Healthcare & Retirement. Equipping Advisors Today. Providing a plan for Tomorrow. Peter Stahl. Sponsored by Realty Capital Securities

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1 Healthcare & Retirement Equipping Advisors Today. Providing a plan for Tomorrow. Peter Stahl Sponsored by Realty Capital Securities 1

2 Why discuss Health Care Funding? 1. Nearly one half of high net worth Americans who are close to retirement are terrified of what health care costs may do to their retirement plans. - Harris Interactive, /5 Baby Boomers cite uncovered health expenses and the risk of becoming ill as their top financial concerns in retirement - Putnam Investments Lifetime Income Score Research % of these individuals have not discussed retirement health care costs with a financial advisor because they are unsure as to whether their advisor is knowledgeable about the issue - Harris Interactive,

3 When you enroll in Medicare, what percentage of your annual health care costs do you expect Medicare will cover? Female: 45% Male 37% How did you arrive at this percentage? Guessed: Female: 85% Male: 70% Told by a Financial Advisor: Female: 2% Male: 5% Harris Interactive

4 Why discuss Health Care Funding? 2. Key component in providing a comprehensive retirement income plan: The age 60+ population will spend the largest percentage of their income on health & medical costs, larger than leisure / recreation and housing combined. Credit Suisse, Longer Lives July 2011 $491,039 the amount the average 65-year-old couple pays out of their own pockets for health care during a 20-year retirement. Jester Financial; retirement health care cast calculator. 4

5 Why discuss Health Care Funding? 3. The vanishing Social Security Benefit. 5

6 Step One: Medicare. A federally administered Health Insurance Plan Sorting out the alphabet soup Robert and Lindsey Graham Age 64 Reside in Valley Forge, PA $1.4 million investable assets Annual Income $115,000 (pension, social security, investment income) 6

7 Happy 65 th Birthday Who is Eligible (generally) age 65 and entitled to Social Security benefits Medicare is mandatory Traditional Medicare with Medigap & Pres. Drug A, B, D, F OR Medicare Advantage Plan A, B, C 7

8 Medicare Coverage Plan 1 A, B, D, F 2014 Costs and Gaps in Coverage: $1,216 annual deductible Medicare Part A Hospital Insurance Skilled Care Hospice Hospital: Days 1-60 full coverage Days $304 per day co insurance Days 91+ : $608 per day co insurance while using 60 life time reserve days Skilled Nursing Facility (benefits must meet Medicare definition) Days 1-20 full coverage Days $152 daily deductible Days 101+ no coverage Custodial Care: no coverage 8

9 Medicare Coverage Plan 1 A, B, D, F Medicare Part B Doctors Outpatient 2014 Costs and Gaps in Coverage: annual premium: $1,258 - $4,028 $147 annual deductible 20% co insurance (no limit) Modified AGI = line 37 AGI plus line 8b Can apply for reconsideration if you have had a change in circumstance Joint Modified AGI 2014 Annual Part B Premium (per person) Less than or = to $170,000 $1, above $170,000 - $214,000 $1, above $214,000 - $320,000 $2, above $320,000 - $428,000 $3, Above $428,000 $4,

10 Medicare Coverage Plan 1 A, B, D, F Medicare Part F Medicare Supplement Medigap Policy sold by private insurers to fill the gaps in Medicare Parts A & B. 10 standardized plans ( A, B, C, D, F, G, K, L, M, N ). Plans vary on extent of coverage. Three waiver states ( MA, MN, WI ) offer their own plans. 10

11 Medicare Coverage Plan 1 A, B, D, F Part A Hospital Insurance Skilled Care Hospice + Part F Medicare Supplement Medigap 2014 Costs and Gaps in Coverage with Medigap policy $1,216 annual deductible Hospital: Days 1-60 full coverage Days $304 per day co insurance Days 91+ $608 per day co insurance while using 60 life time reserve days Skilled Nursing Facility (benefits must meet Medicare definition) Days 1-20 full coverage Days $152 daily deductible Days 101+ no coverage Custodial Care: no coverage 11

12 Medicare Coverage Plan 1 A, B, D, F Part B Doctors Outpatient + Part F Medicare Supplement Medigap 2014 Costs and Gaps in Coverage with Medigap policy annual premium: $1,258 - $4,028* $147 annual deductible 20% co insurance (no limit) 12

13 Medicare Coverage Plan 1 A, B, D, F Medicare Part D Prescription Drug Prescription Drug coverage offered by private insurance companies Monthly premiums based on type of plan. Annual deductible ($310) Coinsurance Costs in the coverage gap ( doughnut hole ) 2012 Joint Modified AGI *2014 Annual Part D Premium Less than $170,000 $ Your plan premium above $170,000 - $214,000 +$ above $214,000 - $320,000 +$ above $320,000 - $428,000 +$ above $428, $

