Here’s how advisors can help clients avoid costly Medicare mistakes

  • For individuals turning 65, the decisions made around Medicare coverage will have a huge financial impact on their retirement.
  • Missing a special enrollment period, staying too long on COBRA.
  • Contributing to a health savings account are all ways retirees can unknowingly increase their costs.
  • Financial advisors can help avoid these mistakes by incorporating health-care planning into their conversations and having trusted resources to which they can refer clients. This is where NorthWest Medicare Solutions can assist with your clients.

No two retirements look the same. But there is one thing all individuals face in their golden years: high health-care costs.

Medicare beneficiaries will need as much as $400,000 for health expenses per couple, according to 2018 research from the Employee Benefit Research Institute. That is up from $370,000 in 2017. Medicare comes with plenty of rules, and if retirees run afoul of them, that could add to those health-care costs for the rest of their lives.

People do feel overwhelmed and baffled by Medicare, but there are some basic things that an advisor can do.

Admittedly, Medicare rules have countless nuances. Unless you have someone on your team devoted to the topic full time, it can be overwhelming to take on. However, there are some ways that financial advisors can help start the conversation with clients, as well as resources to which they can point them.

  • Add health care to your client meeting agenda. Put it on the annual agenda, and a lot of those issues will fall out before they’re a crisis.
  • Start talking with clients about Medicare as early as age 62. Have them identify which doctors they are seeing and if they will be able to continue to use them once they are on Medicare.
  • Cultivate relationships with local Medicare experts like NorthWest Medicare Solutions with whom you can refer clients. Start by getting suggestions for unbiased insurance recommendations so you’ll have those available for your client’s review.

Advisors can also engage in some troubleshooting for a few key situations when clients are most susceptible to making missteps. Here’s three that you need to look out for with your clients.

Turning 65

Reaching age 65 is a key milestone when it comes to Medicare eligibility.

But exactly what that means is changing, as more individuals continue to work into their 60s. As a result, many of your clients face the same Medicare question: “Do I have to go in at 65 or don’t I?”

If a client is employed and their employer health plan meets the right criteria, they can delay signing up for Medicare. That is provided they have not started receiving Social Security retirement benefits, which would trigger automatic enrollment at 65 in Medicare Parts A and B, which cover hospital and medical insurance.

In order for your client to be eligible to delay, their employer must have 20 or more employees. The employer plan also cannot be a retiree or COBRA plan. The plan also must meet Medicare prescription drug coverage requirements. If you have that coverage … you can delay until a special enrollment period in the future.  If none of those criteria are true, then you need to get into Medicare.

One thing you’ll want to have the still-employed/60-something clients consider: Sometimes Medicare coverage is the better choice over an employer plan.

If a client does need to sign up at 65, please don’t have them wait, because the penalties are costly. The initial enrollment period runs from three months before someone’s 65th birthday to three months after.

If your client misses that date and does not have creditable coverage, they will face a 10% surcharge on their premium for every 12 months that they wait. It could get quite costly if someone has their mindset, “Hey, I’m in great shape. I’m not going to insure myself through Medicare, and I’ll just sign up when I need it.  “That is a very costly, bad decision to make. 

Cobra Coverage

Once a client leaves their employer, they may have the ability to continue their health coverage through COBRA.

(COBRA is a health insurance program that allows an eligible employee and his or her dependents the continued benefits of health insurance coverage in the case that employee loses his or her job or experiences a reduction of work hours.)

However, sticking with that coverage could be a costly mistake once someone is age 65 and over. “COBRA is the biggest stumbling block where people are misinformed and stay on it when they shouldn’t.

They’re comfortable, and they think it works well.   The problem is that COBRA is not considered a substitute for Medicare coverage. So if someone gets sick and they should be on Medicare, that is supposed to be their primary insurance. Consequently, COBRA, which is secondary coverage, will only cover 20% of the bill in many cases.

You’re paying a huge amount of money for 20% of coverage, It just doesn’t work. What’s more, staying on COBRA could lead clients to miss their Medicare special enrollment period.

For example, if someone’s 18-month COBRA coverage is up this month, they would have to wait until the first quarter of 2020 to apply for Medicare coverage. Then, their coverage wouldn’t start until July 1, 2020.

Until that coverage starts, they will have to pay 100% of their health-care costs. Then, they will pay more — by up to 10% to 12% — for their Medicare premiums for the rest of their lives.

Health Saving Accounts

Health savings accounts let your clients put away funds toward health-care expenses if they’re covered by a high-deductible health plan.

The money that goes into an HSA is not taxed, nor are any gains on the money that’s invested or withdrawn. Because of that, many people rely on the savings in these accounts to help fund their retirement expenses.

But once someone is on Medicare, they can no longer contribute to an HSA. If they do, they will face a 10% penalty.

But the restrictions faced will vary by age. For example, if a client leaves their company at age 65 and starts Medicare coverage as of July 1, they can contribute to an HSA until that date or half the maximum amount for the year.

But if they’re 68 and start Medicare as of July 1, it’s retroactive back to January. That means that any contribution to an HSA that was made that year will be subject to a penalty.

The good news is that if clients contribute to an HSA while on Medicare, they can correct their error. You can back it out and fix it if you know in time.

People have until they file taxes for that year, which means they need to correct their mistake within that year.

These are just a few examples of what can happen if your clients don’t prepare for  Medicare coverage. Just make sure your proactive and work with an agency that specializes with Medicare Plans.

Visit our web site: NorthWest Medicare Solutions

Medicare Information Disclosure

This is not a complete listing of plans available in your service area. For a complete listing please contact 1-800-MEDICARE or consult www.medicare.gov (TTY users should call 1-877-486-2048), 24 hours a day/7 days a week or consult www.medicare.gov.
NorthWest Benefits Solutions is not affiliated with Medicare.gov or CMS.gov. Medicare.gov and CMS.gov have the .gov domain because they are official web sites of the Federal government. Medicare has not endorsed this information provided on this web site by NorthWest Benefits Solutions.

 

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