Advising clients on health insurance needs and options is critical for the financial health of retirees as well as pre-retirees, and could soon make up a significant portion of every financial planner's practice. "This is such a hot topic," says Sheryl Garrett, founder of the Garrett Planning Network in Shawnee Mission, Kan. "Health insurance is such a big component of costs in retirement and there are many bells and whistles to think about when choosing a health insurance policy. The most appropriate person to help people is their financial advisor."

The costs and complexity facing clients are staggering. According to Fidelity Investments' most recent healthcare cost estimate, a 65-year-old couple retiring in 2008 will need approximately $225,000 to cover medical costs in retirement—not counting long-term care. Says Sunit Patel, senior vice president of health and welfare at Fidelity, "This is so important and so large an expense that it deserves more attention than it has received, at least until recently."

There are vital signs showing that health insurance costs may finally be receiving the attention they deserve. Rising healthcare costs are now a national issue and a major policy concern of the new administration, with many new proposals on the boards. And some ahead-of-the-curve financial advisors are starting to explore how they can help clients meet their health insurance needs and concerns. Given that year after year, retirees and pre-retirees have put healthcare at the top of their list of concerns, it's about time.

This isn't just good for clients: It can also be good for business. "The evidence is advisors, in reaction to the financial crisis and the times, are looking to expand their value proposition from a service perspective. Life and health are having a reemergence," says Scott Smith, senior analyst at Cerulli Associates in Boston. Cerulli's surveys from late 2008 show advisors broadening their focus to include health coverage in addition to traditional investment management. After all, as Smith points out, "you can't spend an entire client review meeting discussing a portfolio that's down 40%."

Advisors who are planning to fill these needs and broaden their offering must grapple with several decisions. There are several health insurance business models to choose from. Should you use in-house agents or outsource? What's the best way to structure relationships with these agents? And last but not least, how should you charge?

Eliminating Red Flags

Though advisors may have already faced some of these issues, current thinking on best practices is changing. For instance, advisors may not be familiar with new, more proactive methods they can use to improve clients' insurability.

"The first step for any planner helping their clients with health insurance is to assess and possibly improve the clients' insurability—before sending them naked into the marketplace," advises Carolyn McClanahan, founder of Life Planning Partners of Jacksonville, Fla. McClanahan was an emergency room doctor before becoming a financial planner. She now educates other planners on the intricacies of the medical and insurance systems, and on the actions planners can take to prevent their clients' being denied coverage.

A red flag from a single insurer can make every other insurer wary of a client, regardless of the skills of an insurance agent or financial planner. Planners therefore need to preplan their insurance options, and not wait until the last minute to discuss coverage and prepare to apply. Part of this proactive process might include finding ways to address clients' health risks.

McClanahan has found that asking clients just three simple questions can uncover looming insurability issues. If the client is considering retiring before being eligible for Medicare, she argues these questions should be virtually mandatory:

1) Has the client ever taken any medication on a regular basis? According to McClanahan, this will reveal if the client has a history of depression, high cholesterol or other chronic disease that could be a red flag for insurance companies.

2) Has the client ever spent a night in the hospital? This question prompted one of McClanahan's clients to say, "I'm perfectly healthy, except for those three nights I spent in a hospital for a heart attack."

3) Has the client been to a doctor for any medical issue aside from a routine checkup in the last two years?

"If clients say 'yes' to any of those questions they may have an insurability issue," McClanahan advises. In response, McClanahan has identified several strategies advisors can deploy to improve their clients insurability by overcoming potential roadblocks in advance.

The most basic of these is to have a doctor review a client's medical records in order to make sure everything is in order. "People don't understand how doctors get paid," McClanahan says. "The more they diagnose, the more they can charge." Billing or other errors may have made their way on to the record and need to be confirmed, making a client seem less healthy than he or she actually is. If anything is incorrect, the doctor can amend it.

Checking the Record

The advisor should also instruct the client to order a MIB (Medical Information Bureau) report. This is the healthcare equivalent of a credit report. It will reveal if the client has ever applied for individual insurance and been denied—a bright red flag for potential future insurers. Even if advisors and clients are unfamiliar with the MIB, all insurance companies belong to it, McClanahan says, and it is crucial to verify that the information they are using is correct.

Let's suppose the MIB or the patient's own records disclose a problem that may prevent coverage. At this point, says McClanahan, it is important to work with an insurance agent who has expertise in the problem at hand. "You have to make certain the agent understands the health issues in play and know how specific companies are going to respond to these issues," McClanahan says.