14 Medicare Coverage Plan 1 A, B, D, F Part A Hospital Skilled Care Hospice Part B Doctors Outpatient Part F Medicare Supplement Medigap Drug Part D Prescription Coverage Graham s annual estimated cost at age 65 Part A $0 Part B $1,258 (premium) Part D $765 (premium) Part F $2,305 (Medigap plan F premium) Out of Pocket $1,923 (deductible, prescriptions, vision, dental) Total $6,251 individual = $12,502 for Mr. & Mrs. Graham 14

15 Medicare Coverage Plan 1 A, B, D, F Fast forward 5 years IRA RMD pushes the Grahams into higher bracket for Medicare B & D Inflation: Part B 7.87%, Part D 7.12%, Gap Plan 5.0%, Out of Pocket 3.41% Coverage Graham s annual estimated cost at age 70 Part A $0 Part B $2,559 (premium) Part D $1,289 (Humana PDP premium) Part F $2,941 (Gerber Medigap plan C premium) Out of Pocket $2,275 (deductible, prescriptions, vision, dental) Total $9,064 individual = $18,128 for Mr. & Mrs. Graham 15

16 Medicare Coverage Plan 2 A, B, C Medicare alphabet soup, version two (of two) Consider reducing costs by moving to coverage in the network Medicare Advantage Plans Annual health care cost (not including any custodial care) $5,138 per individual = $10,276 for Mr. & Mrs. Graham 16

17 Medicare Coverage Plan 2 A, B, C Medicare Part C Advantage Plan Medicare Advantage Plans Managed care alternative to Medicare supplement policy HMO PPO PFFS (Private Fee-for-Service) SNP (Special Needs Plans) Medical Savings Account Plan Can include prescription drug coverage. Monthly premium, coinsurance Cover some of the gaps in Medicare A&B 17

18 Medicare Coverage Plan 2 A, B, C Part C Medicare Advantage Plan Part A Hospital Skilled Care Hospice + Part B Doctors Outpatient Coverage Graham s annual cost at age 65 Part A $0 Part B $1,258 Part C $1,080 (Humana Choice PPO) Out of Pocket $2,800 (max out of pocket moop $6,700; most plans $3,400) Total $5,138 per individual = $10,276 for Mr. & Mrs. Graham 18

19 Medicare Coverage Plan 2 A, B, C Fast forward 5 years IRA RMD pushes the Grahams into higher bracket for Medicare B Inflation: Part B 7.8%, Advantage Plan 5%, Out of Pocket 5% Coverage Graham s annual cost at age 70 Part A $0 Part B $2,559 Part C $1,386 (Humana Choice PPO) Out of Pocket $3,593 (max out of pocket moop $6,700; most plans $3,400) Total $7,538 per individual = $15,076 for Mr. & Mrs. Graham 19

20 Working Past Age 65 You may delay Medicare coverage if you are covered by a company plan. Greater than 20 employees. Creditable coverage. Be aware of your special enrollment periods to avoid life long penalties. 20

21 Items to Discuss with Your clients 1. Provide income with an annuity, REIT, income oriented mutual fund. $ $ $ $ $ $ $ $ $ $ $ $ $ Health Care In Retirement $ $ $ $ $ $ $ $ $ Health Care Pre Retirement Age 55 21

22 2. Use tax deferral to reduce Modified AGI (non qualified assets). 22

23 Medicare Coverage Plan 1 A, B, D, F Medicare Part B Doctors Outpatient Medicare Part D Prescription Drug Savings for a married couple over a 20 year retirement by lowering one bracket: $57, Joint Modified AGI Less than $170,000 above $170,000 - $214,000 above $214,000 - $320,000 above $320,000 - $428,000 above $428,

24 Additional Items for discussion with your client. 3. Growth of Assets is critical 4. Roth IRA and Roth 401(k) 5. Health Savings Accounts (HSA) (h) for small business owners 7. Cash value from permanent life insurance 8. Asset Consolidation 24

25 PPACA (Obamacare) & Medicare: Medicare coverage is NOT PPACA marketplace coverage. Many corporations and public entities are moving coverage to Medicare Exchanges for retiree health coverage. Points of intersection Expansion of coverage: Preventative Care coverage without deductibles or co pays. Reduction of Part D deductible in Gradual phase out of Part D doughnut hole costs. 25

26 PPACA (Obamacare) & Medicare: New Taxes (2013) % Medicare tax on income above the threshold (2.9% tax on income below the threshold continues as it was in 2012) % surtax on investment income: dividends, interest (except from municipal bonds), net capital gains, rents, royalties and investment annuities. Paid on lesser of net investment income or excess of MAGI over threshold. Filing Status MAGI Threshold Married Filing Jointly $250,000 Single $200, Reduction of medical expense deduction by raising the hurdle from 7.5% of AGI to 10% of AGI (seniors exempt from change until 2017). 26

