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Another look at the $240,000 health care cost in retirement number

August 13, 2012 By Leave a Comment

There has been a lot of talk about Fidelity’s $240,000 healthcare-expense-in-retirement estimation.  I tried to examine it from an unbiased perspective and came to two distinct possibilities:

 

1)      Fidelity has solved the healthcare crisis, or

2)      We need to step back and rethink the number.

 

Let’s look at an example of a 30-year-old working today.  Let’s call him Phil.  Phil Delity.

 

Phil is working for a large company that has provided him with a fair benefits package.  He can expect to pay roughly $215 per month for his premiums, or about 25% of the total, with the employer picking up the remaining 75%.

 

Projecting for the year, Phil will pay a total of $2,580, while his employer will cover the remaining $7,594, so his yearly premium will cost roughly around $10,200.  This seems to be a fairly accurate assessment according to a 2011report from the Houston Business Journal, which used AON Hewitt data to peg total healthcare costs per employee at $10,770 annually, while Milliman pegs a family’s healthcare costs to exceed over $20,000 in 2012.

 

So if Phil stays with the company until he is 50 and incurs approximately $10,000 in healthcare cares costs per year, his total coverage costs should slightly exceed $200,000. (This does NOT take inflation into account.)

 

Still with me?

 

Now Fidelity has led the financial industry to believe that when Phil reaches 65, enrolls in Medicare with his spouse (Phil got married along the way), the two of them should only expect to pay $240,000 for their healthcare for the rest of their lives.

 

Now the question becomes: How does one healthy individual over a 20-year period pay roughly $200,000 for healthcare, but TWO elderly people who live to 80 —with additional variables such as increased medical testing, prescription drug dependency, and long-term care—expect to pay only $40,000 more in costs?  This figure also fails to take into account that Medicare is now means tested, which translates to the “more you earn, the more you pay.”

 

Either Fidelity wants everyone to believe that no one will live that long (so why bother even planning anyway) or they have figured out a way to lower health costs for everyone as they age.

 

I hope that I am not the only one baffled by this.

 

Now if we turn to Healthview Services, an industry leader healthcare cost planning, we will see, by using their revolutionary RetireMark Software, that a couple who is 65 today and only plans to live until age 80 can expect to incur $274,000 in retirement. This number changes drastically if the couple’s income ever exceeds $170,000, they move to a more expensive state, or they live to their actual life expectancy. (88 years for the male and 90 for the female, which will result in approximately $620,000 for their healthcare costs.)

 

Something just doesn’t add up, and unfortunately this misinformation will lead to erroneous planning in which the only real losers will be the clients.

Filed Under: Retirement Tagged With: , , , , , , , , , , ,

HVS Financial Launches the Most Comprehensive, Accurate Long-Term Care Calculator To Help Boomers Plan for LTC Costs in Retirement

May 17, 2012 By 2 Comments

HVS Financial Launches the Most Comprehensive, Accurate Long-Term Care Calculator To Help Boomers Plan for LTC Costs in Retirement

 

Danvers, Massachusetts (May 17, 2012) ~ It is an indisputable fact that healthcare expenses rise exponentially in the final two years of life, and the main source of these costs are assisted living facilities and nursing homes.  According to the Department of Health and Human Services, 70% of individuals over 65 will need some level of long-term care (but not everyone will qualify), and the average expenditures can range from $20,000 to $150,000 per year in out-of-pocket expenses.  Another significant problem is that these figures are based on today’s dollars, offering little in the way of long-term projections to help people plan for the future.

 

In an effort to provide financial institutions and advisors with more realistic calculations for long term care planning, HVS Financial recently added the industry’s most comprehensive and accurate long-term care cost projector to its RetireMark suite of retirement planning software tools.  The LTC cost projector offers an extensive range of calculations and reporting features including:

 

  • a forecast of when a person is most likely to need long term care
  • a projection of future costs based on expected length of nursing home or assisted living stay, residency, and health issues.

 

According to HVS Financial’s President and CEO Ron Mastrogiovanni, “Although Baby Boomers are beginning to educate themselves about the threat of rising healthcare costs in retirement, the proverbial elephant in the room is long term care,” he explained. “These costs could exceed three quarters of a million dollars for some people.  However, very few are actively planning for this event.  Our mission is to offer the most accurate, effective software planning tools that provide advisors with concrete data to help clients prepare for the tremendous impact of future LTC costs.”

 

While planning for the final two years of life may seem excessive to some, HVS Financial believes that there is growing concern that a lifetime of saving and hard work may go to LTC facilities, rather than children or other family members.  “We believe that with a little foresight and stable investments, nobody has to lose his/her lifetime savings—assets that could be passed down to devoted family members—to a hospital, nursing home, or LTC facility,” he concluded.

