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  • Medicare planning

    • Planning for Medicare coverage gaps and blind spots

    Key takeaways

    • Long-term care isn't covered by Medicare: Many clients mistakenly believe that Medicare covers long-term care, but it primarily focuses on short-term needs. Planning for long-term care expenses is essential to avoid depleting retirement savings.
    • Prescription drug coverage gaps: Medicare Part D has limitations, including drug formularies and coverage gaps. Clients need to carefully choose plans that cover their specific medications to avoid unexpected out-of-pocket costs.
    • Out-of-pocket costs can erode savings: Even with Medicare, retirees face co-pays, deductibles and co-insurance. Planning with tools like health savings accounts (HSAs) and fixed indexed annuities can help manage these expenses and protect retirement savings.
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    As a financial professional, helping your clients plan for Medicare is a crucial part of helping them achieve a financially sound retirement. While many people assume that Medicare will cover all their health care needs once they turn 65, the reality is that significant gaps exist in its coverage. These blind spots can lead to unexpected out-of-pocket costs and put a strain on retirement savings. In this article, we’ll explore common Medicare blind spots and provide strategies to help clients prepare in advance for these potential challenges.

    1. Long-term care isn’t covered

    One of the biggest misconceptions about Medicare is that it covers long-term care (LTC). But Medicare primarily focuses on short-term care needs, such as hospital stays or skilled nursing following surgery. Long-term care, such as extended nursing home stays or in-home care for chronic conditions, isn’t covered. Without a financial plan in place, many of your clients may end up depleting their hard-earned savings to pay for LTC.

    For instance, imagine a client, Priya. She’s 52 and still actively working. However, she’s starting to think ahead about her future health needs, particularly after seeing her own mother require long-term care due to Alzheimer’s. Priya understands that she could face similar needs in the future but hasn’t set aside specific funds for long-term care yet. Now is an ideal time to explore options that provide coverage for LTC needs, such as:

    • Traditional LTC insurance works like other insurance coverage where you pay a premium for the life of the policy and make claims for covered services as needed. Offering assistance in covering extended care needs, LTC insurance would help Priya cover the high costs of nursing homes, assisted living or in-home care.
    • Hybrid LTC would combine either life insurance or an annuity with LTC benefits. This is a single policy that would ensure Priya is financially prepared for potential long-term care expenses while also providing Priya a potential income stream or a death benefit for her beneficiaries. This policy would allow Priya access to a portion of her life insurance death benefit or annuity value to cover LTC expenses.
    • An LTC rider can be added to Priya’s annuity or life insurance policy. This optional add-on would help Priya set aside funds for long-term care expenses if needed while also maintaining the benefits of her annuity or life insurance policy.

    2. Gaps in prescription drug coverage

    Although Medicare Part D offers prescription drug coverage, its limitations — such as drug formularies, co-pays and coverage gaps — can be a challenge for those with chronic health conditions or expensive medications.

    Take Dave, for example. At age 64, he’s managed his high blood pressure, high cholesterol and diabetes for years — taking several medications to keep these conditions under control. He’s concerned about how his medication needs will be covered when he transitions to Medicare and wants to avoid any major out-of-pocket expenses for drugs not covered by Medicare Part D.

    There are many options for Medicare Part D that cover various drugs with different co-pays, premiums and co-insurance. Dave would just want to confirm that his specific medications would be covered under the plan he chooses.

    3. Out-of-pocket costs can still be high

    Even with Medicare, your retired clients will still face out-of-pocket costs, such as co-pays, deductibles and co-insurance for medical services. Without a plan in place, these expenses can quickly add up and erode retirement savings.

    One hypothetical example is the situation of Carlos and Elena, a married couple. Both are in their early 50s, still working and planning for retirement. While they’ve saved diligently, they’re concerned about how health care expenses not covered by Medicare — like co-pays and deductibles — might impact their retirement savings.

    Options to help them manage future out-of-pocket health care costs include:

    • A health savings account (HSA). HSAs offer triple tax advantages: tax-deductible contributions, tax-free growth and tax-free withdrawals for qualified medical expenses. If the couple has savings in an HSA already, they can pull from it during retirement to help cover out-of-pocket costs. If they don’t already have an HSA, they may be able to start contributing to one while they’re still working, either through payroll deductions set up alongside their employer’s high-deductible health plan or by opening one at an independent financial institution (if they meet all eligibility requirements). This would allow them to build a tax-free fund specifically for health care costs in retirement.
    • A fixed indexed annuity (FIA) with a guaranteed lifetime withdrawal benefit rider. This option would provide the couple with a steady income stream throughout retirement, helping them cover out-of-pocket health care costs and ensuring that they don’t have to rely solely on their retirement savings to cover medical expenses.
    Start planning early
    Helping clients anticipate and plan for Medicare blind spots is crucial for ensuring their long-term financial stability in retirement. By addressing areas such as long-term care, prescription drug coverage and out-of-pocket costs, you
can help them avoid unexpected expenses that could undermine their savings. For more resources to help with these important conversations, visit nationwide.com/simplifymedicare.