Medicare Planning for High-Net-Worth Individuals: Avoid Common Pitfalls

Wealthy individuals face unique challenges when navigating Medicare. They contribute more to Medicare than most (through federal tax and payroll taxes), tend to live longer, and receive greater benefits. However, while Medicare provides a foundational layer of health coverage, high-net-worth individuals (HNWIs) must consider additional factors to maximize their benefits and avoid costly consequences. Here are some factors that affect HNWIs on Medicare and best practices to prevent unnecessary expenses.

Medicare Planning: Higher Premiums Due to Income-Related Adjustments

HNWIs pay a surcharge in addition to Medicare Part B and D premiums if their income exceeds the threshold determined by the Social Security Administration (SSA). This is known as an income-related monthly adjustment amount (IRMAA). The IRS informs the SSA of financial information, and a sliding scale of a set of percentage-based tables determines the adjustment stemming from a filer’s modified adjusted gross income (MAGI). In 2025, single filers with a MAGI above $106,000 will incur IRMAA surcharges. Strategic financial planning can help wealthier beneficiaries manage their higher-than-standard premium rates through timed income distributions to stay under IRMAA thresholds, charitable giving, and Roth IRA conversions.

Complexity in Coordinating Employer Coverage

Those HNWIs who continue to work beyond their full retirement age (FRA) or have access to an employer-sponsored health plan may find it difficult to decide when to enroll in Medicare. However, delaying Medicare enrollment beyond the window that opens within eight months of stopping work or three months before and seven months after an individual’s 65th birthday will increase premiums by 10% for every 12 months of eligibility without enrollment. That penalty applies for the length of Medicare enrollment. Therefore, it’s in an individual’s best interest to enroll as soon as possible once they cease employment. For HNWIs, recognizing how existing employer coverage interacts with Medicare should be a key factor in decision-making about enrollment timing.

Management of Health Savings Accounts (HSAs)

HSAs are a popular savings vehicle for medical expenses with triple tax advantages. Contributions to HSAs are tax-deductible, the money grows tax-free, and withdrawals are exempt from tax for qualifying medical expenses. Noteworthy is that once an individual enrolls in Medicare, they can no longer contribute to an HSA. Continuing to do so can result in tax penalties.  HNWIs should plan to cease HSA contributions about six months before enrolling in Medicare. Proper management of HSAs to maximize savings before Medicare enrollment and applying healthcare funding strategies afterward can enhance tax efficiency. For example, individuals can use HSA funds tax-free to pay for qualified medical expenses, which include most Medicare premiums.

Overlooking the Impact of Investment Income

Investment portfolios that generate substantial income can inadvertently increase MAGI, resulting in increased Medicare premiums from IRMAA. Regularly assessing investment strategies and employing tax-efficient options with HSAs and Roth IRAs can help affluent individuals manage income levels and associated Medicare costs.

Failing to Reevaluate Coverage Annually

Medicare plans and fee schedules can change annually, affecting premiums, covered services, and provider networks. Individuals should not assume that their existing plan remains optimal year after year. Instead, they should conduct annual reviews of their coverage and plans during open enrollment. This allows beneficiaries to reacquaint themselves with the details of their coverage, evaluate it against their current health needs and financial circumstances, and make any necessary adjustments.

Planning for Long-Term Care

Medicare has its limitations, one of them being long-term care. Long-term care consists of continuous health and medical care extending beyond 100 days from a qualifying hospital stay. Medicare covers up to 100 days. Medicare does not cover extended home care, nursing homes, or assisted living facilities. HNWIs may overlook this gap, assuming that their accumulated resources will suffice. However, the cost of long-term care can be staggering and significantly impact assets. For example, the national average cost for a nursing home in 2023 was $116,800. Wealthy individuals should wisely incorporate long-term care insurance into their financial plan to support HSAs and other dedicated funds to prepare for the expense of quality care should it be needed

While Medicare is central to healthcare for all retirees, HNWIs should not discount the importance of strategizing for the distinct challenges their wealth will have on retirement planning and future care.  By understanding the nuances of income-related adjustments, coordinating existing coverage, managing HSAs, conducting regular reviews of healthcare plans, and employing savvy financial moves, HNWIs can effectively maneuver the complexities of Medicare as affluent subscribers. For more information about preserving your wealth and avoiding Medicare pitfalls, contact an SHP Financial advisor today for a complimentary review of your finances.