 

About HVS Financial (www.hvsfinancial.com)

HVS Financial is a software firm specializing in healthcare cost planning and health risk assessment tools and solutions. It is one of the only firms in the country that builds solutions that address healthcare and long-term care costs individuals will face during retirement.

Filed Under: Healthcare Tagged With: , , , , , , , , , ,

What do 97% of all retirees have in common?

May 15, 2012 By 2 Comments

Nationwide recently released its Survey on Healthcare Costs, and the most startling statistic—actually the very first statistic cited—was that of the retirees polled who were age 65 and older, 97% stated that they were enrolled in Medicare.

 

How many human-related activities can be measured at 97%?  Do 97% of Americans finish high school?  Have a bank account?  Get regular haircuts?

 

NINETY SEVEN PERCENT. 

 

Despite the fact that more than nine-tenths of Americans will eventually subscribe to Medicare, most financial plans never address what it actually costs. 

 

Ultimately it ends up being an afterthought—a line item in the expense column during the planning process.  This may be why the vast majority of Americans are under the false assumption that Medicare is actually free (or at least extremely affordable).  It is also why the financial services industry must address this variable as 78 million Boomers march to retirement.

 

97% of retirees deserve to know what their future holds:

 

Part A – No premium for those who qualify, but there are some hidden costs like deductibles and co-pays for services (For more on Part A, click here.)

Part B – a $99.90 monthly premium for those earning under the average amount plus other deductibles, co-pays, and excess charges (For more on Part B, click here.)

 

Part D (Drug Coverage) – Premiums (also based on income), deductibles, co-pays & other charges based on the terms & conditions of the insurance company selling the plan. (For more on Part D, click here.)

 

MediGap – This form of coverage takes care of the co-pays, deductibles, & excess charges of Parts A and B, but here are fairly high premiums. (For more on MediGap plans, click here)

 

Other Out of Pocket Expenses – Medicare does NOT cover dental, vision, hearing, podiatry, or routine exams/physicals. Medicare will only cover procedures after a beneficiary has been admitted as an inpatient to a hospital.

 

Medicare Advantage Plans – are administered by private insurance companies and must follow the rules & regulations of Medicare. They offer the same coverage as original Medicare (with the exception of a MediGap policy), but also provide opportunities to purchase coverage for non-Medicare services like dental, vision, hearing, podiatry, and routine physical exams.

 

These seemingly small monthly premiums may not seem like much, but factor in all of the additional out-of-pocket expenses—the co-pays, uncovered medications, eye exams—over the long-term, and the cost of simply staying alive can utterly consume the savings of unprepared retirees. 

 

A healthy 60-year-old couple earning less than $170,000 per year can expect to incur over $685,000, just in Medicare costs, through age 90.  If that same couple happens to make $1 more than the allotted $170,000, they can expect to pay over $825,000 over those same 25 years.

 

With projections of this magnitude likely to affect almost our entire population, one question begs to be answered:

 

How can industry professionals, whose sole purpose is to help people plan for retirement, ignore the greatest expense of 97% of their clients?

Filed Under: Medicare Tagged With: , , , , , , , , , , , , , , , ,

5 Myths of Medicare

May 14, 2012 By Leave a Comment

Myths of Medicare

1)      Myth; Medicare is free 

There is a misconception that Medicare is “free” once a person reaches the magical, worry-free age of 65. While Medicare is subsidized through payroll taxes (the rate is a total of 2.9%of total gross income paid by both employer & employee) there are still plenty of costs connected to the plan.  Unfortunately, not only do subscribers continue to pay as if they are working, they actually can expect to pay even more.

Fact – Medicare has several components; all have which have significant costs attached.  Even Part A, which is labeled as “free,” can have hidden fees, including deductibles, co-pays for service, and possible excess charges.

According to HVS Financial’s unique RetireMark Software—the only tool on the market that allows financial advisors to calculate their client’s health costs on an actuarial basis—an “average” 65-year-old couple retiring at age 65 & living to 90 should expect to incur about $650,000 in Medicare premiums alone.

A 55-year-old couple should expect to incur over $930,000 in costs for their healthcare premiums

 

2)      Myth; Medicare covers all of healthcare needs in retirement.

Fact – With original Medicare, little things like routine physicals in which diagnostic tests are run are NOT covered.

Fact – Medicare will only cover procedures that occur when the beneficiary is admitted as an inpatient to a hospital.  Because of this rule, services like routine dental, vision, hearing, exams, & podiatry are not covered at all; thus, a 65-year old couple can expect to incur over $310,000 in related costs over a 25-year retirement.

 

3)      Myth; Everybody pays the same.

Since the passing of the Affordable Care Act & the Modernization of Medicare Act, Parts B & D are now means-tested. 

