Daniel Schultz, a Pennsylvania small-business owner, started to think about retiring when he was 65 not because he was ready to give up his metallurgy firm but because his wife was ill and needed his help. Health care costs, not surprisingly, were their prime concern as they prepared for his retirement.
"I never thought about Medicare and health care policies for my wife and me," he said in an interview with Allsup, a nationwide provider of Medicare plan selection services based in Belleville, Ill. "I was too busy running the company. But when it reached the point where she had greater problems, I made the call [to Medicare]."
But when a Medicare representative told him about the supplemental plans available to cover additional health care costs, Schultz didn't like what he heard and decided to seek some professional advice from Allsup, a for-profit company similar to third-party firms such as Advantage 2000 Consultants and Disability Management Services, which charge people a fee to help them file claims.
As health-care costs rise along with worries about Medicare's future, millions of baby boomers born in 1948 will become eligible for Medicare this year and face the complexities of choosing their plan for the first time — and so these third-party firms are seeing an increase in business.
The timing on Medicare enrollment is crucial because people must sign up in the three months before turning 65, the month they turn 65 or up to three months afterward. And yet Allsup-commissioned studies show that while 83% of seniors say health care is their top concern, only 28% have discussed it with an advisor and only 44% of 64-year-olds have even begun to plan for Medicare enrollment.
At the same time, financial advisors aren't doing enough to reach out to their clients to help them figure out how to choose the right health care plans for retirement, according to Mary Dale Walters, senior vice president of Allsup Medicare Advisor, who says that her fee-based service can help advisors and their clients reduce health care costs by as much as $2,000 per year. Allsup has an A-plus rating from the Better Business Bureau.
"Health care costs are a significant concern as people age, yet it's troubling how few seniors discuss Medicare with their financial advisors," Walters said in a statement. "There is a tremendous opportunity for financial advisors to support their clients in finding the health care coverage that matches their financial and health care needs."
Allsup, which produces a free Turning 65 and Medicare Enrollment guide for financial planners to share with clients, offers these five key steps for planners to take as they help clients prepare for health care costs in retirement.
1. Understand how existing group health plan coverage may coordinate with Medicare.
"However, it's important to advise clients to check with their plan administrator to determine their policy and how the company size may affect their Medicare enrollment choice," Allsup recommends in Five Ways Financial Advisors Can Help Clients Turning 65 with Health Care Costs, Complexities. "They also may want to consider enrolling in Medicare Part A for hospitalization even if they defer Part B."
2. Choose the right Medicare plans for the retiree's needs and financial profile, and make important choices when first eligible.
Individuals choosing traditional Medicare have an average of 20 Medicare Part D prescription drug plans from which to choose. Most also can pick from 10 standard Medigap policies for supplemental coverage, ranging from basic to comprehensive.
"Even though policies are standardized, the price can differ from one company to the next," Allsup says. "Adding to the complexity, Medigap plans are not required to accept someone after the person's initial enrollment period. As a result, it's important that people carefully weigh their options when first eligible as obtaining coverage in the future may be difficult and more costly."
People evaluating Medicare Advantage plans over traditional Medicare also have an array of options, with an average of 20 plans from which to choose.
3. Follow Medicare enrollment rules to avoid penalties.
Not following Medicare enrollment rules at the outset can cost clients dearly for as long as they have Medicare. Those without an approved deferral may need to pay a late-enrollment penalty of 10% for each full year they could have been enrolled in Part B. Likewise, Part D imposes a penalty if someone goes for more than 63 days without coverage after enrolling in Part B.
"It's important to educate clients that even if they are still working, they can't ignore their initial Medicare enrollment period," says Mary Dale Walters, senior vice president of Allsup Medicare Advisor. "They need guidance to ensure they follow the rules for deferral."
4. Understand added Medicare costs for retirees with higher incomes, and learn how to lower those costs.
Higher-income beneficiaries pay higher premiums for Medicare Part B and prescription drug coverage. For Part B, the 2013 monthly premium is $104.90 for joint filers with income of $170,000 or below, and income of $85,000 or below for single filers. The premium increases to between $146.90 and $335.70 for those with incomes above those thresholds. Likewise, higher-income beneficiaries can expect to pay from $11.60 to $66.40 more each month in prescription drug premiums.
To determine if someone must pay a higher premium, Allsup says, Social Security uses the taxpayer's modified adjusted gross income (MAGI) from the most recent federal tax return provided by the IRS. Typically, the most recent tax return is two years back. For example, for those turning 65 in 2013, Social Security looks at the 2010 or 2011 tax return.
"As someone nears 65, their income can change dramatically," Walters said. "Clients who do not understand how Medicare premiums are set could end up paying much more than they should in monthly premiums."
5. Secure health care coverage for spouses or dependents.
