Strategies for Reining In Health Care Costs in Early Retirement

Health savings accounts and direct primary care can help keep medical bills from spiraling out of control.



As health care costs rise and the disparity widens between how much people think they’ll need to save and reality, advisers increasingly face the challenge of exploring ways to help retirees pay for their care, particularly for those who leave the workforce before they are eligible for Medicare.

According to Fidelity Investments, health care costs during retirement are nearly eight times greater than what Americans think they will be. The firm’s annual retiree health care cost estimate, which came out in May, found that a 65-year-old couple retiring this year can expect to spend an average of $315,000 in health care and medical expenses throughout retirement, or $150,000 for men and $165,000 for women. That’s a 5% increase from last year’s $300,000, and nearly twice the estimate of $160,000 made in 2002. However, Fidelity found, Americans estimate that a couple retiring this year will spend just $41,000 on health care expenses in retirement—a shortfall of $274,000.

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Tax Benefits of HSAs ‘Second to None’

Various programs are designed to provide tax advantages to offset health care costs, though the options are somewhat limited for those who retire early, don’t have employer-sponsored insurance and are not yet 65. But one of the most useful vehicles for retirees in this situation is a health savings account.

An HSA is a savings account that lets the individual put money aside on a pretax basis to pay for qualified medical expenses. Retirees may be able to lower their overall health care costs by using untaxed dollars in an HSA to pay for deductibles, copayments and other expenses. An HSA may receive contributions from an eligible individual or any other person, including an employer or a family member, on behalf of an eligible individual. Contributions, other than employer contributions, are deductible whether or not the retiree itemizes deductions.

Additionally, contributions to an HSA can be invested, making it an effective way to boost savings on a tax-advantaged basis to pay for out-of-pocket medical expenses—as investment gains in an HSA aren’t taxed. HSAs are also useful because, once one turns 65, it becomes a de facto individual retirement account, from which one can take out money for nonmedical purposes, though they will have to pay the normal income taxes.

“The HSA tax benefit is second to none,” says Carl Hall, co-founder of HealthyHive, a digital education and consulting platform. HealthyHive works with financial advisers and specializes in employee HSA education. Hall says advisers should educate their employer and employee clients about HSAs, and recommends a particular focus on younger employees, as the best time to maximize HSA contributions, he says, is when people are young and healthy.

“Ideally, employers will start to compel employees to start thinking about their health care obligation in retirement when those employees are just entering the workforce,” Hall suggests.

For tax year 2022, the contribution limit to an HSA for individuals is $3,650, and $7,300 for couples, which rises to $3,850 and $7,750 respectively in 2023. Catch-up contributions of an additional $1,000 each year are also available at age 55 through age 65, or until the retiree enrolls in Medicare.

Sidestepping Costly Hospital Systems

Hall is also a big proponent of direct primary care as a way to keep health care costs down during retirement. Direct primary care is a membership-based alternative payment model in which patients, employers or health plans pay flat periodic fees to primary care providers directly for access to care and prevention services. With direct primary care, patients pay for their care directly to the physician, and there are no third parties or fee-for-service billings.

According to the Direct Primary Care Coalition, approximately 1,600 DPC practices in 48 states provide access to primary care to more than 300,000 Americans.

“Considering a direct primary care physician is a really good way to control the costs,” Hall says. “Nine times out of 10, if you have a doctor at a hospital who says you need an MRI or an X-ray, or a CAT scan, it is highly likely that you will significantly overpay for those services.”

Hall says that, unlike hospital-controlled primary care physicians, who are expected to refer their patients to expensive services, DPC services can help patients source higher value care when a specialist is needed. The DPC Frontier Mapper displays the locations of more than 1,700 DPC practices in the US.

Taking Advantage of Obamacare

Retirees younger than 65 who no longer have employer-sponsored health insurance can also use the federal government’s health insurance marketplace to buy a plan at a subsidized rate. And, because losing health coverage qualifies individuals for a special enrollment period, retirees can enroll in a health plan even if it is outside the annual open enrollment period. They may also qualify for a private plan with premium tax credits, as well as extra savings known as cost-sharing reductions.

The amount of the premium tax credit depends on the estimated adjusted gross income a retiree has earned. This is where some creative planning techniques can be used to lower taxable income, says Dan Johnson, an assistant professor at the College for Financial Planning and a part-time instructor at UCLA, Boston University and Kaplan. Johnson advises clients to lower their adjusted gross income through tax-advantaged planning, such as taking income out of a brokerage account rather than an IRA, to benefit from the lower tax rate.

“Rather than using money from an IRA, one takes money out of a brokerage account, which is taxed at capital gains rates,” Johnson explains. “A common strategy is to liquidate stocks that have a higher cost basis, and that way there is not a lot of capital gains tax.”

