deductible insurance plan. HSAs allow "an individual to save money in a tax-advantaged account to offset medical expenses as they occur or to accumulate a balance [for] medical expenses in retirement," says Steve Dillman, a certified employee benefit specialist at CBIZ Employee Services in Columbia, Md. "Given the fact that fewer and fewer employers are offering any type of postretirement medical benefits, it's imperative that people begin accumulating savings to cover these costs."

Beyond Saving Extra Money
But others point out there's more to health-care planning than furnishing adequate funds. There's a lot of necessary paperwork, for one thing.

"Documentation is often out of date, nonexistent or flawed," says Judith McGee, the CEO and chair of McGee Financial Strategies, a Portland, Ore.-based independent registered investment advisor. "For example, someone may have a health-care power of attorney in place and not have access to medical records because he or she doesn't have a HIPAA release," McGee says, referring to the Health Insurance Portability and Accountability Act of 1996, which governs the security and privacy of health data. "Simple details need to be reviewed to conform to current laws."

Keeping up with current laws, however, is just one part of preparing for the unexpected. That's a key difference between health-care planning and more general retirement or estate planning-health issues can arise suddenly, at any time. "We often go through what-if scenarios with our clients-best case/worst case scenarios-to help them make decisions in advance, no matter what their stage of life or circumstances," McGee says.

In the past few months alone, she says, one client casually revealed having a brain tumor that needed surgery, another received a diagnosis of Parkinson's disease and ended up having to retire early, and a third suffered a recurrence of leukemia and is now on a transplant list because his blood cells no longer respond to normal treatments. "Life happens, and so often in such a short period of time," McGee says. "Planners need to be both empathetic and practical."

Insurance Limitations
One common fallacy is that if you have insurance you're all set. First, major medical doesn't cover long-term care. Second, insurance carriers are increasingly pushing preventative medicine as a cost-saving measure-and perhaps advisors should, too. "There is clear evidence that over 70% of chronic illness is lifestyle-related," says CBIZ's Dillman. He cites diet, smoking, drinking and exercise as health-affecting behaviors. "Employers are beginning to take the position that they will not continue to pay for their employees' and dependents' bad choices."

What's more, your clients' coverage will likely be impacted if they change jobs or reach retirement age. "As you're talking with clients, you need to advise them on premiums," says John Hackett of JHS Capital Advisors in Dubuque, Iowa. "You need to talk with them about how changing or losing their job [will affect coverage], and how they will maintain their health care during transitions. Advisors might not represent those kinds of products, but they need to have these discussions with clients."

True, it wasn't always so complicated. Once upon a time, people had coverage from their employers, and when they retired they went on Medicare. Such a smooth transition can no longer be counted on. Those who retire before age 65 are especially vulnerable, and might need to purchase a supplemental plan to fill in the gaps. "It's important to realize that people need to educate themselves on not only Medicare but potentially filling the gap in health-care coverage," says Laura Steckler, a Coral Gables, Fla.-based wealth management specialist. "Additionally, the health-care reform legislation enacted in 2010 contains many provisions that affect the aging population. Specific areas include Medicare spending cuts, benefit changes to Medicare, Medicare Part D drug program changes, coverage for those under 65, and nursing home transparency policies."

An Ongoing Process
Steckler stresses that all this doesn't happen in a single conversation with a client. These issues, she says, "continually need to be addressed as things change in clients' lives-employment, Medicare eligibility, the development of any family illnesses or injuries, and so forth."

While it can be hard to project future health-care costs with any degree of accuracy, projections "must be made and [periodically] revised," says Steckler. "Health-care costs need to be a line item in a client's annual budget, and adequate resources need to be accounted for in each client's overall plan, whether it be cash for a particular health-care need or premiums for long-term-care policies."

Of course, any forecast of future health-care expenditures can't ignore the buzz about proposed changes in benefits programs. At this point, it seems likely that the age at which people can start receiving Social Security and Medicare will rise. "We all understand that changes are inevitable," says Steckler. For those who have accumulated assets for retirement, she says, Social Security isn't "the only leg of their retirement stool, [but] I'm encouraging my clients not to rely on that leg, and instead to focus more on their own savings and any employer-sponsored pension they have available."

She adds that she is considering adjusting future retirement plans to eliminate Social Security calculations altogether. "This doesn't imply that Social Security won't exist, but it points to the uncertainties," she says.

For Whom The Bell Tolls
For advisors, those uncertainties should be a wake-up call. "The fact that there is no clear or logical path to follow makes our work as advisors more important, if not more difficult," argues Sharla Jessop, a certified financial planner and vice president of Smedley Financial Services in Salt Lake City. "Although our plans include contingencies, they may still have to be adjusted as we watch changes to Medicare and Social Security play out. It's vital that clients understand their plans are works in progress."

This kind of ongoing communication, says Jessop, "puts us in a better position to recommend solutions to help offset the risks."

Just as advisors traditionally focus on minimizing market risks through portfolio diversification, so they must now factor in contingencies for health risks, she says. Those contingencies can run the gamut from purchasing additional insurance to establishing a separate fund that can only be tapped for medical emergencies. "Tailoring a plan to meet the needs of each client is more important than ever," Jessop says.

A Unique Platform For Advisors
Indeed, the greater the need to fund health care over the long term, the greater the pressures on retirement planning. "The realistic response to this issue is that Americans are going to need to save more money than before-and advisors definitely need to give this a great deal of consideration during the planning process," says Arthur Tacchino, an attorney and assistant professor of health insurance at the American College in Bryn Mawr, Pa.

That's not necessarily bad news for advisors, however. Recent health-care debates-including those still circulating around the health-care reform law-"created a unique platform for advisors to address topics that, in the past, they might have played down," says Tacchino.

Chances are the subject is already on your clients' minds. Savvy advisors will take the lead and do more than react to crises. "The need for planning leads to more creative solutions," says Pete D'Arruda, the president of Capital Financial Advisory Group in Cary, N.C.

For creative options, D'Arruda cites hybrid life and long-term-care insurance products, sometimes known as "asset-based" or "linked benefit" coverage. These are vehicles for parking a lump sum that grows at the rate of a CD. In the event of a long-term-care incident, the provider pays out a much larger amount-several times the initial outlay. If the beneficiary passes away without using the funds, his beneficiaries receive the money back, plus interest, tax-free.

Whether or not such products are right for your client, it's clear that advisors can no longer ignore the discussion, says D'Arruda.