27 PPACA (Obamacare) & Medicare: New Rules 1. $716 billion change in Medicare payment formulas from 2013 to 2022 (Top Three: Hospital Services, Medicare Advantage Plans, DSH Hospital Payments). CBO Medicare Part B spending can only increase at a rate equal to 1% over GDP growth. Ehealthinsurance July member IPAB providing recommendations on how to limit Medicare Part B spending if this speed limit is broken (expected 2016). Kaiser Medicare Policy Brief March

28 PPACA (Obamacare) & Medicare: New Incentives & Penalties Medicare payments to hospitals are reduced to those who deliver insufficient care. Providers can organize into Accountability Care Organizations, measuring service to their Medicare patients. Medicare Advantage plans will receive bonuses based on quality scores beginning (2013). Medicare Advantage Plans must send penalties to the government if they spend less than 85% of premiums on enrollee medical care (2014). How Obamacare effects Medicare Ehealthinsurance July

29 Supply vs. Demand 16,000 LTC facilities in the US 1.7 million beds in the U.S 300,000 beds available in the country Medicare predicts that 20 million retirees will be accessing some form of LTC benefit by comparemaptable.jsp?ind=408&cat=8 29

30 Generally, Medicare will not cover: Eye glasses Hearing aids/exams Dental Cosmetic surgery And Custodial Care Medicare generally does not pay for long-term care. Medicare also does not pay for help with activities of daily living. The Official U.S. Government Medicare Handbook, Medicare & You,

31 Step Two: Custodial care " Non-medical care that helps an individual with his or her activities of daily living! Physical and/or cognitive impairment that limit ones ability to safely interact with his environment." Annual cost for a private room in a nursing home in 2011 was $87,000 - Metlife Mature Market Institute Annual 2013 cost for full-time home health aid: $69,350 (non medical care 10 hours per day) - Genworth 2013 Cost of Care Survey 31

32 Medicaid A federal-state program providing assistance to those who are unable to pay for their medical needs. Last resort for those with little income and few assets Significant restrictions on assets, income Five year review on applications Not the solution for affluent, mass affluent market. Be careful not to put it down. Not a matter of high quality care vs. low quality care. 32

33 Assets Challenges to consider: Liquidity (real estate) Taxes (qualified money, low cost basis assets) Timing of your distributions (paying for care in 2008) Legacy Assets (family vacation home, inheritance) Disruption of income (loss of retirement income source) 33

34 Emotional, physical, and financial impact of an unexpected need for care, on those whom you care about. Who will provide the care? Invisible Heroes We are experiencing these realities. The typical family caregiver is a 48- year old female caring for her widowed mother who does not live with her. She is married, has children and is o<en employed. Family Caregiver Alliance Nov

35 Sources of Income for Custodial Care Long Term Care Insurance Asset Based LTC Solutions Life Insurance with long term care rider Fixed Annuity with long term care rider 35

36 Resources Organization Web address Services Bedrock Business Results bedrockresults.com FA & Client Education. Health Care & LTC cost calculator. Medicare medicare.gov Medicare information State Health Insurance Shiptalk.org Consulting / Counseling Elder Care Eldercare.gov Consulting / Counseling CLTC ltc-cltc.com FA training / CLTC designation 36

37 Summary: 5 step Financial Advisor Plan Calculation & Conversation Custodial Care Comprehensive Retirement Income Plan Resources Tax free & Tax Deferred For Broker Dealer Use Only. Thank You Bedrock Business Results, LLC pfstahl@gmail.com

38 Appendix Doughnut Hole Standard Benefit Design Parameters 2014 Deductible $ Initial Coverage Limit* $2, Out-of-Pocket Threshold** $4, Total Covered Part D Drug Spending before Cat. Coverage*** $6, *After an individual pays the deductible, he or she is in the initial coverage period during which he or she pays 25 percent of drug costs and the Part D plan pays 75 percent of costs. Once Part D drug expenses (paid by the individual and by the Part D plan) total the initial coverage limit ($2,850 for 2014), the individual is responsible for a certain percentage of charges based on whether the drug is generic or brand until the individual has reached the out-of-pocket threshold. **The out-of-pocket threshold is the amount that the individual must pay on his or her own before catastrophic coverage begins. This gap between the initial coverage limit and catastrophic coverage is referred to as the donut hole. ***Once an individual reaches the catastrophic portion of the benefit, the Part D plan covers approximately 95 percent of the Part D drug expenses incurred. Cost-sharing is set at the greater of 5 percent coinsurance or fixed copayments. This amount is set by CMS. It is not a total of other amounts listed in this table. 38

39 Appendix Life Changing Events Use to apply for relief from Medicare Parts B&D premiums Marriage Divorce/Annulment Death of Your Spouse Work Stoppage Work Reduction Loss of Pension Income Loss of Income-Producing Property Employer Settlement Payment 39

40 Appendix 2014 Presidential Budget Proposal (pages 38-39) Changes proposed for