Read The Transcript Below:

Steven (00:51):

Hello everyone and welcome to the next episode of the Retirement Tax Services podcast, Financial Professionals edition. I’m your host, Steven Jarvis, CPA, and in this week’s episode we get to talk about a topic that I get questions on all the time, and I’m not always the best one to answer all of them. We’re going to talk about healthcare and some of the tax planning overlaps. And joining me to help with this conversation is Christine Simone, the CEO at Caribou. So Christine, welcome to the show.

Christine (01:19):

Thanks for having me, Steven. I’m excited to dig in.

Steven (01:21):

Yeah, absolutely. Just for context for everyone listening, give us a quick overview of your background and at a high level what it is Caribou does so that everyone understands why you’re here talking to me about healthcare.

Christine (01:32):

Yeah, absolutely. It’s definitely an important part of the story. So my background is all in healthcare. I’ve worked mostly on the business and innovation side at a couple of different startups and now have started my own company working predominantly with wealth managers, helping them help their clients make smarter decisions related to their health insurance options and the decisions that we help them make are completely objective. So we do not make any commissions based on the sale of any health plans. So we really take that fiduciary fee-only approach and really use the client’s data and client’s preferences to influence output and decision making. And that’s truly what kind of sets us apart in the marketplace given that we’re not trying to sell products to clients or sway them one way over another. And I know that that’s the way in which a lot of advisors are trending too towards more fee-only type of advice. And historically you couldn’t really find good healthcare resources that fit that same model, but now that is what we’re all about and that’s what my background in healthcare has sort of led me to want to pursue for better or for worse.

Steven (02:35):

Yeah, that’s fantastic. Thank you for sharing that. There’s several reasons I was really excited to have you on the show and one of them is the fact that I get these questions and I don’t always have a great answer, but I love what you’re doing because healthcare is another one of these areas that none of us can completely avoid. It’s going to be a part of our life, whether we’re talking about advisors or the end consumers, the end clients themselves, we’re going to be better off if we take a proactive approach. So as we are getting ready for the show before we hit record, went through a couple of different topics we’ll hopefully be able to touch on, but I want to start with this idea of HSAs of health savings accounts and the plans that go along with them because I’ve talked extensively about HSAs, but I focus primarily on the tax sign. The question came up this week really two parts of a question. One is, well, how do I know if my plan makes me eligible for an HSA? And then number two is if I’m deciding between plans, how do I know it’s worth it to elect this high deductible just so I have access to this tax benefit? So Christine, how do you help people navigate this?

Christine (03:33):

Those are great questions. The fact that you’ve got people asking you those questions are fantastic because I know a ton of advisors who pound the table that HSAs have great triple tax advantage benefits, which I’m sure you could speak about, but what they’re not connecting the dots with is should that client actually be on a high deductible health plan? What is their actual healthcare usage, maybe their financial situation? Can they afford that higher deductible if they were to get into an accident? Do they have something planned this year like having a baby or something like that or are they 64 years old and maybe a higher healthcare utilizer? Therefore might not be too much of a benefit to have access to an HSA if they’re going to spend thousands and thousands of dollars on a deductible in that given year. So making that decision in a silo from the individual, like the actual human that you’re offering financial advice to can be pretty dangerous.

(04:25):

So I actually did a webinar earlier this week and I quizzed the group of advisors that were in the webinar and I said, what makes a high deductible health plan? What is that deductible threshold? And there were a few answers and the most popular answer was an individual deductible of about $1,600 for an individual or 3,200 for a family. It was a trick question. That answer is technically right, but that’s the deductible for an employer plan. So on an employer plan, your deductibles are pretty low to be considered high deductible. That is a risk that most people can probably take. They can take the risk of maybe needing to pay 1600 bucks or $3,200 and they can store that money away in case something happens because as I’m sure you in the audience know, the deductible is what you’ll pay out of pocket before your plan pays anything at all.

