Why should advisors prioritize healthcare?
Check out this article on healthcare costs in Financial Advisor:
If you’ve been following the headlines lately, healthcare has been getting more and more attention in the financial advising world. The impact of rising healthcare costs on clients’ retirement plans is a big deal, and it’s one advisors are still figuring out how to address.
This may feel a little out of the traditional financial planner’s wheelhouse—healthcare isn’t something advisors or brokers were talking about 20 years ago. If you began your career in 1989, for example, you might be wondering how and why this came to be such a dominant issue in 2019.
Even five or 10 years ago, when the Affordable Care Act was passed and implemented, the prudent approach was generally to take a “wait and see” approach on anything healthcare-related.
Now, the wait and see period has passed, and advisors ignore healthcare at their—and their clients’—peril. To understand why this issue deserves more of your attention in 2019, we’ll look at how healthcare has changed over the last 20 years, the choices consumers face today, and how advisors can think about helping their clients.
A Simpler Time
So how has healthcare changed over the last 20 years? In 1989, the majority of Americans received their insurance benefits from their employers. Costs were on the rise, but many workers were accustomed to contributing very little to their healthcare costs.
At this time, healthcare was a non-issue for many.
For consumers who didn’t have access to workplace plans, healthcare could be a little more complicated. Options were limited for this market, because carriers could deny coverage to consumers with pre-existing conditions.
In general, individual insurance was less expensive, but fewer people could access it. Some states provided access to “guaranteed issue” plans for these consumers, but they were generally very expensive.
The other avenue by which many Americans received insurance coverage was, and is, Medicare. When the program launched in 1965, the coverage comprised Part A and Part B, or hospital and physician coverage.
Largely, 20 years ago, healthcare and healthcare coverage was much simpler, and it played a small role—if any—in financial and retirement planning.
Choice, Costs And Complexity
Through the past few decades, healthcare costs in the United States have risen dramatically. At the same time, many pieces of healthcare legislation have been passed to address gaps in access, including the Children’s healthcare Insurance Plan (CHIP), the Emergency Medical Treatment and Labor Act (EMTALA), the healthcare Insurance Portability and Accountability Act (HIPAA), the Healthcare Information Technology for Economic and Clinical Healthcare Act (HITECH) and, finally, the Affordable Care ACT (ACA).
Some of these policies have been more effective than others, but on the whole, these legislative changes have expanded coverage and—in some cases—made it more affordable, but it’s added a lot of choice into the equation.
With choice comes complexity, which brings us to where we are now. We’ve identified at least 18 different ways consumers can receive their Medicare benefits, and employer and individual options have become more complex as well.
Healthcare costs are eating up larger and larger portions of consumers’ incomes and retirement savings, and there is very little advice available on how to find the right, most cost-effective coverage strategy.
Advisors As The Solution
This brings us to the wave of headlines advising wealth managers to address the costs, choice and complexity that clients are facing when it comes to healthcare. In addition to the financial impact healthcare has and will have on clients, it also presents a competitive differentiator. If your firm isn’t helping clients answer their healthcare questions, competitors will.
There is a continuum of options for addressing these issues. At the bare minimum, advisors should be nudging clients to do their own research and reviewing their Medicare strategy annually. If nothing else, bringing this up proactively is beneficial.
Another option is to use planning software tools that include healthcare functionality. Money Guide Pro, among others, has the ability to project healthcare spending and include it in retirement plans.
On the other end of the spectrum, many advisors are finding it beneficial to take a more hands-on approach to healthcare planning, either by hiring an in-house healthcare expert or outsourcing this role.
Regardless of which approach you take, healthcare will increasingly need to play a role in your advising strategy in 2019 and beyond.Learn more about rolling healthcare advisory services into your practice here.
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