The client didn't like the cost of this strategy (Whalen minimized it with an HSA), but he agreed it was the right thing to do. "My client has been retired for a year now and is enjoying every minute of it. I like to think he sleeps well at night knowing that his health-related expenses, though not insignificant, were contained within affordable limits in the event of a catastrophic illness," adds Whalen.
Of course, the greatest risk of all is that a client goes without health insurance altogether. While this may be a relatively rare occurrence among typical financial planning clients, it's not unheard of. Does it mean people don't want the insurance, or that they can't afford it? Most likely it is the latter, or at least that's what they think in Oregon. In early March, the state began drawing names from a one-of-a-kind lottery for people who want health insurance and aren't poor enough for Medicaid, but who are too poor to buy their own policy. According to the Oregon Department of Human Services, approximately 600,000 residents (about 15%-20% of the state) meet that definition.
So how did we get into this mess, anyway? "The first thing advisors need to understand," says Podnos, "is that there's been a big shift in the market away from employer-provided health insurance towards individual family insurance, much like the retirement plan portability we now have. Now, the government lets employers essentially give their employees the money to buy their own insurance through tax-favored plans, like health reimbursement accounts."
Most clients will be choosing between HMOs, PPOs and HSAs, say sources, but the role of each is shifting. HMOs and PPOs both came into their own in the 1980s as alternatives to straight indemnity plans. Says Podnos, as recently as five years ago, "most HMOs were very restrictive, employing a 'gatekeeper' physician, a limited panel of referral specialists and a limited drug formulary. Now, when you look at most HMOs, there's often no gatekeeper position and the number of physicians and drugs has expanded, such that there's almost no difference now between HMO and PPOs."
Leon Rousso of Leon Rousso Inc. in Ventura, Calif., a financial advisor and licensed health broker who actually sells the stuff, says that the hospitals and insurance companies are singularly profit-motivated and the consumer is likewise greedy, wanting more and more for his premium dollar, which is another cause of rising health costs. "The main problem is that premiums have gotten out of hand because benefits have been liberalized. When MRIs came out 15 to 20 years ago, they were seldom covered; yet now they are. AIDS was once excluded but now is covered by most plans." In other words, he says, as medicine becomes more technically advanced, making possible more benefits, health-care costs inevitably rise.
How are doctors part of the problem? Those working in hospitals want to be altruistic, but they're operating within profit-motivated institutions. Those outside the hospital may discount their services 20% to 30% to qualify for inclusion in PPO plans, but then they look for ways to make it back, defeating the PPO's attempt to bring down costs. Explains Rousso, "If you get lab tests done, for example, it used to be the doctor would call you with the results, but now they want you to come back to see them in their office again so they can charge you for two office visits."
Obviously, the growing complexity in the U.S. health-care system as it is makes careful attention to clients' health needs all the more important. So what does a really thorough analysis of their coverage look like?
Linda Campbell, a senior financial advisor with Budros, Ruhlin & Roe Inc. in Columbus, Ohio, reviews new clients' health insurance when they sign with her and periodically thereafter. "First, we discuss the current health of all family members by asking rather probing questions." Good questions to start the health discussion, says Campbell, are those like, "Have you or your family members been treated for any chronic or recurring condition?" or "Have you or your family members ever been denied coverage?" or "What is the status of the health of your parents and siblings?"
Second, Campbell reviews and summarizes the client's existing health-care coverage, not only to scrutinize routine features like deductibles, exclusions and co-pays, but to highlight the features (or lack thereof) that suggest coverage failures, like the insurance company's ratings and their history of premium increases; the lifetime maximums included in the client's plan; and whether the client's regular prescriptions are covered by the carrier's formulary. She also reviews the client's actual medical expenses incurred in the previous and current years.
Next, she determines the adequacy of the client's current coverage to address his or her family's specific future needs, such as surgeries or special procedures they've been putting off or exposures they might have to familywide health issues. "If it appears their [existing] policy may not be the best fit for them, we typically work with the client's health insurance agent, or a local broker, to look at their options. If both spouses work and have options through their employers, we compare the two to determine the best primary or combined family coverage," says Campbell.