(05:16):

But on the marketplace, the highest deductible that we actually see right now in the public marketplace for clients who, for example, retire lose their employee benefits but are not yet Medicare eligible, it’s $9,000 for an individual premium and $18,000 for a family premium. That is a much different risk profile and a much different conversation that you need to be having with your clients when it comes to should I be on that HSA-compatible health plan. So in order to have access to an HSA, it needs to be a high-deductible plan. Now, not all the plans have that high of a deductible, but I think the lowest ones I’ve seen on the marketplace recently in the 2024 market right now, maybe six, seven K for an individual and still 12, 14,000 for a family. So those are some of the insights that we’re generating for advisors and we’re servicing those opportunities to make sure that they know if they are stressing so their clients that this is a great tax-free savings vehicle for them to invest and grow their money to pay for healthcare costs in the future that they need to know that they could be exposed to those types of costs.

(06:28):

And so you need, as an advisor, we believe you need to be asking questions like, are you having a baby this year? So your knee that’s been bothering you, you think you’ll do that knee replacement this year? How often do you go to the doctor? These are all things that need to coexist with the conversation and the benefit of HSAs.

Steven (06:46):

So much great context in there, Christine, I really appreciate you going through that because it can be easy and there are so many that are out there. I mean you have this huge focus on healthcare. You talk about healthcare all the time, it’s a huge focus on taxes and so of course I’m going to focus on the tax piece and I always try to remember to include that piece of, Hey, this is something that should be considered and there’s other things that you need to keep in mind because you’re absolutely right. It’s got to be a fit for that specific individual. Another piece that comes up with HSAs, you mentioned the triple tax benefit of it. One of those benefits is if we can defer using those funds if we can invest them and let them grow tax-free, but even as I’m recommending that to people, it’s if this makes sense for your cashflow because I’ve run across situations where people are like, ah, I can’t touch my HSA, that’s for the future. It’s like, well, yeah, but what’s going on right now in your life? Did you have that baby? Did you have that knee surgery? How do we balance all of these things? We can’t look at any one of them in a silo or we start making really potentially poor decisions.

Christine (07:44):

Absolutely. There’s so much more to the conversation when it comes to some of these areas that are tax and healthcare-related and the HSA is definitely one thing that I feel like people, advisors mostly are really only just scratching the surface in terms of what they can uncover because the benefit in having a conversation with the client too related to some of these health-related moments of their lives, it can be uncomfortable for an advisor, but if you can get your client to open up about some of those things, there’s so much benefit to the relationship that you get to build with your client as well. So I do understand some advisors, they kind of shy away from the opportunity, they might not feel comfortable, but if they can kind of peel that one layer back and get comfortable with that conversation, they not only will provide I think better financial advice related to things like an HSA, but they will also strengthen that relationship that they have with their client.

Steven (08:37):

Yeah, absolutely. Because like I said before, this is an area that we all have to deal with. So as an advisor, if you are not helping answer these questions and providing that education, one of two possibilities, either the client’s not getting help with this or their next financial advisor is giving them help on this. And so it’s just one of the taxes like estate planning, healthcare, these are things that are a part of people’s lives and so you’ve got to be proactive and I love your emphasis on helping people understand this isn’t just doing this for them. It’s not blind trust of here everyone go do X, Y, or Z. There’s an education piece to this as well because similar to taxes, healthcare can feel like this kind of unknowable black box of, well, insurance is expensive and I pay a lot out of pocket and that’s just the way it is. There’s nothing I can do about it. I mean, I can relate to that sometimes when I pay for my own health insurance and fund my own HSA, but with a little bit of education, a little productivity, there are things we can do about it.

Christine (09:32):

A hundred percent. We speak a lot of the same language when it comes to the intersection of some of these adjacent areas that now advisors have great tools at their disposal. They don’t need to refer this outwards like your business provides more in-house support to advisors to do better tax planning and tax preparation. Similarly, we bring this in-house, but we take all of the grunt work off the table for the advisor. They don’t need to be the ones computing some of these recommendations or the analysis and whatever it might be. And so financial advisors can get smarter with some of these recommendations and they can go deeper than they’ve ever been able to go before.

Steven (10:08):

Yeah, that’s super cool. It’s such an important area. And going through this most recent or this current tax filing season, depending when this episode airs, I’ve gotten a lot of questions about people asking about medical deductions because it seems like anytime somebody has a big expense in their life, they want to know if they can deduct it on their tax return. But medical expenses is one I commonly get, and part of that is because it does show up on the tax return. But what I’ll tell you, and my audience may be already familiar with this, but the vast majority of people are not able to deduct any of their medical expenses just through their schedule A for two reasons. One, only about 10% of people can itemize their deductions at all. And then for medical expenses, we have this added hurdle where the IRS basically said, well, we don’t want you to be able to deduct medical expenses, so we’re going to put a 7.5% floor before we can consider any of it.