Fact – For subscribers, this translates into the more you earn, the more you pay. 

The Medicare definition of income is “the total of your adjusted gross income and tax-exempt interest income you may have.  These are the amounts on lines 37 and 8b of IRS from 1040. Some examples of income are wages, salaries, tips, taxable interest, certain dividends, business income, capital gains, and unemployment compensation, as well as annuities, Social Security payments and some pensions.”

Fact – Not only is what you pay affected by income, but also state of residency.  Where you live may increase your out-of-pocket expenses by as much as 30%! (Keep in mind that Medicare Part D & MediGap plans are sold by private insurance companies that can charge what they want; supply and demand are factors.)

To give you an example from HVS RetireMark software, a 65-year-old couple earning less than the Medicare average, residing in California, will incur $529,000 in costs to cover Medicare Parts B, D, and a MediGap policy.

If they move to Florida, the cost will be $551,000.

If they move to Hawaii, the cost will be $415,000.

 

4)      Myth; There is a choice when it comes to Medicare.

The only choice comes if you purchase a Medicare Advantage Plan. These are constructed and sold by private insurance companies and they must meet the guidelines of Medicare. (They are also subsidized by Medicare, too.)

Fact – with the passing of the Affordable Care Act (ObamaCare) it has been ruled that a person receiving Social Security Benefits MUST also enroll into Medicare when they become eligible.

 

5)      Myth; Currently there is no way to calculate what these healthcare costs will be.

Fact – HVS Financial has designed a unique yet practical software platform that assists financial professionals in projecting their clients’ health care costs in retirement.

HVS RetireMark software was designed by financial professionals who have lived through these expenses firsthand. The company has partnered with the country’s leading actuarial firm and a board of medical physicians to provide much-needed healthcare-cost information to the financial services industry.      

Filed Under: Medicare Tagged With: , , , , , , , , ,

Medicare Advantage Plans, AARP & the Healthcare Bill

April 1, 2011 By 5 Comments

AARP backed the new Health Care Bill as it went through Congress last year and, as a surprise to us all, in the end it seems that they just might profit from it in more than just a couple of ways too.

The official statement made by AARP’s CEO Barry Rand “We can say with confidence that [the House bill] meets those goals with improved benefits for people in Medicare and needed health insurance market reforms to help ensure every American can purchase affordable health coverage.”

AARP went on further to state that” it (Health Care Bill) will improve health care for older Americans and their families while gradually closing the “doughnut hole” coverage gap in the Medicare prescription drug benefit and limiting insurance companies’ ability to charge higher premiums based solely on age” (please see our comments on the closing of the “doughnut hole” titled “Closing the DoNut Hole – 25% to all)

But what seems strange, is shortly after the released statements by AARP, Susan Jaffe of AARP stated “The new law changes the way the government reimburses insurance companies that offer Medicare Advantage plans to seniors. But it doesn’t abolish the program.” She went on further to say that “instead, what’s being gradually reduced are excess payments to Medicare Advantage plans, the sweeteners they were originally paid to come into the Medicare market”.

Ultimately, in reality it does nothing to lower the costs of health care, but does lower the amount that the government pays to keep costs lower.

This one move alone will now allow;

  • The government to stop making payments to all Medicare Advantage companies that are using the monies to keep costs lower
  • Free up money that comes from the coffers of Medicare to be used else where

The key for the opposition of the Bill and the opposition of AARP’s stance is the first bullet point, which re-iterates Susan Jaffe’s comments; the payments by the government to MA Plan companies can now be stopped.

This move will, unfortunately force some Medicare Advantage providers to increase premiums and quite possibly cut benefits provided. So in the end, the consumer of MA Plans will get the short end of the stick.

It appears that AARP backed a plan that on the surface will decrease the amount of money it receives from the government in the form of subsidies to keep costs to the consumer lower for the opportunity to increase those premiums and offer fewer benefits for the same consumer.

The opposition is even more critical towards AARP because these cuts would make the plans that they create look even better versus their competitors.

Since AARP is the Advocacy for Seniors and has a membership in the millions it can now easily market towards this membership more effectively than its competitors while offering less to said members.

The beauty of this endorsement  is that AARP in one fell swoop was able to;

  • Cut off funding to their competitors – thus getting closer to being the only outlet for services
  • Create an opportunity to increase premiums on their clients,
  • Create an opportunity to cut benefits covered within their plans
  • Still look like the shining Angel who is speaking for Seniors

In a nut shell this move will possibly drive out their competitors leaving them as one of the only options for coverage available which will allow them to capture even more of the market share and more money from said market/their clients with the cherry of increased premiums with lower benefits on top.

Filed Under: Medicare, Retirement Tagged With: , , , , , , ,