Including health care in financial plans

Health-care spending for people under 65 is growing faster than for those over the “magic” number. That’s a key finding in a recent government report, and one which financial advisers and planners should note, given all the attention paid to retirement savings and Social Security.

Ballooning health-care costs require that advisers begin to incorporate health-care considerations into the overall financial planning process for their clients.

Aside from managing health costs, consumers need help selecting health plans from their employers, choosing benefit packages and making decisions about co-payments, coinsurance, deductibles, in-network and out-of-network providers, dental coverage, vision plans and flexible-spending accounts.

Since people do not want to go it alone, their financial advisers must be prepared to handle the complex issues surrounding health care, integrate health-care advice with other financial and investment guidance, and provide answers in plain English.

This isn’t just about long-term-care issues or even retirees. It’s about long-term demographic and spending trends that will shape our nation for decades to come.

Consider the findings of a recent report by the Centers for Medicare and Medicaid Services. In a paper in the journal Health Affairs, the Baltimore-based organization known as the CMS found that while the growing number of older Americans has been expected to alter patterns of health spending, the impact thus far has been modest — and is expected to remain that way.

Not surprisingly, per-person spending is higher for older people than younger ones, the CMS found, but costs for working-age people are growing faster.

Among the elderly, the largest decline in spending relative to younger people occurred among those 85 and older.

Spending for this group was 6.9 times higher than that by the working-age population in 1987 but only 5.7 times higher in 2004. For those 65 and older, health costs were 3.5 times higher than working-age people in 1987 and 3.3 times higher in 2004.

As baby boomers turn 65, they will add to the younger end of the elderly population, a group that is relatively less costly for medical care than those 85 and older.

In addition, nursing home costs have been rising relatively slowly, the CMS reported. Per-person health spending from all sources in 2004 was $5,276, the report said, up from $1,796 in 1987.

For people 18 and younger, spending was $2,650, up from $868 during the same time period. The increase for working-age people, 19 to 64, went from $1,521 to $4,511. For people 65 and older, it went from $5,282 to $14,797.

Of the $5,276 spent per individual on health care in 2004, $802 was out of pocket, $1,898 came from private health insurance, $221 came from other private sources such as workplace clinics, $1,032 was from Medicare, $918 from Medicaid and $405 from other public sources such as state and local agencies.

For people 65 and older, the breakdown was $2,205 for out of pocket, $2,351 for private insurance, $7,242 for Medicare and $2,034 for Medicaid.

The numbers are daunting.

The task at hand is for financial advisers to find various ways to help clients navigate their way through the very real concerns they have about rising health-care costs.

They can’t go it alone.