Johnson says this kind of tax planning should also be considered as retirees approach 65—when they become eligible for Medicare—in order to keep their premiums at a minimum. He notes that the government looks at modified adjusted gross income from two years prior to turning 65 in order to determine what Medicare Part B premiums will be.

“If you have a client who is 63 right now, and in a couple of years they will qualify for Medicare, you can do some tax planning to potentially lower their adjusted gross income,” Johnson says.

For those who qualify for cost-sharing reductions, the amount they will save on out-of-pocket costs ultimately depends on their specific income estimate. Generally, the lower the income within the range, the more they will save. This means individuals will have a lower deductible and the insurance plan starts to pay its share of medical costs sooner. They will also have lower copayments or coinsurance, and a lower out-of-pocket maximum.

Healthcare.gov, a U.S. government website managed by the U.S. Centers for Medicare & Medicaid Services, provides a tool to help determine if one’s 2022 income estimate falls in the range for cost-sharing reductions.

Short-Term Solutions

Short-term medical plans can also be a more affordable option for those who retire before becoming eligible for Medicare, or who have enrolled in insurance that hasn’t taken effect, says Jeff Smedsrud, co-founder of Healthcare.com.

Because short-term medical plans fall outside of the Affordable Care Act, they are not restricted by an open enrollment period and can be signed up for any time of the year. However, this also means that they are not required to cover preexisting conditions or to include the 10 essential benefits stipulated by the ACA. As such, this is likely a better option for those who are healthy and don’t have serious medical issues.

“There are some very good short-term medical plans that can extend coverage for up to three years,” Smedsrud notes. But he cautions that every plan is different and the services they provide can range widely. “Use common sense about what type of plan you look for and buy,” he advises. “There are some that are way better than others.”

Regardless of whether the insurance is short-term or long-term, private or purchased through Obamacare, Smedsrud stresses the importance of being insured. He says that while HSAs are good savings vehicles to cover medical costs, they should not be a substitute for health insurance. 

“Don’t go without any kind of health insurance. It would be a catastrophic mistake,” Smedsrud says. “Use your HSA, it’s a great program, but always maintain some insurance, somehow, some way.”

Retirement Industry People Moves

SageView Advisory Group acquires Los Angeles-based wealth management firm; OneAmerica brings aboard new head of retirement business development; NFP appoints surety leader in Canada; and more.


SageView Advisory Group Acquires LA-Based Wealth Management Firm 

SageView Advisory Group has announced that Summit Financial Consultants of Westlake Village, California, is the latest firm to join forces with the company. Summit Financial Consultants, which has $321 million in assets under management, offers retirement planning and comprehensive financial planning services to its clients.

The agreement with Summit Financial Consultants is the sixth that SageView has announced since July 2021, and closely follows recent retirement and wealth management acquisitions. SageView’s strategy of expanding in the wealth management space through recruiting and acquisitions has enabled the firm to build its presence in Southern California, where SageView has long maintained a focus on financial wellness and retirement plan support for its clients.

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Summit Financial Consultants’ clients can expect to continue to receive the same financial advice and service they received before the acquisition, while enjoying the benefits of SageView’s full suite of investment and planning services.

SkyView served as exclusive financial adviser to Summit. The transaction is expected to close on July 31.

OneAmerica Brings Aboard New Head of Retirement Business Development

OneAmerica has announced the addition of Barbara Lewis as head of business development, a new retirement services leadership position.

In this role, Lewis leads a team focused on growing strategic distribution partnerships for OneAmerica—deepening existing relationships and exploring opportunities that leverage the firm’s differentiators in key markets. Her team is structured around major distribution channels including third-party administrators, broker/dealers, aggregators, retail and national consulting.

Lewis reports to Mike Domingos, head of distribution for retirement services, and she began earlier this month. She brings a wealth of industry experience and in-depth market knowledge, and served most recently as vice president of sales and strategic relations for Prudential Retirement, where she led the teams responsible for national adviser and consultant relationships.

Lockton Financial Services Adds Alternative Investment Expert

Lockton has announced the appointment of M. Machua Millett as chief innovation officer and alternative investment practice leader within its Lockton Financial Services unit.

Millett brings to Lockton deep technical expertise and complex claims experience. He has worked extensively with private equity and venture capital firms, hedge funds, SPACs and companies involved in traditional IPOs and reverse mergers. He joins Lockton from Marsh, where he spent 12 years in a variety of leadership roles, most recently as chief innovation officer in the company’s FINPRO Practice.

At Marsh, Millett helped to create a number of new insurance coverage solutions, including products focused on wage and hour liability, regulatory investigation costs, intellectual property infringement liability, reputational risk and SPAC/de-SPAC transactions. Prior to his brokerage career, he spent a decade as an intellectual property, securities and general commercial litigator and insurance coverage defense lawyer at Skadden Arps, Bingham McCutchen and Edwards Angell Palmer & Dodge.

