Health Insurance with Caprice Black

A longtime?Upticks?guest,?Caprice Black,?returned to the show to talk about an important topic for many of our clients – health insurance. Caprice is a registered health insurance agent in 22 states, including Kansas and Missouri, and can be a key resource for retirees who are eligible for Medicare, as well as those who retired before 65 and need to purchase healthcare coverage.

As a full disclosure, while Caprice and?Falcon Wealth Advisors?refer clients to each other, we don’t have any type of business relationship. We simply introduce clients to Caprice because so many of them have given us positive feedback about her services. A summary of our conversation with Caprice is below.

Jake:?Many of our clients are fortunate to be able to retire in?their 50s or early 60s. It’s probably not surprising one of the most common questions we receive is “What am I supposed to do about health insurance until I’m eligible for Medicare?” Can you share what you tell these people who are retiring in their 50s or early 60s?

Caprice:?As a consultant, I talk with people at no cost to them. I like helping people secure the right coverage at a price they’re comfortable with. If someone is retiring, the first thing I tell them to do is look at their?COBRA?package. You have 60 days to decide whether you want to accept that package. The COBRA package allows you to continue with the health coverage your employer offers—the only difference being you have to pay the full cost of the coverage, and a slight increase for administrative costs.

Jake:?Because COBRA is a government program, everyone leaving a job where they had health insurance has access to it, right? And COBRA coverage can last for up to 18 months?

Caprice:?Those points are both correct. If you don’t choose COBRA, the next option I encourage people to consider are the health plans available at healthcare.gov, the federal marketplace. These plans are compliant with the Affordable Care Act, which means they cover all pre-existing conditions, prescriptions, behavioral health and more. These plans can be affordable, especially if you qualify for government subsidies known as advance tax credits. These credits are based on your income during the current calendar year.

For example, I met with a couple the other day and one of them retired this year. They estimate their income this year will be between $80,000 and $100,000, because he may pick up a consulting job. His COBRA package is going to cost about $1,200 a month and it has a deductible of about $3,500. Based on their financial situation, I consider this to be a pretty low cost option for them.?

Then we went into the federal marketplace to look at other options. For a couple in their late 50s with an income of about $100,000, they’re going to qualify for about $1,000 a month in advanced tax credits, and the lowest cost plan available to this couple is priced at $450 a month. However, the deductible for this plan was $9,100 and the network was much smaller than their COBRA plan, as many government plans have little network coverage outside of your local area. This couple said they plan to travel often in retirement, so we decided they should use the COBRA plan through the end of the year and then could revisit their healthcare needs, income and insurance options during open enrollment later this year.

Jake:?That’s interesting. On paper, you would think it makes sense to go with the $450 option. But it sounds like, at this moment, COBRA better meets this couple’s needs, given the high deductible and limited coverage associated with the option available through the federal marketplace. I like how you worked with this couple to arrive at the right decision for them.

Cory:?Caprice, you mentioned how estimated income affects the cost of healthcare premiums purchased through the marketplace. What happens if someone’s income ends up being significantly different than what they estimated?

Caprice:?Good question. If your income is higher than what you estimated, the IRS will reconcile your income with the amount you put on the health insurance application, and you will have to pay back a portion of those subsidies we mentioned. If your income is lower than what you estimated, the government will pay you a refund, because you should have received a higher subsidy than you did.

It’s also worth noting that we can update the estimated income on that health insurance application on an ongoing basis. If you decide to take a part time job in retirement, we can increase that estimated income, and your subsidy will be adjusted accordingly the next month. The government wants you to update your income as your situation changes, rather than waiting until the end of the year.

Jake:?At?Falcon Wealth Advisors, we help a lot of clients execute Roth conversions—this act of moving money from a taxable IRA to a Roth IRA creates taxable income. If we do a Roth conversion, it sounds like we need to let you know so that you can adjust the client’s income in the health insurance application.

If a client has to pay, say, $100 a month more in insurance because they got a part time job or consulting gig they like, I personally think that’s not a big deal because you’re making money and hopefully doing something you enjoy. Or if we execute a Roth conversion, that’s something that will hopefully save you thousands in taxes down the road. As?fiduciary wealth advisors, we’re looking out for the long-term health of your financial plan, not just what you have to pay in insurance next month.

Caprice:?I like that approach, Jake. I encourage all my clients to speak with their financial advisors and accountants before meeting with me. When we’re armed with accurate knowledge, we can make informed decisions. Because it’s a little bit like a game. For example, I mentioned that couple who are staying on COBRA this year. It may make sense to go ahead and execute a Roth conversion this year rather than waiting, because on COBRA their taxable income obviously doesn’t affect the cost of their health insurance.

Then, if they’re able to live off tax-free Roth income in future years, they will be able to show a low adjusted gross income and therefore receive more subsidies for health coverage they purchase through the marketplace. So that’s why I say it’s like a game to execute all these strategies correctly.

Jake:?And both you and our team here at?Falcon Wealth Advisors?are passionate about helping clients with these strategies. Our team has invested heavily in tax software that projects how all these different strategies could impact a client’s financial plan.

Caprice:?I do want to alert your readers who live in Missouri to an important point. With Missouri recently expanding its Medicaid program, if you’re claiming income under $25,000 a year, you’re not going to qualify for advanced tax credits. You’re instead going to have to go through the Medicaid program. So you have to be careful to work with your fiduciary wealth advisor to ensure you hit that $25,000 threshold, as most people don’t want to go through the Medicaid program.

Jake:?That’s interesting—we don’t want to see a Missourians taxable income get?too?low.

Let’s next talk about Medicare. What are some common questions you’re receiving right now and what are things people need to know?

Caprice:?A lot of people who are pleased with the health coverage they purchased through the federal marketplace ask me if they can stay on that plan even after turning 65 and becoming eligible for Medicare. The answer is no. They should enroll in Medicare because they’re no longer eligible for those advanced tax credit subsidies after they turn 65, which will raise the cost of the coverage.

As people work later in life, I’m often asked if you have to enroll in Medicare at age 65 if you would prefer to instead stay on your employer’s plan or your spouse’s employer’s plan. The answer is no, you don’t have to enroll in Medicare, as long as that employer has more than 19 full-time employees, per a government rule. And if you want to stay on an employer’s plan, it doesn’t make a lot of sense to enroll in Medicare, which has a monthly premium cost associated with it. With that being said, if Medicare is cheaper and offers better coverage than your employer plan, you could enroll in it and eschew the employer plan as you continue to work.

Jake:?We encourage clients who are at least 65 and still working to compare both options. I’ve seen a lot of people who don’t want to switch to Medicare because they’re used to their employer plan, but sometimes Medicare is a better option for people who are still working.

Cory:?In recent years it has seemed like our clients’ healthcare costs go down when they enroll in Medicare. Do you still see that more often than not?

Caprice:?Yes, healthcare costs go down for most people when they enroll in Medicare. Personally speaking, my healthcare costs will be cut in half when I’m able to enroll in Medicare next year.

It’s worth pointing out that higher earners have to pay more for Medicare. If you earn above a certain threshold, you have to pay an income rate adjustment on your Medicare coverage, which raises its cost. If you’re 65 and earning, say, $500,000 a year, it’s certainly worth taking this income rate adjustment into account when deciding if you want to enroll in Medicare. Supplements, drug plans, and dental and vision can all add to the cost of Medicare. But for most people, it’s still the most affordable option.

Today, more and more people are choosing Medicare Advantage plans, which involves an insurance company managing your Medicare benefits. You still have to pay for Medicare part B, but the deductibles and max out of pocket costs are less.

Jake:?Caprice, I know you offer free consultations to your clients and potential clients. How are you compensated for your work?

Caprice:?I receive commissions through insurance carriers when I enroll clients in their plans.

Jake:?Are you compensated when you help people purchase coverage through the Affordable Care Act?

Caprice:?Yes, I am. I am paid a commission for every type of plan I sell. With that said, my clients can attest that I help them choose the right health insurance option for them, and have different strategies for keeping their costs low.

Jake:?Any final tips to share, Caprice?

Caprice:?Do your due diligence before making healthcare decisions, and revisit those decisions often, as things change all the time. Don’t hesitate to use advisors like me who can help you make the right decisions for you and your family.

Jake:?Thanks so much for joining us Caprice. If you’re reading this and would like to contact Caprice, Cory and I would be happy to connect you. And if you want to speak with our team of fiduciary wealth advisors about how you can plan for health care expenses in retirement, please reach out to us today. You can email us directly at?[email protected]?and?[email protected].

Clients choose to work with us to enhance their financial literacy and explain exactly what?their?financial plan means to?them.

Hightower Advisors, LLC is an SEC registered investment adviser. Securities are offered through Hightower Securities, LLC member FINRA and SIPC. Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material is not intended or written to provide and should not be relied upon or used as a substitute for tax or legal advice. Information contained herein does not consider an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Clients are urged to consult their tax or legal advisor for related questions.