SAN DIEGO -- The average couple, at age 65, is likely to need $261,000 to cover all their health care costs for the balance of their lives -- and those are just out-of-pocket costs, not those covered by Medicare. To make matters worse, health care costs overall are rising at about 5.8% a year.

Those details emerged during a presentation at LPL Focus in San Diego this week. Joe Moklebust, director of business development at Principal Financial Group, urges planners at the large independent broker-dealer's annual conference to pay close attention to how and when their clients enroll for Medicare.

Failing to heed certain deadlines for enrollment and failing to evaluate plans can substantially affect clients' financial lives, Moklebust says.

BRANDED VS. GENERIC DRUGS

One audience member's own experience illustrated the point. The advisor told the room that he has a medical condition and can't buy generic versions of the medications he takes.

When it came time to sign up for Medicare Part D, which covers prescription drug medications, he says he and his insurance agent reviewed numerous plans to see how each one would handle his prescription drug needs. Some would not have covered them, he told Moklebust.

"If I were to buy my medications outside, it would be about $1,100 a month," he said -- adding that, with the plan he chose, "It costs me about $300."
That is a big issue for seniors, the planner said.

Moklebust concurs: "They do not investigate the plans," he said. "It is costing them more money because they do not."

Moklebust offers advisors a series of tips for clients' Medicare enrollment and usage.

10 ADVISOR TAKEAWAYS

  • At 65, the mandatory age when Medicare starts (with exceptions), clients must enroll in the window that starts three months before their birthday month and ends three months afterward. If they don't, penalties may apply. If those clients are still working and covered by their employers' qualified group health insurance plans, they can delay. But some people who are laid off and get COBRA coverage make the mistake of thinking that they can wait to enroll in Medicare until after their COBRA period -- sometimes as long as two years -- has ended. That is not true. "If you don't sign up within the prescribed enrollment period," Moklebust says, "for each 12 months when you were eligible and not covered by a group plan, your Medicare part B premium is going to go up 10%. And it will stay up 10% for the rest of your life." Planners should refer clients who are still working to their employer's benefits administrator for more detailed information, Moklebust says.
  • Clients who are 65 and older but working, with qualified medical plans through their work, may not be ready to enroll for Medicare -- but in most cases they should still enroll in Medicare Part B.
  • Medicare A and B plans are standardized at the federal level. But Medicare Advantage plans, also known as Medicare Part C, are localized. They can vary greatly in quality not only between states, but also within states -- so it pays to shop around. 
  • If clients are enrolled in Medicare Parts A and B but want additional coverage -- for deductibles and co-pays, or for travel abroad -- they may wish to add a supplemental Medigap plan. The most common is Medigap Plan F.
  • Medicare costs break down as follows: Medicare part A is free unless your client isn't fully eligible; in that case it can cost as much as $441 a month. The base cost for Medicare part B is $104.90 monthly, although it can range up to $335.70 for wealthier clients. Medigap insurance varies in cost by carrier and by health status, but the average cost ranges from $60 to $200 a month, depending upon what type of plan a client wants. Medicare Part D costs about $40 a month and may carry additional costs for wealthier clients.
  • Windfalls from the sale of a home or a large severance can push a client's Medicare costs into an artificially high bracket. But those higher charges can be appealed and, in some cases, reduced. 
  • Medicare Part D, the prescription drug coverage, comes with a "donut hole," which is a gap in coverage. After clients satisfy their deductibles, they then pay a percentage of their prescription drug costs up to $2,850 a year. After that point, they must cover all these costs until they hit $4,550, after which point the insurance kicks in again. While in the "donut hole," clients receive full credit for the cost of the medication but the actual cost is reduced by 28% for generics and 52.5% for name brands. Under the Affordable Care Act, however, that donut hole is shrinking. By 2020, it is expected to be closed.
  • In some cases, clients will need to change their Medicare Advantage coverage if they move.
  • Enrolling in a Medicare Advantage plan may require working with insurers' PPOs or HMOs, which have their own doctors and hospitals. If your clients want to use their own doctors, advise clients to check to see whether those offices will accept original Medicare.
  • If clients under age 65 are receiving Social Security disability insurance, they must have been disabled for two years before they can begin receiving Medicare.

Overall, Medicare covers about 51% of most older Americans' annual health care costs, Moklebust says. To help clients get the most out of their coverage, he urged planners to go on the Medicare.gov website and get the Medicare & You handbook covering basic details of all Medicare plans.

Read more: