With the possible exception of taxes, there is no bigger political football in America than health care costs.
After seemingly endless discussion since the birth of the United States, federally mandated and financially supported health care came into being in 1965 when President Lyndon B. Johnson signed the bill creating both Medicare and Medicaid. That decision was controversial, and every proposed and implemented change in federally funded health care has been controversial ever since, up to and including the current debate over repealing and replacing the Affordable Care Act.
Health care costs affect everyone at some point. As people get older, health care costs rise, and because American life expectancy continues to rise, there are more older people in need of increased health care, raising the total expenditures on medical care and supplies. Health care costs extend to decisions made regarding living arrangements for elderly people who cannot care for themselves.
But the issue extends beyond elderly Americans. As premiums rise, companies are offering fewer benefits at lower costs to the company and much higher costs to employees. In order to avoid offering health care insurance (as well as retirement packages), many companies are using freelance or part-time employees to cover the work previously performed by full-time employees who were offered expensive company benefit packages.
All of that adds up to concern and stress for even the wealthiest of Americans. For those not so wealthy, concern over health care trumps many other issues.
But financial advisors can assist in these concerns. While they can’t cure diseases or clarify political issues around the topic, advisors can provide support and insight into creating income streams which can become available at a time when health care issues rear their ugly head.
Spectrem research covers the topic of health care frequently, especially in the research dealing with retirees. However, many affluent investors of all ages have concern over the cost of health care.
In the wealth segmentation series study Financial Behaviors and the Investor’s Mindset, Spectrem asked investors to place their concern over depleting their retirement funds on a 0-to-100 scale. Mass Affluent investors with a net worth under $1 million (not including primary residence) placed their concern at 38.91 on average, while Millionaires with a net worth between $1 million and $5 million were at 27.25 and Ultra High Net Worth investors with a net worth between $5 million and $25 million were at 16.12.
While the concern level was relatively low, the overriding reason there was any concern at all was because of the cost of health care. Among Millionaires, for example, 75 percent said their concern over depleting retirement funds stemmed from the cost of health care. No other concern (taxes, low interest rates, spending habits) came close.
Most people worry about their health, and investors are no different. Among Millionaires, 59 percent express concern over the health of their spouse, and 53 percent express concern over their own health. Almost half worry about having a family health catastrophe.
From a financial standpoint, investors can protect themselves against the cost of health care related to aging, but advisors can assist investors in creating a portfolio that includes short-term investments that can be turned into cash in the event of a health related catastrophe.
Advisors can also provide information on long-term care insurance, although it is a problematic market. Long-term care insurance, which provides care for aging adults who find themselves needing extended care in their home or placement in a nursing home, is expensive and complicated. Many insurance companies are getting out of the business of providing long-term care insurance policies.
In Spectrem’s study with retired investors, Financial Wellness in Retirement, only 31 percent of retirees had long-term care insurance. Many UHNW investors say their other savings vehicles can provide the needed funds when long-term care is needed, while Mass Affluent investors simply find it too expensive to put funds into an expensive insurance program they are unsure they will need.
Top Takeaways for Advisors
Advisors can only provide assistance with health care issues and concerns if they know what each individual investor is dealing with in that area. Are there immediate concerns? Are there unusual circumstances surrounding an investor’s health or the health of his family? Investors with large families are likely to face more struggles in the area of health care, and their portfolios should reflect that fact.
Health care is also an area in which investors’ fates and circumstances change. Advisors need to go beyond the “Hey, how are you?” conversation to one more directed at actual health-related issues. Whether it is the investor, the investor’s parents or the investor’s children, health care concerns can pop up suddenly, but advisors can protect investors from the financial ramifications of health care catastrophes.
©2017 Spectrem Group