Financial advisors can help clients save money and preserve retirement assets by doing annual health-care cost planning with them, said Dr. Katy Votava, president of Goodcare.com, a nationwide independent consulting firm specializing in the economics of health care.
Votava spoke today at the 6th annual Financial Advisor Retirement Symposium, sponsored by Financial Advisor and Private Wealth magazines, at The Venetian in Las Vegas. The event attracted more than 600 attendees from around the country.
During her presentation, Votava stressed that advisors should put health-care cost planning on their annual agenda for all clients who are age 40 and up. First, advisors should discuss routine-cost planning -- such as insurance premiums, co-pays, deductibles and out-of-pocket costs -- that can be included in annual cash-flow projections for clients.
The next part of the talk should be about long-term care risk. "I think long-term care is not an easy conversation to have,” Votava said. “It's not fun to talk about. But if you start doing it early and often, I think it's like talking to your kids about sex. If you wait too long, they think they know everything. It's too late, maybe there's already trouble.”
She added that advisors should include a separate line item in their clients’ retirement budget for health-care costs. “Don't roll it into everything else. That's a mistake. It grows much more rapidly than the CPI,” she noted.
Help clients evaluate their Medicare choices no later than when they are 64 because more people are making mistakes that are costing them a lot of money, especially people who wait to start Medicare after 65 because they are still working and have other health-care coverage, Votava said. A client who starts Medicare after 65 may not be able to begin the program as soon as they would like after that, she says.
Routine health costs can be much higher than clients realize, she noted. The cost of Medicare insurance premiums, co-pays, out-of-pocket expenses and deductibles for one person can be as much as $9,000 to $12,000 a year and double that for a couple, she said.
Another important step that advisors can take is to line clients up with a geriatric care manager, who often can help clients save tens of thousands in billed hospital expenses and other costs. Advisors can often find such professionals through the National Association of Geriatric Care Managers. At eldercare.gov, advisors will find their county's office on aging, which may have geriatric care recommendations, as well as many other resources.
“The fact is if you do things right you can cut unnecessary costs for people,” Votava said. “People are overspending in so many ways on their routine health care. Ninety-five percent of people on Medicare are overspending."
After an advisor helps clients plan for routine costs, then he or she should look at what’s left to pay for long-term care, Votava said. Some people may be able to self-insure, but for many others the best options may be long-term care insurance, longevity insurance, reverse mortgages or other products, she added.
Advisors should ask clients who they believe their potential caregivers will be should they need long-term care. Unlike previous generations, Votava said, 40 percent of baby boomers don’t have children, and many other baby boomers (as well as younger clients) have had far fewer children than their parents, so relying on family members for care may be unrealistic. "It's not just the money issue. It's really important to figure out who is part of that care constellation," Votava said.
The risk of needing long-term care is substantial. Votava said that 70 percent of people over 65 today will need some long-term care. But most won’t need extensive care -- the numbers are skewed today because many people are counted as having long-term care after they spend time in a rehab following a hip replacement or heart operation, for example. “It’s closer to 20 to 25 percent of people who will have a more intensive long-term care experience," she said.
As a result, most people won’t spend as much as the averages quoted for long-term care costs, she said.
However, it’s difficult to tell which clients will end up with big LTC costs. "Quite honestly, there's no good statistical model that helps us with that,” Votava said. “That’s just the truth of the matter. I don't have a crystal ball. There's no good research model that tells us where we are going to be."
But that doesn’t mean advisors can’t help clients get some sense of what they might spend. "In your conversations with your clients, I think people have a pretty good sense, in some regards, on where they will be. Do they have dementia in their family? Do they have people who live a long time? Do they already have serious health-care problems, particularly diabetes or profound heart disease? That will help you figure out where your client might be.”