(10:55):

So what that means is your medical expenses have to be over 7.5% and only the portion over seven and a half percent is going to get considered. So for a client earning a hundred thousand dollars a year, that means that only the amount over 7,500 can potentially be deducted if they’re in that 10% that can itemize. That’s a whole lot of super nerdy tax stuff just to say that an HSA is a great way if it’s the right fit for the client to go ahead and get tax benefits for our medical expenses if we couldn’t otherwise.

Christine (11:24):

Exactly. Because not many people could actually itemize these expenses unless you’re typically lower income or you’ve got an exorbitant amount of medical expenses that you can actually itemize them. It is something that generally speaking, we do provide guidance on it’s part of our platform, but typically because of the audience that we work with with being clients of financial advisors, it’s not a strategy that they’re at least executing on. But I think that we do give advisors the ability to at least ask the question. I think what’s important in what you said is you have clients that come to you with those questions. Hopefully, the advisor is proactively asking their client those questions and being the one to touch on that topic before the client comes to them about it. I think that’s what’s most important. It’s not necessarily working with your clients to definitely get their expenses itemized and potentially deduct those medical expenses. It’s just as an advisor, can you be the person to bring that up to your client first and ask them those intelligent questions around whether or not it makes sense and then offer that advice instead of them coming to you a little bit more like reactively?

Steven (12:29):

Well, one of the reasons I love partnering with advisors is advisors tend to be in a really good position to know what’s going on in their client’s life throughout the year. I work really hard to be proactive with my clients, but most people still only think about taxes during tax time. And so for that group of clients I work with, they think a little bit differently. Most of your clients are going to think about it once a year and they’re going to move on, but they’re going to tell their advisor about their life. You mentioned, Hey, are you going to get that knee surgery this year? And so one of the things that I’ve seen be very impactful for advisors who are asking the right questions to your point is that especially it seems like especially with some of our older clients, we get to a point where maybe the timing of certain medical procedures become at least a little bit flexible of, Hey, we know we’re going to have to have this done at some point.

(13:11):

We’ve got to make a decision about when and now all of a sudden we can be intentional about, Hey, let’s go ahead and stack a bunch of these in the same year. And again, there are other considerations here. There are some medical considerations here. We probably want to consult with the doctor. Please don’t tell ’em a CPA told me I should have all of my surgeries on the same day. So that’s what I have to do, not a doctor. But there are things that we can do here to make sure that we’re making good life decisions and then finding the most tax-efficient way to go about it.

Christine (13:36):

Let me give you another example. Sort of not tax-related, but I hope you don’t become a doctor in your next slide, but it’s sort of related to about contributing to your deductible. So a lot of advisors will, when clients retire, if they’re under 65, they will easy button solution is go on Cobra to their clients, continue your existing coverage from your employer for up to 18 months, and typically it’s a little bit more expensive, but an extra layer. Again, the next layer, that more insightful question that you can potentially ask your client is have you contributed to your deductible this year? Does it make sense for you to go on Cobra? Because if you’ve already contributed to your deductible, maybe you even hit your out-of-pocket maximum, definitely go on Cobra. But if your Cobra coverage is expiring, so let’s say, okay, you go on Cobra and then the next year during open enrollment you have the opportunity to switch onto the marketplace.

(14:31):

A lot of advisors don’t take that as an opportunity to make that switch before COBRA ends because they’re not recognizing that then their clients will have two deductibles that they will have to contribute to in the next plan year if their COBRA only brings them a certain many amounts of months into that next plan year. So these are all the deeper areas that you can go with clients by starting to ask these questions and uncover these opportunities. And they are related to your tax strategy because your COBRA premiums are super high. They contribute to what your medical potential deductions could be and it could be or not be tied to an HSA. So these are all the things that are interrelated to the overall financial situation of the client.

