Protecting Your Wealth from Your Health
If you ask most people what they are saving for, they will tell you about the "fun" parts of retirement. They talk about travel, buying a lake house, or spending time with grandchildren.
They rarely mention healthcare. Yet, statistically, healthcare will likely be your single largest expense in retirement. A healthy couple retiring at age 65 today can expect to spend hundreds of thousands of dollars on premiums and out-of-pocket medical costs over the remainder of their lives. And that figure assumes you remain relatively healthy.
If you ignore this reality, your financial plan has a hole in it.
At Baxter & Associates, we believe that planning for future healthcare is a critical part of establishing your financial growth plan. You cannot separate your physical health from your fiscal health. One major medical event or a prolonged need for care has the potential to drain a portfolio faster than a stock market crash.
Our goal is simple: We develop a strategy to help you address rising healthcare costs with minimum expense, to best fit your needs. We move beyond the confusion of government acronyms and insurance policies to build a shield around the assets you have worked so hard to accumulate.
American healthcare is complex to say the least and it is important that you are able to fully understand it well before retirement.
The Medicare Maze: It Is Not Free or Simple
There is a common misconception that once you turn 65, healthcare becomes free. It does not.
Medicare is a powerful government program but it is not comprehensive coverage. It is a foundation with significant cracks. If you rely solely on "Original Medicare," you are leaving yourself exposed to unlimited financial liability. There are no caps on out-of-pocket costs in the basic system. To build a plan, you first need to understand the building blocks.
Part A: Hospital Insurance (The "Room and Board")
For most people, Part A is premium-free, provided you or your spouse paid payroll taxes while working.
What it covers: Inpatient hospital stays, skilled nursing facility care (for a limited time), and hospice.
The Trap: It covers the facility, not necessarily the doctors treating you there. And it has deductibles. If you are hospitalized multiple times in a year, you could pay that deductible multiple times.
Part B: Medical Insurance (The Doctors)
This is the part you pay for. The government sets a standard monthly premium, but high-income earners pay more (we will discuss this "surcharge" shortly).
What it covers: Doctor visits, outpatient surgery, lab tests, and durable medical equipment.
The Trap: Part B generally covers only 80% of the cost. You are responsible for the remaining 20%.
The Danger: There is no cap on that 20%. If you require a $100,000 surgery or expensive chemotherapy drugs administered in a clinic, you owe $20,000. If the bill is $500,000, you owe $100,000. This is why "just having Medicare" could be a financial disaster.
Part D: Prescription Drugs
This is coverage for retail prescription medications. It is sold by private insurance companies, not the government.
The Reality: Plans vary wildly. One plan might cover your specific blood pressure med, while another treats it as "out of network." This requires an annual review during open enrollment to ensure your plan’s "formulary" (list of covered drugs) still matches your medicine cabinet.
The Fork in the Road: Supplement vs. Advantage
Once you enroll in Medicare A and B, you have a critical decision to make. You must choose how to plug that 20% gap we mentioned above.
This decision forces you to choose between two very different philosophies of insurance: Pay Me Now or Pay Me Later.
Option 1: Medicare Supplement (Medigap) – "Pay Me Now"
These are private policies designed to sit on top of Original Medicare.
How it works: You pay a higher monthly premium to an insurance carrier. In exchange, the carrier pays the bills that Medicare leaves behind.
The Benefit: Predictability and freedom. With a Supplement (like Plan G), you have virtually no copays for medical services. More importantly, you have no networks. You can see any doctor in the United States who accepts Medicare. No referrals required.
The Profile: This is often the right choice for clients who travel frequently, who want the absolute widest choice of specialists or who want fixed monthly costs regardless of how sick they get.
Option 2: Medicare Advantage (Part C) – "Pay Me Later"
This is the privatized alternative. You essentially trade in your red, white and blue Medicare card for a card from a private insurer (like UnitedHealthcare or Humana).
How it works: You usually pay a very low monthly premium (sometimes $0). In exchange, you agree to pay copays as you use services. $20 for a doctor, $300 for a hospital stay, etc.
The Trade-off: Networks. These plans operate like the HMOs or PPOs you likely had during your working years. You generally must use their doctors and their hospitals. If you go out of network, you pay more or are not covered at all.
The Profile: This fits clients who are generally healthy, budget-conscious regarding monthly cash flow, and don't mind navigating networks and pre-authorization requirements.
Why having a Financial Advisor Matters for Healthcare?
This isn't just a medical choice; it's a cash-flow choice. We analyze your budget. Can you sustain the higher premiums of a Supplement for 20 years? Or, if you choose Advantage, do you have a cash reserve set aside to pay the "maximum out-of-pocket" (often $5,000 to $8,000) if you have a bad health year? We help you run the math.
The Hidden Tax: IRMAA
This is where Health Care Planning and Investment Planning collide. Medicare Part B and Part D premiums are means-tested. If your income exceeds certain thresholds, the government adds a surcharge known as IRMAA (Income-Related Monthly Adjustment Amount).
