Health Care as Part of Financial Plans: Sounds Great, Not Easy

by | Apr 28, 2014

In recent times, some financial advisors have begun to add health care as a primary consideration in development of personal, business and family financial plans. The intent is certainly well-meaning and even far sighted, but the ability for the client to actually execute on the particular health care related aspects of their plans often remains in doubt, as the costs of health care, insurance and Federal benefits are variables few plans can account for accurately.

For example, say you are head of household for a family of four, the traditional two spouse two child arrangement. You want to put health care into your overall financial plan, which, according to a lot of things you’re reading, is a good idea. Your financial advisor assembles a financial plan based upon what you can pay for health care in the future using available data that refers to the present and the immediate past. This is where the first problem is encountered. Questions clients and advisors ask when planning for health care:

1-What will health care cost in the future?

2-How much will health insurance cost?

3-What will Government Programs such as Medicare want from me?

4-What will Medicare and other Government programs pay for?

5-How much will I be responsible for?

6-What kind of care will I be able to afford?

7-What about long term care?

These and other variables are subject to so much future variability that advisors and clients cannot accurately quantify how much of future income and assets are to be allocated to health care and insurance costs. In the typical financial plan that includes health care prerogatives, a portion of future income is ordinarily allocated to pay for insurance and health care. In recent years, planners have steadily increased their projections for insurance and health care costs, often falling behind the curve as the costs of health insurance and medical treatments have soared. The result has been a trend toward increasing future capital allocations to pay for health insurance, which often adversely affects the future projected standard of living of many middle and upper middle class clients. This where there may be an additional error; as health care and insurance costs may actually increase at a more moderate rate in the years to come, where updated financial plans that project ever higher costs of health care may now be overshooting the actual costs. This means that money that could be invested now and in the near future may be impounded into savings in order to pay for inflated future health care costs, which can penalize client holdings via investment opportunity loss.

An additional problem in health care planning is when planners assume their clients will be eligible for certain Medicare and other government benefits, which may be true at the moment or in the near future, but may change in the out years of the plan as some clients may no longer be eligible for certain benefits as they may be “means tested” out as they might be deemed by the authorities as being too well off to receive most Medicare benefits. More on this important topic to follow.

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