With concerns about health care and it's rapidly rising costs mounting, how can savvy advisers most effectively incorporate health care costs and concerns into client plans?
For starters, remember that health care is a top of mind issue.
Health — not security or peace of mind — was ranked as being most essential to the financial future of respondents to a recent Transamerica survey.
Not coincidentally, health care costs are growing faster than overall inflation. Between 2015 and 2025, the Centers for Medicare and Medicaid Services predict that per-capita health care costs will increase about 4.9% annually. Overall inflation for the twelve months ending in November 2016 stood at only 1.7 percent, according to the U.S. Bureau of Labor Statistics.
What's more, Americans are living longer, and using more health care services than ever.
So what can advisers do?
EASING INTO THE CONVERSATION
Begin by keeping in mind that it's not always an easy conversation.
“When it comes to planning, we’re used to incorporating assumptions about wishes,” such as kids heading to college or a breadwinner retiring early, says Fran Levine, a CFP and family wealth adviser with Morgan Stanley Wealth Management in Atlanta, Georgia. But talking about planning for a cancer diagnosis or other health shock can be much more challenging, she adds.
If possible, “start the conversation when the clients are healthy, and the atmosphere is relaxed,” advises Peter Creedon, chief executive officer and a registered investment adviser with Crystal Brook Advisers in Mt. Sinai, New York. The goal is to deal with potential questions before an emergency occurs and emotions run high, Creedon says.
'WHAT FRIGHTENS YOU?'
Ellen Siegel, a planner in Miami, Florida, and principal of Ellen R. Siegel & Associates, uses open-ended questions. “I often will ask clients, ‘What frightens you, what keeps you up at night?’” Siegel says.
These questions can spark conversation and also help clients overcome their resistance to speaking about the topic.
If clients are skeptical about the need to include planning for potential health care, Levine says she’ll show them the results with and without the added expense. The difference helps persuade them of the logic..
Discussions become even more difficult when they shift from the abstract —such as a healthy young couple trying to project health care costs when they retire decades in the future — to the concrete, including conversations that occur when a client is diagnosed with a serious illness or struggling with debilitating injuries.
DEALING WITH DEATH
Rick Kahler, an adviser with Kahler Financial Group in Rapid City, South Dakota, has several clients with cancer. Those clients are, understandably, doing all they can to remain alive. By contrast, Kahler must examine the potential impact on spouses and other family members if the client passes away.
The reactions when Kahler broaches this possibility range from thankful and realistic — “Yep, we need to think about this” — to denial. “Some don’t want the bad mojo,” he says.
Resistance often means the planner is moving the conversation more quickly than client can handle, Kahler says. He’ll table the discussion for the moment, while remaining engaged with the client and his or her family.
Planners need to be ready to alter, or even ignore, financial plans when their clients’ lives are upended with serious diagnosis.
LONG TERM VS.RIGHT NOW
Danielle Howard, a planner with Wealth By Design in Basalt, Colorado, met with a new client to deliver a comprehensive plan, only to learn the client had been diagnosed with cancer and had months to live. “The conversation changes,” she says.
Rather than plan for the long term, the focus shifts to living a life of no regrets right now, Howard says. That often means ensuring that all end-of-life documents are in order. “You walk alongside the client in very intimate place,” she says, and let him or her know about actions that can provide some peace of mind in an incredibly tough situation.
Because these conversations can be both emotional and complicated, Siegel often tells clients to bring a trusted friend to take notes and ask questions. “When clients are dealing with serious news, their brain shuts down.” The client can review the notes later, at his or her own pace.
WHAT OPTIONS WILL WORK?
Advisers should also dig deep for options that will work for their clients.
“Knowing there’s a way out often makes whatever they’re dealing with more tolerable,” Siegel says. For instance, annuities can be a way to pay for long-term care for some clients who have trouble getting insurance, but have amassed significant savings, she says.
A client of Barry Kaplan, wealth manager and principal with Modera Wealth Management in Atlanta, had saved enough to retire early. However, her medical history made it difficult for her to get insurance on her own. Kaplan talked with her employer and learned that at age 60, given her years of service with her employer, she’d be able to continue her current coverage through age 65 at the same cost she currently was paying.
When incorporating health care costs into clients’ plans, most advisers take a conservative approach. Siegel, for example, typically budgets between $5,000 and $10,000 in ongoing, annual expenses once clients hit retirement. “We build that into the plan,” she explains.
As health care becomes more expensive and more complicated, planners need to keep up to speed on the many — and fast-changing — aspects, or know the experts to call, Howard says.
And they can't lose sight of the need for empathy and sensitivity.
“Investments aren’t that hard,” Kaplan says. “The other stuff — everything about someone’s life — is.”
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