Based in Boston, Millett will report to Gary Phillips, Lockton financial services leader for the Northeast.

NFP Appoints New Surety Leader in Canada

NFP has announced the hiring of John Stewart as senior vice president, surety leader, in Canada. In this role, Stewart will lead strategic surety business development in Canada and build a national surety team to service clients’ contract and commercial bonding needs. He will report to Guy Jolicoeur, managing director, technical risk construction surety natural resources, NFP in Canada.

Stewart joins NFP from Allianz Trade in North America, where he served as senior underwriter. Prior to that, he worked in a variety of underwriting and leadership roles for Liberty International Underwriting/Liberty Mutual Insurance Company and Ally Financial Inc. In addition to a bachelor’s degree from the University of Michigan, Stewart holds an Associate in Fidelity and Surety Bonding designation from the American Institute for Chartered Property Casualty Underwriters.

Morgan Stanley at Work to Acquire American Financial Systems

Morgan Stanley at Work has announced the acquisition of American Financial Systems, a provider of nonqualified executive benefit plan solutions and services to employers of all sizes. 

The business’s full-service deferred compensation plan offerings include plan design consulting; plan implementation and online enrollment; funding analysis and optimization; and client management and plan recordkeeping.

Terms of the transaction, which is expected to close in autumn, were not disclosed.

The Standard Hires Stable Value Sales Director

The Standard has announced the hiring of Mike Shamon as stable value sales director. He is responsible for growth through new investment-only stable value sales in the eastern region and is based in the greater Boston area.

Shamon has almost 30 years of experience in the retirement plans and benefits industry. He previously held roles as relationship manager at J.P. Morgan Asset Management and national 401(k) sales desk manager at Putnam Investments and Empower Retirement.

Shamon holds a master’s degree in business administration and management from Nichols College. He also earned a bachelor’s degree in political science from Massachusetts College of Liberal Arts. Shamon holds FINRA Series 6, 7 and 63 licenses.

Lincoln Financial Group Unites Investments, Risk and Sustainability Teams

Lincoln Financial Group has announced it has appointed Amber Williams, senior vice president and head of client investment strategies, to lead corporate sustainability as the firm’s chief sustainability officer.

Williams’ elevated responsibilities come as the investments and risk organization welcomes sustainability within its purview—a move that aligns Lincoln’s structure with its long-term strategic business plan being driven by newly appointed CEO Ellen Cooper.

Since joining Lincoln in 2019, Williams has grown the client investment strategies team, expanding its reach across Lincoln’s distribution channels and among client-facing professionals in support of Lincoln’s business lines. She and her team are responsible for establishing a differentiated thought leadership program that maximizes the value of Lincoln’s multi-manager platform.

Prior to Lincoln, Williams spent much of her career at Nationwide Investment Management Group in a variety of investment product management and investment consulting roles of increasing responsibility. Most recently, she served as head of product management, where she was responsible for building and leading a team dedicated to strengthening the quality of investment support to internal partners and financial advisers across Nationwide’s investment products.

Williams holds a bachelor’s degree in accounting from the University of Phoenix and is a member of the CFA Society of Philadelphia. She holds Series 6, 7 and 24 securities licenses.

PGIM Fixed Income Hires Former Deputy National Security Adviser as Chief Global Economist

PGIM Fixed Income has named Daleep Singh as chief global economist and head of global macroeconomic research, effective June 21.

Singh joins PGIM Fixed Income from the White House, where he was U.S. deputy national security adviser for international economics and deputy director of the National Economic Council. In this capacity, he served as President Joe Biden’s top international economics adviser, driving policy formulation at the intersection of economics and national security. His work has included the development of fiscal and tax policy; shaping the U.S. economic strategy with China; leading efforts to promote supply chain resilience; promoting the development of a digital asset strategy; and building an economic governance toolkit that includes tariffs, sanctions, export controls, energy security, debt relief, bilateral assistance and infrastructure finance.

Singh also served as the U.S. representative to the G7, G20 and APEC. Prior to joining the Biden administration, Singh was executive vice president and head of the markets group at the New York Federal Reserve, where he led a team of nearly 600 employees overseeing the group’s full portfolio during the most intense phase of the pandemic.

From 2011 to 2017, Singh worked at the U.S. Department of the Treasury as acting assistant secretary for financial markets and deputy assistant secretary for Europe and Eurasia. Preceding his tenure at the Treasury Department, Singh worked for Goldman Sachs, with a focus on U.S. interest rates and currency markets.

Singh will report to Gregory Peters, co-CIO for PGIM Fixed Income, and will be responsible for oversight of PGIM Fixed Income’s global macroeconomic research team, which includes senior economists with extensive experience in the public and private sectors.

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