Clients are increasingly asking their financial advisors to help determine their Social Security retirement strategy, but advisors should also focus on Medicare benefits.
There’s a common misperception among people approaching retirement that Medicare will cover all their health-care costs in retirement. This isn’t the case.
Individuals age 65 and older can anticipate spending about 40 percent of healthcare costs out of their own pocket. Medicare covers about 62 percent of costs for individuals age 65 and older, according to the Employee Benefit Research Institute. So, that’s $40 of every $100 they will spend on their health-care needs.
The variables involved are complex and can be overwhelming to someone delving into these issues, which often is why we hear from financial advisors and their clients. Essentially, you want to embark on a two-phase approach to this process—establishing the big picture or strategic framework and then creating a year-to-year action plan.
First, however, it’s important to understand why Medicare costs are becoming a more pressing issue for clients.
Higher Medicare Premiums To Affect More People
It can be easy to miss the fine print in Medicare legislative proposals that affect individual taxpayers. One bill, known as the “doc fix” bill, was passed April 16 and received a lot of attention for reforming the automatic Medicare payment cuts that doctors faced each year.
The measure, “Medicare Access and CHIP Reauthorization Act of 2015,” also creates a set of new rules for higher-income Medicare beneficiaries:
- Those already paying higher premiums for Medicare (because they have higher incomes) can expect greater costs starting in 2018.
- More individuals will enter higher tiers of Medicare surcharges because of these changes.
- Supplemental coverage, known as Medigap, will no longer pay for Medicare Part B deductibles starting in 2020.
People who earn above a certain threshhold have been paying higher premiums already through income related monthly adjustment amounts (IRMAA).
IRMAA is based on an individual's or a married couple’s modified adjusted gross income (MAGI). The adjustments are applied to Medicare Part B for medical services and prescription drug Part D plans. The “doc fix” bill changes three tiers of this income-based adjustment significantly—particularly the highest tiers.