Commercial (15:14):

Hey there, advisors, this is Jamie Schlanski. You might recognize my voice from my World’s to Conquer episode over at the Perfect RIAs podcast. I get a lot of questions from my financial advisors about what type of continuing education should they attend, how should they dedicate themselves to professional development this year and what conferences are really worth going to. Well, I’m going to let you in on a little secret. The one conference I will not miss is the Retirement Tax Services Summit this September. It is going to be held in Phoenix, Arizona, and this is the most sensational conference I go to and not because of all the fanfare involved in being in Phoenix, but instead about collaborating with like-minded individuals and these are people who have legal expert tax planning advice. These are people who do qualified accounts, big retirements. They are creating five and 10-year tax plans. They have guest speakers that talk about hyper-efficiency and the things that you need to know to keep you on the cutting edge of being a financial advisor. It is certainly where I will be. You don’t want to miss this conference, so make sure that you jump over to retirementtaxservices.com and register to attend this summit. I know it’s where I’ll be this September!

Steven (16:23):

Yeah. The last thing I’ll say on HSAs and we’ll pivot to the insurance on the marketplace is that sometimes I’ll get a little bit of pushback, whether it’s from advisors or from consumers at times because very sarcastic air quotes, I’ll say the low contribution limits for HSA, people will sometimes look at this in a single year to say, is it really worth the headache to save that small amount of money? So one we got to do the math on, okay, it’s probably a couple thousand dollars, which no, that’s not going to change the course of your retirement if you only did it once, but everybody can multiply by 10. So even if we can save two grand in a year for an individual or for a family, and we multiply that by 10, now we’ve saved $20,000 in taxes. What about by 20 or by 30? So this is potentially impactful, but let’s switch and talk about the marketplace because there is potentially given the right circumstances, there’s potentially very impactful credits or particular credit that’s available for people who get insurance on the marketplace.

Christine (17:19):

It’s called the premium tax credit. The limit, the income limit during the pandemic was expanded basically. So this was something that was available prior to the pandemic, but it became much more widely available during the pandemic because they raised the poverty level to be able to access the credit. And I think that that framing the poverty level, that specific terminology puts a lot of advisors off and they think automatically my clients won’t qualify. There have been plenty of circumstances unfortunately, and luckily you can claim this tax credit retroactively where we’ve uncovered opportunities for clients who were retired and they didn’t have high income producing jobs, but they had a lot of assets, but they weren’t producing an annual salary anymore. And that’s what the premium tax credit is based off of where we were able to say, your client could have saved thousands of dollars this year, thousands of dollars last year, and the ones before, maybe you want to go amend those tax returns and see if you can claim some of those credits.

(18:13):

So it’s not necessarily a dollar figure that I can provide to the listeners because it’s a sliding scale based on a variety of different factors like where the client lives, how many people live within their household, and then the cost of insurance and their income. So it is based off of a lot of different things, but there are great resources that advisors can look into. We of course provide our customers with those insights, but they’ve made insurance a lot more affordable for everybody, even people who would be considered high net worth based off their assets, but lower income in a given year, maybe because they’re in between jobs or they’ve already retired.

Steven (18:49):

And you’re absolutely right, it is a sliding scale, so it is really hard to say here’s the exact dollar amount, but I’ve worked with clients who are getting 20 and $30,000 of tax credits in this area. It is not small dollar amounts. And so it is very worth looking at because this does create some hesitancy for people that it’s not tied to adjusted gross income. It’s literally tied to the poverty line, but it also, goes up, it is a sliding scale and there’s a cliff at the end, which they got rid of the cliff during Covid, and I should have checked before we jumped on this, the podcast, but I know they were talking about bringing back the cliff Either way, you basically have up to about 400% of the poverty line. So this isn’t, I only made $2,000 last year, so now I qualify for people who were really high earning during their careers. I see this all the time where they retire before social security starts, before medicare starts, before pensions kick in all the way or RMDs these different things. There will be years where this makes a lot of sense and can potentially be very powerful.

