Advisers can help with Medicare

Over the next few weeks, many of your retired clients will be bombarded with advertisements from health insurance companies touting their Medigap and Medicare Advantage plans.

Some of your clients may look to you for guidance, as health care costs constitute one of the largest expenses — and biggest fears — that they face in retirement.

First of all, they should know that they can enroll in Medicare within three months — before or after — their 65th birthday.

After that, they can make adjustments during the annual enrollment period, which runs from Oct. 15 through Dec. 7, during which all beneficiaries can change their Medicare coverage for the coming year without restrictions. This includes anyone using traditional Medicare with supplemental Medigap coverage, all-in-one Medicare Advantage plans and prescription drug coverage available through Medicare Part D plans.

The changes take effect Jan. 1.

If your clients are happy with their coverage, they don't have to make changes. But it is important for them to review the Annual Notice of Change document that they should receive by Sept. 30.

That will list any changes to their premiums and co-pays and will compare the benefits offered this year with those that will be available in 2013. Think of it as a treasure map to find potential health care savings or to budget for anticipated increases.

Financial advisers needn't become Medicare experts, but it is important to understand some of the basic rules to protect your clients from making costly mistakes that could sabotage the retirement income plans that you spent so much time developing. You can either refer your clients to a third-party resource or affiliate with a consulting service that allows you to offer more-comprehensive health care planning as part of your practice.

THE BASICS

Medicare Part A covers hospitalizations and is free. Those who collect Social Security benefits early are automatically enrolled in Medicare A when they turn 65.

Even those who plan to delay receiving Social Security should enroll in Medicare A during the six-month window around their 65th birthday. They can do so online (ssa.gov).

Medicare Part B, which covers doctors' visits and outpatient services, is optional and most new enrollees are paying about $100 a month this year. Premiums are likely to increase for next year.

Affluent retirees — those with annual income of $85,000 or more and married couples with joint income of $170,000 and more — pay higher premiums for Medicare Part B ranging from an additional $140 to $320 per month in 2012 and probably even more next year.

If your clients have health insurance from a current employer or a spouse's employer, they can skip Medicare Part B for now. But once that coverage ends, they must sign up for Medicare Part B or face a late-enrollment penalty that boosts their premium by 10% for each 12-month period that they were eligible for Part B but didn't enroll.

Upper-income retirees also pay higher premiums for Medicare Part D, a voluntary program that covers prescription drugs.

Together, Parts A, B and D make up “traditional Medicare.” But Medicare covers only about half of most health care costs, so most retirees also buy private supplemental insurance, known as Medigap, to cover many of the deductibles and co-insurance, to extend coverage for hospital stays from 60 to 365 days, and to provide limited skilled nursing care and hospice services.

An alternative to traditional Medicare is to purchase a private all-inclusive Medicare Advantage plan. It eliminates the need to buy a Medigap policy and often includes prescription drug coverage so a separate Medicare drug plan is unnecessary.

Medicare Advantage plans often include additional coverage, such as vision or dental care, not covered by traditional Medicare.

COSTLY PREMIUMS

But short-term savings on Medicare Advantage premiums can be costly if your client requires a long hospitalization, said Dan McGrath, director of health care funding strategies at HealthView Services Inc., a provider of health care cost software.

“Medicare Advantage only covers a certain number of days in the hospital and most have dollar limits on total coverage,” Mr. McGrath said. “It's the reason that older people with chronic diseases that require extended hospital stays go bankrupt.”

HealthView Services teamed with Nationwide Financial Distributors Inc. to offer a free Personal Health Care Assessment tool to help advisers estimate health care costs and life expectancy, based on a few questions about clients' gender, age and health condition. You can also use the HealthView Services Advisor calculator for free at hvsfinancial.com.

Although estimating future health care costs is critical to a retirement income plan, you or your clients may still need help picking which Medicare option is best for them.

Allsup Medicare Advisor (allsup.com/medicare-advisor) helps consumers select the right Medicare plan. Fees range from $75 to $395.

The company also works with financial professionals on a case-by-case or continuing basis.

Another firm, Goodcare.com, tends to focus on higher-income retirees who are subject to means-tested Medicare premiums.

Even with the initial consultation cost of $199, plus hourly charges to research and recommend the appropriate Medicare coverage, some retirees can shave thousands of dollars a year off their health care costs, Goodcare president Kathryn Votava said.

For do-it-yourselfers, the Medi-care Rights Center (medicarerights.org), offers free education and counseling to consumers and a help line at (800) 333-4114. You can also find free help through your State Health Insurance Assistance Program (shiptalk.org) or try the Medicare Plan Finder Tool online (medicare .gov).

[email protected] Twitter: @mbfretirepro