Don’t let health care costs catch your clients off guard

High out-of-pocket health care costs can result in financial toxicity.
By James Sullivan, CPA/PFS

High health care costs can harm your clients in more ways than one. If patients don’t fully understand the cost of their treatments, or if they simply assume their private insurance plan or Medicare will take care of them, they can be hit with expensive surprises that can erode their retirement savings. What’s more, as recent research shows, the high out-of-pocket costs can worsen patients’ physical health, a phenomenon referred to as “financial toxicity.” That’s why it’s so important that you proactively educate clients about health care costs.


Health cost literacy is crucial for everyone both before and after age 65. Information about health care costs should be readily available to patients, and physicians should initiate a discussion of costs before prescribing treatment. Doctors rarely do so, however, and patients are unlikely to raise the issue of out-of-pocket costs with their physicians on their own. Yet having these discussions is essential to the patient’s physical and financial well-being.

Here’s a real-world example that illustrates the financial difficulties patients can face. (Editor’s note: The name has been changed to protect client privacy.) In the month before his 65th birthday Harold received a cancer diagnosis. He had already enrolled in Medicare. His benefits would begin on the first day of his 65th birthday month.

Initially, Harold felt fortunate that the start of his very expensive treatments coincided with the beginning of his Medicare entitlement. Then he learned what the out-of-pocket cost for the prescribed cancer drug, Sutent (brand name), would be even with Medicare Plan D coverage.

Under Harold’s plan, according to the Plan Finder calculator on the Medicare website, Sutent costs $14,810 per month. The out-of-pocket cost of the drug to Harold during his first month of participation in Part D would be $2,762: high enough to reach the catastrophic coverage level.

Usually, the cost to the beneficiary is minimal when the cost for his medications is in the catastrophic coverage range—but not when he’s taking a drug that costs $14,810 per month. Under catastrophic coverage, the beneficiary pays the greater of $6.60 per month for a brand-name drug or 5% of the cost of the drug. At $14,810 per month the cost to Harold is the greater of $6.60 or 5% of $14,810: that is, $740. Harold and his spouse never budgeted for (or even imagined they would be paying) $740 for any prescription drug in addition to his $80 per month Part D premium (a total of $820). What’s more, Harold and his spouse’s income and assets were a little too high to qualify them for the help offered to low-income seniors that could have offset some of the high costs of the drug.

Harold then talked to his financial adviser, who suggested he email his doctor and explain the high out-of-pocket costs he would face given his prescribed course of treatment. The doctor’s initial response was that Sutent was covered by many Medicare Part D plans. This, of course, was true, but was not the whole story. Neither the physician nor his staff knew about the cost-sharing provisions under Part D or realized that catastrophic coverage would still leave Harold and his spouse with very high co-insurance amounts.

When Harold explained this, the physician then instructed a staff member to work with the couple to explain the various programs in place for patients taking very expensive oral medications. As of this writing, Harold’s doctor is trying to get him in a new experimental study that will reduce his out-of-pocket costs for medication. In reality, though, most Medicare beneficiaries can’t count on being admitted to such studies.

Harold and his spouse were on the verge of retirement when the cancer was diagnosed. Harold’s immediate emotion was guilt. He felt that, if he died, he would leave his spouse of more than 40 years alone just at the time they looked forward to starting a new life together. But he also worried that, if he lived, the cost of his medications would leave them destitute in retirement. His spouse admitted to occasionally being upset at Harold even though she knew his cancer was not his fault. It helped their relationship tremendously to open discussions with the doctor and the hospital staff regarding the cost of his medications. Harold has felt much less tension knowing that, if nothing else, all avenues were being explored.

As a financial adviser, you are in a very good position to shield your clients from financial toxicity. Though you may not be able to protect them from all of the high costs of health care, you can help reduce their stress levels by educating them about their options. You can also serve as an advocate to help them get the information they need. If you have clients facing expensive diagnoses, urge them to have the money talk with their physician. It is unlikely that the physician will have all the answers, but he or she can contact other professionals who can assist, such as pharmacists, social workers, hospital financial counselors, and health care advocates.

You can also improve your clients’ health cost literacy by explaining how Medicare works. Make sure they’re aware of what Medicare covers and also how annual deductibles, co-insurance, and co-payments work. The discussion should also include the role of Medicare supplement (Medigap) policies and the differences between traditional Medicare and Medicare Advantage plans.

Of particular importance for patients with chronic conditions is how Part D works. Many Medicare participants wrongly take comfort in the catastrophic coverage offered by Part D. It is not unusual for them to mistakenly believe that under catastrophic coverage they will pay the lesser of 5% of the cost of the brand-name drug or $6.60 per month! Given the rapid rise in prescription drug costs over the past several years, patients need to understand how Part D works so they can prepare for its possible impact on their cash flow and their stress level. Giving them this kind of clarity and advance knowledge can help them make the best of a difficult situation.

The AICPA’s PFP Section provides information, tools, advocacy, and guidance to CPAs who specialize in providing tax, retirement, estate, risk management, and investment advice to individuals and their closely held entities. PFP Section members, including PFS credential holders, will benefit from Jim Sullivan’s The CPA’s Guide on Financing Retirement Healthcare, the Forefield Advisor, and the elder planning information found in the Resources section of the AICPA’s PFP website. All members of the AICPA are eligible to join the PFP section. CPAs who want to demonstrate their expertise in this subject matter may apply to become a PFS credential holder.

James Sullivan

James Sullivan, CPA/PFS, is a financial planner in Wheaton, Ill. He specializes in working with clients, and the families of clients, suffering from chronic illness.

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