Christine (19:46):

Absolutely. And it’s been so interesting to observe client behavior around retirement because you can have a client with all the money in the world, but they’re scared of the cost of health insurance in retirement and it’s something that actually keeps them potentially working for longer. And you as an advisor, have the ability to actually push them to fulfill their retirement goals if they want to retire at 62, this is something that you can actually surface for them and provide them with the cost for and show them, and maybe they can put off some of those distributions or they can kind of decrease their income in those gap years before Medicare eligibility or they’re eligible for social security and that way it lowers their income and they have access to these premium tax credits if that’s really what helps them finally jump over the edge and be comfortable with retirement. But the marketplace, I mean, you’re talking 25,000, $30,000 a year in premium, so if you can get even half of that or a quarter of that supported by premium tax credit, it goes a long way for anybody.

Steven (20:46):

Yeah, it’s really impactful. We’re kind of nicely just leading along a timeline of a person’s life. We talked about HSA and then the premium tax credit, so let’s switch and go to the next step because the premium tax credit becomes irrelevant once you’re on Medicare. You can’t get the premium tax credit to reduce Medicare premiums. They haven’t decided on that one quite yet. IRMAA comes up the income-related monthly adjustment amount for Medicare comes up all the time in conversations I have with advisors, particularly around how we consider this in conjunction with Roth conversions, things we can do like qualified charitable distributions to help lower modified AGI to try to limit those premiums or for those premium adjustments. But how do you help advisors think about considering Medicare in conjunction with the rest of their plan? 

Christine (21:30):

One of the things is to talk about it early because a lot of clients don’t realize that, hey, you’re looking two years back, you’re not looking at my current situation. And a lot of the times that Medicare eligibility coincides with retirement, it’s in and around typically the same time. So what we encourage advisors to do, there’s a few, I think it’s maybe like eight to 10 different reasons when you can actually appeal your IRMAA determination, and one of them is work stoppage. So they call it another word for retirement, right? If you can prove that you’ve had a considerable drop in your income, that is actually a qualifying reason to appeal the determination that the IRS put on your income adjustment for Medicare. And so the form is quite literally two pages. It is very easy to fill out. It’s called SSA – 44. You can Google it as an advisor.

(22:17):

You can help your client fill out this form. All they have to do is staple evidence from their employer that they retired or lost their job or whatever it might be, and you can bring it into the Social Security office in person. I recently learned that you fax it to them so it’s relatively straightforward and easy to really help your client again, go the extra mile and potentially make changes to their IRMAA determination if their financial situation has stayed the same, if it hasn’t. What’s important is to be proactive and just ahead of that conversation with your client so that they’re not enrolling in Medicare and the month they turn 65, they learn about this huge surcharge that they have and it’s a huge shock to them. So we typically encourage advisors 12 months even potentially 24 months in advance. You’re really kicking off that Medicare conversation with clients. You’re walking them through what their costs are going to be, their income that year, or you have a rough sense of what their income is that year. So you can really walk them through, here are where this is how the costs breakdown. This will be towards income adjustments. This will be towards premiums. If you want to use products like ours, here’s what your medications could cost. We go that far, but at least as an advisor walking them through IRMAA and potential strategies to reduce that in advance 12-24 months of that Medicare enrollment.

Steven (23:31):

I’m smiling the whole way through that explanation because it’s an approach that I love and one we use with clients all the time. Yeah, that SSA 44 is such a great form. I always love learning how other people are approaching this because when we help clients fill this out, we don’t actually have them attached to the support. My general philosophy is I’m only going to give the government what they ask for. And so you’re absolutely, and I don’t say that to say that you’re trying to sneak one past them. We only do it in situations where they have a valid reason. I found that the process goes quicker and we have fewer questions if we just send the form and only provide what they ask. But it’s such a powerful tool. And for listeners who aren’t on our email distribution list yet, we put out a weekly newsletter and not too long ago we went through this and linked to the form. So go out to retirementtaxservices.com, make sure you’re on that newsletter, for our Retirement Tax Services members we’ve done more in-depth newsletters on this as well because it’s a relatively simple thing that can make a huge difference. One of the last clients I helped with this not only got their premiums reduced, but they actually got a refund from the Social Security Administration for the last, the four or five months before that so that the whole year was at a reduced amount. So there are some really cool outcomes there.

