As Donald Trump settles in at the White House, advisors need to mind the gap — the looming health care gap.
With the potential retraction of Obamacare, or certain elements of it, fast approaching in the Republican-controlled Congress, advisors are hearing concerns from clients who have relied on the Affordable Care Act to bridge their insurance coverage until they are eligible for Medicare at age 65.
"The possible repeal has been a huge concern for many of my clients," says Lois Basil, principal of the Basil Financial Group in Chicago. "I serve a number of self-employed individuals, as well as small business owners, and since the election it's been the subject of many of the calls I've gotten from them."
The potential repeal has caused some small business owners to begin offering health insurance to their employees as a benefit, according to Basil. Under Obamacare, she notes, "this wasn’t an issue because individuals could purchase insurance on the exchanges."
WORRY ABOUT OLDER CLIENTS
Retired clients who are relying on Obamacare but won't be able to get Cobra insurance coverage to bridge the gap until they are Medicare eligible are "my biggest concern," says Eric Furey, a planner at RegentAtlantic in Morristown, New Jersey, who specializes in advising business owners.
"For clients that have not yet retired, but are contemplating a retirement in the next six to 12 months, advisors should be making their clients aware that a repeal of Obamacare is a real possibility," Furey says. "Clients need to be aware that any pre-existing conditions could make obtaining health insurance more expensive, or even worse, preclude them from buying health insurance.
"If one spouse is retiring while the other is still working then a review of the working spouses’ healthcare is warranted," Furey continues. "Doing this type of review may provide a safety net in the event Obamacare does get repealed. When building financial plans, RegentAtlantic will inflate health insurance premiums, including Medicare premiums, at a 5% rate which is a 2% spread above our general inflation rate of 3%."
Without Obamacare, Carolyn McClanahan, an M.D. who is also a CFP at Life Planning Partners in Jacksonville, Florida, worries that some retiree clients won't be able to get private insurance at an affordable price.
How that affects their financial plans can be "a significant issue," she says. "We are asking clients under 65 to wait on retirement until we can see what policies are put in place. For clients who are already retired, we are preparing them for higher costs. It will be a political nightmare if old policies such as rescission or health-based underwriting are put in force, but be prepared for anything."
BUSINESS OWNERS' BURDENS
To be sure, advisors also have clients who haven't been thrilled with Obamacare.
"Our small-business and entrepreneurial clients have become more focused on the increasing insurance premiums and deductibles, greater administrative burdens, and higher taxes associated with the Affordable Care Act," says Michael Nathanson, CEO of the Colony Group in Boston. "Our sense is that they are seeking a sustainable and fair balance between the clear need for comprehensive insurance coverage on the one hand and relief from the burdens I just mentioned on the other."
Those clients taking a wait-and-see approach, Nathanson says, "with the hope of a comprehensive solution that meets their needs."
Other business owners, Furey notes, have chosen to pay a penalty rather than offer insurance at all.
"If Obamacare is repealed then I believe we’ll see instances where the employer simply chooses not to provide insurance," Furey says. "This pushes the employee into the private market which may, or may not be, more favorable than Obamacare."
HOW TO DEAL WITH HSAs
Obamacare may be in the crosshairs of President Trump and the GOP, but by contrast health savings accounts are being trumpeted by the party now in power.
What should advisors be telling their clients about HSAs?
"Fully fund your HSA," says McClanahan. "If you don't have the resources to pay for high expenses out of pocket, do not invest your HSAs. If you have plenty to cover expenses, you can consider investing them for future growth."
Pat Elliot, head of the Elliot Group at RBC Wealth Management in Bainbridge Island, Washington, says his team is advising clients "to stick with their current plan because we still only have speculation and proposals of how new provisions will affect HSAs. There’s no need to adjust what you are currently doing until details emerge about your options."
HSAs won't be of much use to older clients, according to Dave Campbell, a partner at Bingham, Osborn & Scarborough in San Francisco.
"They have a very limited timeframe to start building up on health savings accounts," Campbell says. "They just don’t have enough time, given the limitations they put into these plans.”
But HSAs can help younger clients control costs, he adds.
"HSAs can help in a variety of ways," he says, "but you have to pick and choose where you’re going to get the biggest bang for your buck.”
For now, no laws have been changed and no new legislation has passed, Elliot notes.
"Clients shouldn’t spend the energy worrying or planning for changes that may or may not take place," he counsels.
"Advisors should be monitoring the updates regarding new health care provisions and provide clients with details of how to adjust their plan in response," Elliot says. "If you have a solid financial plan in place, adjustments can be made when details of new provisions come out."
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