According to Steve Vernon, president of Rest-of-Life Communications, the best strategy advisers can use to encourage their clients to consider their Medicare alternatives more carefully begins with a candid discussion about how their healthcare requirements may change as they age.
Vernon said that you must emphasize the significance of these choices to the clients and encourage them to give it some thought.
Vernon observes that many retirees struggle to create a plan that best suits their needs. He suggests a three-phase structure, claiming advisors are in an excellent position to help by first interacting with and teaching clients about the benefits of obtaining their ideal Medicare plan.
The next phase should be to create a step-by-step manual to analyze the possibilities. Vernon’s final role was to “enable” people, as he put it, by helping them in putting decisions into practice and removing any obstacles or misunderstandings.
He said advisors frequently only concentrate on assisting their clients through phase two, omitting the significance of the first and third phases.
Even when someone is motivated and engaged, barriers might hinder them from acting because they are sometimes merely psychological. “The client frequently has an objection in their head, like, “Oh, that won’t work for me,” or something like, “My sister said HSAs are no good.”
Kevin Smith, a senior vice president at Wealthspire Advisors, said another difficulty many people encounter is accepting that no one solution will be effective for everyone.
Smith urged the need for rigorous and individualized study, saying, “It’s going to be very, very client-specific based on what their healthcare condition looks like, what drugs they’re already taking, and what doctors they employ.”
Given the intricacies and complexities to sort through, careful preparation starts with putting your plans in place before you turn 65. Seniors automatically enroll in Medicare Parts A and Part B on the month they hit age 65 if they are already receiving Social Security benefits.
A first enrollment period starts on the first of the month, three months before turning 65, and concludes on the last day of the month, three months after their 65th birthday, if they are not automatically registered.
A person may be penalized if they don’t sign up for Medicare when they first become eligible during the Initial Enrollment Period unless they meet the requirements for an exception. If you then have to pay for Part A, you’ll be required to pay an extra 10% of your monthly premium for twice as many complete years as you were eligible for Part A but did not receive coverage.
Your Part B premiums will go up by 10% for every 12-month period during which you are qualified yet uninsured. And the penalty is indefinite as long as you maintain Part B coverage. (Part D is subject to fines as well.)
Smith advised financial advisers to start discussing this with their customers far before their 65th birthday by gathering specific information about their clients’ needs as “it compounds itself over time.” He also recommends some introspection for advisors. For example, he advised that they consider collaborating with a Medicare expert if they lack the knowledge necessary to analyze the best results.
According to Smith, traditional Medicare consists of Part A, which is often supplemented with a Medigap plan, as well as an additional Part D plan that would provide coverage for prescription medications.
The other choice is the Medicare Advantage Plan (formerly known as Part C), which functions more like an HMO or PPO with a network of partaking health providers, often covering everything from medical care to prescription drugs and dental and vision requirements.
Here, Smith said, “It’s essential to engage with the client and to get an accurate listing of which physicians, medicines, and pharmacies they currently use.” “You may really end up with considerably higher out-of-pocket expenditures if you just change one or two of those items or if certain plans don’t cover one or two of those things.”
Additionally, he added, it’s crucial to reevaluate this option every year to ensure it still meets the person’s needs today.
Smith advised against treating this as a simple set-it-and-forget-it situation. Because things change, it’s something you should keep an eye on and maintain reviewing annually.
Vernon advises highlighting the distinctions between employer-based health insurance programs and Medicare. In his experience, many people have misconceptions regarding Medicare even though they believe they are knowledgeable about it.
These can include people who assume that Medicare functions similarly to their employer’s health insurance plan but are later shocked to realize that vision and dental care, as well as some chiropractic and acupuncture treatments, are not covered. In comparison to employer-sponsored insurance, Medicare often has higher deductibles and copayments.
Or, he added, more fundamentally, some people believe Medicare is cost-free. Others fail to consider how flexible traditional Medicare is in allowing beneficiaries to choose any doctor who accepts Medicare coverage.
Traditional Medicare and Medicare supplements can let you choose your physicians. Still, Vernon pointed out that because you have to self-refer, it only demands more understanding on your part.
Another potential danger Vernon warned about is unexpected problems arising when people switch between the two options. Working within a network makes Medicare Advantage potentially easier, he added.
Medicare Advantage permits people to switch providers during the open enrollment, giving them a great deal of freedom. They can also switch between regular Medicare and Medicare Advantage if their circumstances change. But occasionally, someone can be barred from Medicare supplement insurance.
It can be confusing because many people are unaware that the Affordable Care Act eliminated preexisting condition exclusions, with the exception of Medicare supplement plans, Vernon said. “People don’t realize that Medicare supplement plans in certain states can have preexisting condition exclusions.”
You can purchase a Medicare supplement plan without being concerned about a preexisting ailment when you first become eligible. Vernon refers to it as a “trap for the unaware.”
The choice of which Medicare option to choose is assessed and reviewed annually, after which the choice of how to pay for medical care is strategic.
Health Savings Accounts (HSAs) can help with monthly costs and can be used to pay for all qualified medical bills, including premiums and copays, but ideally, they should be set aside for longer-term medical needs.
When you’re young and contributing to an HSA, “We encourage paying for out-of-pocket expenses outside of the HSA wherever possible because that allows more money inside the HSA to grow over time,” Smith says.
After matching 401(k) contributions are reached, Vernon believes that HSAs are the best retirement savings vehicle because they offer federal income tax breaks on contributions, allow earnings to grow tax-free, and provides tax-free distributions, provided those distributions are utilized for qualified expenses.
According to Vernon, the consultant should ask the client to max out their HSA if they are under 65 years old because doing so is tax avoidance rather than tax deferral.
He also urges advisors to assist their customers in setting aside HSA balances for long-term care. Vernon says it’s bad for individuals to say, “That’s quite far away; I’ll have time to figure it out by then,” when transitioning into retirement.
When advisers ask their customers, “Did any of your parents or close family friends need long-term care?” “They can help their clients focus on the long term. What exactly caused them the pain and the disruption? Let’s discuss strategies now that we have your attention.”
HSAs can still be considered a long-term investment, even for people in their 60s. But if those resources are insufficient, Vernon added, many people may have home equity that they can use as a last resort by selling their property or taking out a reverse mortgage.
He also suggested purchasing a qualified longevity annuity contract (QLAC) as an additional resource. Advisors can encourage younger clients to plan ahead and think about simplifying, downsizing, or moving to a more convenient place.
Vernon advised me not to wait until it was too late. You can understand why one likes to deal with things as soon as possible rather than when they become huge and hairy.
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I grew up in Dubuque, Iowa, where I learned the concepts of hard work and the value of a dollar. I spent years in Boy Scouts and achieved the honor of Eagle Scout. I graduated from Iowa State University and moved to Chicago and spent a few years managing restaurants. I then started working in financial services and insurance helping families prepare for the high cost of college for their children. After spending years in the insurance industry, I moved to Arizona and started working with Federal Employees offing education and options on their benefits. I became a Financial Advisor / Fiduciary to further help people properly plan for the future. I enjoy cooking and traveling in my free time.
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