Christine (24:39):

That’s great. And as an advisor, you can actually put a reminder in your calendars around November is when they send out these notices too. So every single year around November, they will send out a notice for the upcoming plan year. At the same time as open enrollment, by the way. So you can also help clients optimize their Medicare plans and the actual selections of which plan they’re on. So all coincides. I know a lot of advisors, they go full force into the holiday with end-of-year planning, and it’s typically a really busy time of year. But this is something that if you have bandwidth to add into those year-end conversations, helping clients optimize their Medicare plans and even their marketplace plans with the premium tax credit, open enrollment falls within that window as well.

Steven (25:19):

I love how specifically you’re pointing out that action item too. Just get it on your calendar, get a reminder out there. Don’t try to commit all this stuff to memory, have a process. So really appreciate that.

Christine (25:31):

I mean, bringing it full circle back around to the HSA, by the way, you need to stop contributing to your HSA six months before Medicare eligibility or six months before you plan to enroll in part A. So if you have clients who are working past 65, you want to make sure you’re having that conversation about Medicare eligibility with an HSA, because if they enroll in part A, they can no longer contribute to their HSA and you need to be six months back, so you need to have stopped six months back. And then if they’re working well past 65 and they’re unsure of when they will retire, typically in that last year too, just don’t contribute to the HSA, just don’t expose your client to potential penalties. It is just not worth the effort and the headache of having to potentially have a penalty or deal with all the paperwork associated with that. So that is something too where as an advisor, another tangible action item before your clients turn 65, you can set a reminder to make sure, is my client enrolled in an HSA eligible plan? Do they plan to enroll in part A? Are they still working? These are some of those action items that you can actually implement in your practice so that you can ask more proactive questions because we still get a ton of really reactive situations where it’s hard to undo a lot of this stuff.

Steven (26:44):

Yeah, so many great recommendations in there. I love that you jumped straight into action items because that’s what we care about on this podcast is what people do, not just what they know. So yeah, make sure you’re getting this on your calendar. These are recurring reminders for these key times of year for clients that it’s relevant to so that you make sure you help them take action proactively and don’t reactively put out fires. Christine, before we wrap up, give me the two-minute version of why an advisor needs Caribou in their life and how they can learn more about it. 

Christine (27:10):

You say this super well related to the tax work that you do. If clients aren’t talking to their advisor about healthcare, they’re talking to somebody else about it. And whether that’s a broker who could sell them policy policies that might not be aligned with their best interests. So they might be pushing plans that make the broker more money versus what actually is right for your client, or maybe the broker is referring them to other places to get financial guidance as an advisor, you can really bring that in-house, and that’s what a lot of our customers have embraced is delivering more comprehensive holistic guidance to their clients and providing them with better recommendations in terms of health plans that they can choose. And that influences the financial plan. Healthcare costs is this huge apparent black box, and I know advisors sometimes love to just plug in Fidelity’s estimate or estimate of what it might spit out in terms of potential healthcare costs, but you can get so much more granular than that.

(28:04):

You can actually help and support your client through making this complex decision. And by doing that, you will then understand based off their selection, what their actual costs will be and just like a financial plan or just like an investment strategy. It’s not something you said and forget about, right? This is something that our advisors do every single year with their clients, which is a great opportunity for you as an advisor to continue to build that relationship with your client, to offer them great holistic, comprehensive advice, and create those touch points that drives great relationships between advisors and their clients.

Steven (28:37):

Absolutely. That’s so great. Christine, really appreciate you taking the time to come on the podcast. I’m going to throw out, you talked about some great action items already. Last action item I throw out on every podcast because not everyone is following my advice yet. You need to get tax returns from every single client every year because that’s what’s going to give you the specific details on not just whether this stuff is getting done upfront, but whether it’s getting reported correctly because specific to HSA, we’ll go back to HSAs one more time. I’ve been posting a lot about this recently. The HSA form on the tax return, the 8889 is wildly misleading, and I get people double entering their HSA contributions and creating situations where they’re being taxed on their HSA contributions because no one looks at the details. They double-input their contributions. Anyway, that’s a whole separate episode. The point is you need to have the real data, so what’s going on behind us. So Christine, thank you so much for being here. I really appreciate your time. 

Christine (29:32):

It was a kind of fun. Thanks, Steven for having me.

Steven (29:33):

For everyone listening. Until next time, good luck out there. And remember to tip your server, not the IRS!