The Department of Labor through its Fiduciary Rule was designed to protect investors retirement assets from predatory financial professionals. The rationale behind the law is to ensure that investors are given prudent advice instead of being just be sold a product for a sale.
Unfortunately, this Fiduciary Rule is a classic example of good intentions. The problem, though, is that with good intentions there is usually a path leading directly to hell and due to its overreach that is where we as a nation would have been heading.
Granted there may be a few financial professionals in the industry that may act solely on what is best for them, but as an entire industry, there are more than the majority who are more than professional when it comes their clients and practice.
Thankfully, this rule was abolished in appeals court and for the time being it appears to have vanished as the current Administration has yet to reinstitute the bill, but as Fidelity Investments releases yet another very misleading report on health costs in retirement should a regulator step in?
According to a press release from Fidelity Investments, which was picked up by CNBC, for a 65-year-old couple, who was to retire today the total expense for health coverage throughout retirement will total $280,000.
This number, as reported by CNBC is “up 2 percent from $275,000 last year, the smallest increase in the annual analysis since 2014”.
The rationale on why the increase was so small, according to Hope Manion, senior vice president with Fidelity Benefits Consulting is “that drug costs have, at least for now, leveled off”.
In a way it would appear that the statement is quite accurate as for many seniors they did realize a small decrease in the average Medicare Part D premium, but the reality for seniors who use medications found that the deductibles increased to a point that negated that decrease in premiums.
The other strange anomaly is the fact that, according to a Reuters article, “Drugmakers raise 2018 U.S. prices, stick to self-imposed limits” on average there was a 10% increase in prices across the board.
The issue is that Fidelity Investments is not a healthcare company, nor is it in the business of projecting the costs of healthcare.
Fidelity Investments is a financial company who provides market research as well as investment advice, which can be considered to be outstanding at times, as well as being a major resource for many other financial professionals who provide financial advice to investors.
By promoting a number that is not in its core business is misleading to not only its clients, but the millions of others who use this information as a source within financial plans. Thus the general public is being put in harm’s way and someone or some entity must step in to correct this issue before it is too late.
To understand just how misleading Fidelity Investments is all one needs to do is look at the data.
According to Fidelity Investments’ report the $280,000 costs is calculated on the “cost-sharing provisions and out-of-pocket expenses associated with Medicare parts A, B, and D. The figures do not include other expenses such as over-the-counter medications, most dental services and long-term care, and do not factor in any employer-provided retiree health coverage”.
From the information that is available, this scenario, appears to be for a 65-year-old couple who will enroll into Original Medicare (Part A and Part B), while also owning both a Medicare Part D prescription drug plan and a Supplemental Plan or Medigap Plan.
As for the costs today for this coverage, the information is, also, readily available. The Centers of Medicare Services (CMS) as well as private health insurance companies that administer Part D and Supplemental Plans which CMS oversees the premiums for this coverage are public record.
The costs in 2018:
- Part A is premium free.
- Part B is $134.00 a month
- Prescription drug coverage, Part D, is $52.52 a month on a national average
- Supplemental Plan or Medigap Plan F policy is $208.18 a month (Medigap Plan F policy is currently the most robust Supplemental Plan available within most states).
Total annual cost per couple in 2018 is $9,472.80 on a national level.
Please note: Part B and D premiums are subject to surcharges through Medicare’s Income Related Monthly Adjustment Amount (IRMAA) for those who qualify as high income earners. This report does not consider these costs.
What is also available are the past and present inflation rates that these premiums will grow at.
- Medicare part B, historically, has inflated at over 7.5% and is expected to inflate by over 5.7% for the next 8 years according to the Medicare Board of Trustees.
- Medicare Part D, which has not been around for the same time period as Part B, is expected to inflate by over 7% over the next 8 years.
- Supplemental Plans, which also have short history, have inflated at about 4% since inception and are expected to remain at this rate too.
- Fidelity Investments has also published an inflation rate of 6.3% in it presentation “Planning for healthcare in retirement”
With the known costs as well as the historic inflation rates given the average cost for a couple who is 65 years-old today and is expecting to live until age 87 for a female and 85 for a male is just under $380,000.00 to cover these premiums.
This projection does not consider any deductibles, co-pays or out of pocket costs for what Medicare does not cover.
From what the federal government gives for data, for Fidelity Investments to be even close to accurate on its $280,000.00 healthcare number this expense must inflate at under 2.71% for the next 25 years.
This would appear to fly directly in the face of not only what the federal government is telling us, but also what healthcare has been doing historically in terms of inflation.
Here is chart of how certain expenses that we face have grown through the years:
For Fidelity Investments to publish a number on healthcare is at least very misleading. The reason, not only is the number off by as much as $100,000, this number will be used by other financial professionals to plan for client’s retirement
The consequence of this misleading information to be disseminated throughout the nation would and will only lead to utter chaos. Retirees who thought they were planning for a comfortable retirement will find themselves having to shell out an extra $100,000 in just premiums…which many will not be planning for.
The problem is not just the overall expenses either. Due to other federal regulations in retirement the bulk of your Medicare premiums are deducted directly from your Social Security benefit.
Many retirees are given the advice that their health coverage costs will only total only $280,000 throughout retirement will unfortunately also experience a Social Security benefit that will never match what they were told they would be getting by their financial professional.
Again, the Fiduciary Rule was a travesty. For the rule to be in effect the impact would be a set of impossible measures that the financial industry would have to follow. Thankfully, the courts repealed it, but for the financial industry to provide advice that is contradictory to what is known should be illegal.
Is the solution to this problem of misleading information something that regulators must address at a legislative level? Hopefully not, but without some sort of guideline or regulation far too many people are going to head into a retirement ill prepared, at no fault of their own, while the financial industry will profit off it.