Advisors can't do anything about their clients' health or longevity, of course. But there are ways to lessen the sticker shock of hospitalizations, CT scans and other necessary procedures. And since these prices are rising at a faster clip than the inflation rate, the time to act is now.
"This is a growing issue that many people haven't fully realized yet," says Victoria Collins, senior managing director at First Foundation Advisors, a wealth-planning and investment-management firm in Irvine, Calif. "Our high-net-worth clients may be better able to tolerate medical expenses than others, but more and more are concerned about their level of risk. And those who aren't should be."
For many, the health-care reform law brought these issues to the fore. Yet for most people, it hasn't resolved them.
You Can't Be Too Rich
Among the fallacies that keep clients unprepared for future medical bills is the belief that they're too well-off to worry about them. If anything goes wrong, they figure they can foot the bill-or, in other words, self-insure. "One thing you should never do is go without insurance on the assumption that you're rich enough to pay out-of-pocket," advises Nancy Metcalf, senior program editor at ConsumerReportsHealth.org, in Yonkers, N.Y.
To be sure, some people do have sufficient assets to survive pricey medical bills unscathed. But should they? Is it wise-emotionally or economically-to spurn insurance coverage? "Clients commonly tell me, 'I don't want to waste my money on insurance premiums,'" recounts Don Reidy, a financial planner at Quarry Financial Advisors in New York City. "To which I say, 'But why would you want to use your assets on medical bills instead of leaving them for your family or as a legacy for your favorite charities?'"
If your client is still employed, he or she probably has medical insurance anyway. It's the retired or widowed who have to be careful about maintaining coverage. "The discussion becomes even more intense when somebody quits working before age 65," says James Holtzman, a certified financial planner at Legend Financial Advisors in Pittsburgh.
At 65, Medicare kicks in. But the federal program has severe limitations-such as, it does not cover long-term custodial care and its prescription drug coverage has gaps. "To give yourself adequate protection, you need a supplemental policy to cover what Medicare doesn't pick up," Holtzman insists.
Your healthiest clients in particular, who haven't yet faced steep medical bills, may be innocent of how drastically and quickly these expenses can drain assets. "What these folks don't realize is the costs can be extremely high-into the millions of dollars," stresses Candice Butcher, CEO of Medical Billing Advocates of America, in Salem, Va. "Without substantial coverage, the wealthy will be asked to pay full retail price for all services, which is always higher than what insurance companies pay."
The single biggest health-related draw on assets-especially as people age-is long-term care (LTC). "It's the greatest concern, without a doubt," says Ellis Liddell, president of ELE Wealth Management in Southfield, Mich. "Long-term care represents the biggest unknown liability."
LTC is separate from hospital stays, doctor visits, periodic diagnostic scans, prescriptions and other therapeutic treatments. The term refers to an open-ended need for daily assistance with the most basic tasks. Sometimes it's help in a skilled nursing facility; at other times it's at-home assistance with activities such as bathing and dressing and eating. It can be round-the-clock and last for months or years.