This surcharge can double or even triple your Medicare premiums. The "income" they look at is your Modified Adjusted Gross Income from two years prior.
If you sell a rental property, convert a large IRA to a Roth, or take a massive capital gain distribution, you might inadvertently spike your income. Two years later, you receive a letter from Social Security stating your Medicare premiums have skyrocketed.
At Baxter & Associates, we monitor this threshold carefully. We structure your withdrawals and capital gains to keep you below these surcharge lines whenever possible. A generic insurance agent won't know about your capital gains; only a comprehensive financial advisor sees the whole picture.
Long-Term Care
If Medicare is the foundation, Long-Term Care (LTC) planning is the roof. And right now, for many families, the roof is leaking. There is a widespread myth that Medicare pays for nursing homes or extended home health care. It does not.
Medicare covers medical care (doctors, hospitals). It does not cover custodial care (help with bathing, dressing, eating, or supervision for cognitive issues like dementia).
The costs are staggering. A private room in a nursing facility can easily exceed $100,000 per year. Home health aides can cost $30 to $40 per hour. Without a plan, these costs are paid by liquidating your assets. It is very possible for a family to burn through their entire legacy in three years because one spouse needed memory care.
We address this risk through three primary strategies:
1. Traditional Long-Term Care Insurance
This is the "car insurance" model. You pay an annual premium. If you need care, the policy pays a monthly benefit. If you never need care, the money is gone.
Pros: High leverage. A small premium buys a large pool of benefits.
Cons: Premiums can rise and it feels like a waste if you stay healthy.
2. Hybrid Asset-Based Policies
This is a modern solution that combines life insurance with long-term care.
How it works: You deposit a lump sum (or pay premiums for a set amount of years). If you need care, the policy pays out a multiple of your money tax-free for health expenses.
The "Win-Win": If you don't need care, the policy pays a death benefit to your heirs. The asset is never "lost." It stays on your balance sheet as either a health fund or a legacy fund.
3. Self-Funding
For our high-net-worth clients, purchasing insurance may not be efficient. Instead, we designate a specific portion of the portfolio as the "LTC Fund." We invest this bucket differently - usually more conservatively so the liquid cash is there if a health crisis strikes.
We don't sell you a policy; we solve the problem. Whether that means insurance or a dedicated investment account depends entirely on your risk tolerance and asset level.
Bridging the Gap:
Health Insurance for the Self-Employed
Not everyone retires at 65. In fact, many of our clients are entrepreneurs, consultants or early retirees who leave the corporate world at 55 or 60.
This creates a "Gap Period" - the years between leaving your employer plan and qualifying for Medicare at 65. This is often the most expensive healthcare period of your life.
If you are self-employed or retiring early, you cannot simply "wing it." One medical emergency while uninsured can bankrupt a sound financial plan. We help navigate the options:
The ACA Marketplace (Obamacare): While often criticized for cost, these plans are comprehensive and cannot deny you for pre-existing conditions. We help you analyze the "Gold vs. Silver vs. Bronze" trade-offs based on your expected usage.
Premium Tax Credits: Similar to IRMAA, the cost of these plans is tied to income. We can sometimes structure your income (living off cash savings or Roth accounts) to keep your taxable income low on paper, qualifying you for significant subsidies to offset the higher premiums.
COBRA: If you are leaving a job, you can keep your old insurance for 18 months. However, you pay the full price (employer + employee portion). We compare this cost against the private market to see if the continuity of care is worth the premium spike.
Health Savings Accounts (HSAs): For the self-employed, a High-Deductible Health Plan paired with an HSA is a tax powerhouse. The contributions are tax-deductible, the growth is tax-free and the withdrawals for medical care are tax-free. It is the only "triple tax advantage" in the IRS code. We often use HSAs as a specialized retirement savings vehicle for medical costs.
Why Work with a Professional?
You might look at all of this and think the best option is to just call the insurance company directly. The problem is that the insurance company representative is a salesperson for a product. They are not a guardian of your wealth.
They don't know that selling a stock to pay a premium might trigger a tax bill.
They don't know that your spouse needs to preserve assets for their own longevity.
They don't know how your health plan interacts with your estate plan.
At Baxter & Associates, much like a prudent vineyard owner who doesn't just count the grapes but tirelessly guards the vines against blight or sudden frost, our role extends far beyond comparing insurance premiums. We assess the total climate of risk surrounding your life's work. We ensure that the harvest you have cultivated over decades isn't withered by a single unforeseen season of poor health, protecting the fruit of your labor so it can be enjoyed as intended.
Healthcare is personal. It is about dignity. It is about choice. It is about ensuring that if your health fails, your bank account doesn't fail along with it. Contact Baxter & Associates today. Let’s protect your health and your wealth together.