Medicare Decisions Are Becoming a Financial Planning Blind Spot

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Every fall, millions of Americans have the opportunity to reconsider their Medicare coverage. Most don't. A KFF analysis found that 65% of Medicare beneficiaries did not compare their coverage with other options during the enrollment period for 2024.

For financial advisors, that raises an important question: How many clients have spent years planning for retirement without giving much thought to whether they have the right Medicare coverage?

Financial advisors routinely stress-test portfolios against market declines, inflation, and unexpected expenses. Medicare deserves similar scrutiny. A plan that works for a healthy 67-year-old can become considerably less attractive at 75, when a serious illness, the need for multiple specialists, or a complex medication regimen enters the picture.

The Hidden Cost of Losing Healthcare Flexibility

Good financial planning is about keeping your options open. People diversify their investments and set money aside so they have choices when their circumstances change. But when it comes to healthcare, they often unknowingly limit those choices.

Medicare Advantage plans can offer attractive benefits, including low premiums, prescription drug coverage, and supplemental services. But these plans typically operate within provider networks and often require prior authorization for certain services. Those restrictions become increasingly consequential as a person’s healthcare needs grow more complex.

Consider a retired executive who enrolls in Medicare Advantage at 65 because the premiums are low and her physicians are in network. A decade later, she receives a cancer diagnosis and wants treatment from a specialist outside her network. Her financial resources may allow her to pursue care privately, but wealth doesn't necessarily eliminate the challenges of accessing and coordinating treatment.

Switching coverage may also be more complicated than anticipated. Beneficiaries can generally leave Medicare Advantage for Original Medicare during the annual enrollment period. But obtaining a Medicare Supplement, or Medigap, policy is another matter.

Outside certain enrollment periods and guaranteed-issue protections, insurers in most states can use medical underwriting to deny Medigap coverage or charge higher premiums. According to a KFF analysi s based on 2022 data, 90% of Medicare Advantage enrollees ages 65 and older lacked guaranteed access to Medigap coverage beyond their initial trial period or other qualifying circumstances.

That creates a potentially consequential trade-off. Someone who develops a serious medical condition while enrolled in Medicare Advantage may be able to return to Original Medicare but find that obtaining supplemental coverage is difficult, expensive, or impossible. What seemed like a straightforward insurance decision at age 65 can become a major constraint on healthcare choices later in retirement.

Medicare itself cautions that beneficiaries who drop a Medigap policy to join Medicare Advantage may not be able to recover the same coverage, or any Medigap policy, later.

For financial advisors, the implication is clear: A decision that saves money today may reduce healthcare flexibility tomorrow — and may not be easily reversed.

Healthcare Access Is a Form of Retirement Risk

Financial plans often account for what healthcare will cost, but not necessarily how difficult it might be to get the care you need.

In 2024, Medicare Advantage insurers made nearly 53 million prior-authorization determinations, denying 7.7% of requests in whole or in part. Only 11.5% of those denials were appealed, but 80.7% of appealed denials were overturned in whole or in part, according to KFF. While those figures don't establish that every initial denial was inappropriate, they illustrate the administrative complexity patients may encounter.

For older adults managing chronic conditions, navigating these requirements can become a burden that extends to spouses and adult children. Provider-network changes can further complicate treatment. These challenges rarely appear in retirement projections, yet they can affect spending, caregiving responsibilities, and the ability to live independently.

The Cheapest Plan May Not Be the Most Economical

Medicare discussions frequently begin with premiums. From a wealth-planning perspective, that can be the wrong starting point.

For 2027, CMS projects that the weighted average Medicare Advantage premium will decline from $14.37 to $12 per month. That's welcome news for beneficiaries, but average premiums offer little insight into what a specific individual might spend during a year of serious illness.

A better assessment considers deductibles, copayments, coinsurance, prescription drug costs, out-of-pocket limits, and access to providers. It should also consider the financial consequences of obtaining care outside the plan's normal arrangements.

For affluent retirees, the calculation may be particularly interesting. A client with substantial assets may be less concerned about spending several thousand dollars more for insurance annually if doing so provides a greater choice of physicians and hospitals.

In other words, minimizing premiums may be less important than preserving flexibility.

This doesn't automatically make Original Medicare with Medigap the better choice. Medicare Advantage plans can provide valuable protections, including annual out-of-pocket limits for covered Medicare services, that Original Medicare alone does not offer.

The point is that the best coverage decision depends on more than price. It depends on the client's health, preferences, financial resources, and tolerance for restrictions.

Advisors are accustomed to helping clients make precisely these kinds of decisions.

A Client's Financial Situation Can Change the Medicare Equation

Healthcare coverage also intersects with the tax and income strategies that advisors already manage.

Higher-income beneficiaries pay income-related monthly adjustment amounts, commonly known as IRMAA, on Medicare Part B and Part D premiums. These adjustments are generally calculated using tax returns from two years earlier.

A substantial Roth conversion, realized capital gain, or an increase in taxable retirement distributions can move a client into a higher premium bracket. These are not reasons to avoid otherwise sound financial strategies. They are reasons to include Medicare costs when evaluating their consequences.

The relationship also works in reverse. A widow who experiences a significant reduction in household income may qualify for an IRMAA adjustment. A client facing unexpectedly high healthcare expenses may need to reconsider withdrawal strategies, liquidity reserves, or the timing of major financial transactions.

Nonfinancial changes can also have significant financial consequences. A spouse may develop cognitive impairment. An adult child may begin managing healthcare decisions. A client who once traveled independently may need help coordinating appointments, medications, and transportation.

These developments can alter the value of specific Medicare benefits, including care management and supplemental services. They also demonstrate why insurance reviews shouldn't occur in isolation from broader retirement planning.

Medicare Should Be Part of the Annual Financial Review

Medicare's annual enrollment period, October 15 through December 7, gives advisors an opportunity to revisit healthcare coverage with clients. While advisors needn't become Medicare experts, they can help identify issues that warrant a closer look or consultation with a qualified Medicare professional.

Has the client's health changed? Are their preferred physicians and hospitals still in network? Have their prescription needs or financial circumstances shifted? And perhaps most importantly, what healthcare options does the client want to preserve for the future?

That last question deserves attention before serious illness develops, particularly when Medigap enrollment protections may be limited later.

The goal isn't to encourage clients to switch plans every year. It's to ensure that staying with their current coverage is an informed decision, not a default choice.

Planning for the Years When Health Becomes the Priority

Financial advisors have become much better at helping clients plan for longer lives. But even a well-managed portfolio can't guarantee access to preferred doctors, timely treatment, or the flexibility to change coverage as healthcare needs evolve.

Planning for retirement isn't just about making sure you have enough money. It's also about making sure you can get the care you need when you need it.

Read more by John Samuels:

John Samuels is founder and CEO of Wellworth, an independent healthcare advisory practice based out of New York City. He served as a senior healthcare leader in New York City’s top hospitals for over 20 years. John uses his extensive healthcare experience and wide network of medical professionals to achieve the best possible care for clients nationwide. He was recently honored by Forbes as one of the Next 1000 entrepreneurs and business leaders who are changing how businesses are run.

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