The real retirement warning our industry needs to hearArticle added by Dan McGrath on February 11, 2014
Dan McGrath

Dan McGrath

Windham, NH

Joined: April 03, 2013

There is a video making the rounds via an email with the subject title, “Fair warning: I saw this on NBC News last night.” This email is quickly becoming somewhat of an instant phenomenon within the financial planning industry, as it touches on how hospitals use the terms “under observation” and “in-patient” and the impact that it may have on finances.

The body of the email reads as follows:
    I saw this on NBC News last night and thought I should send it to all my friends in Medicare, as fair warning. I've included the segment for you to view. Basically, if I understand it correctly, do not let the hospital admit you with the words, "under observation." Instead, insist on the "in-patient" designation. Otherwise, you will be responsible for the hospital expenses. It might be wise to inform family members, too.
And here is the video clip:

Now, please note that there is nothing wrong with the email or even the video. The information that is provided in it is truthful, factual and spot on. Brian Williams and NBC did a great job on reporting this information, and they should be commended for it. The video does a fantastic job of explaining the two very distinct options that hospitals have when admitting a patient, which are:


By definition, this term means “a patient who is admitted to a hospital or clinic for treatment, who requires at least one overnight stay.” (Keep in mind that this has changed.) This status is used when there is a clear and necessary medical issue with the patient, like a bleeding wound or an apparent heart attack.

"Under observation”

This term is used by hospitals as a way to determine if the patient is sick enough to need in-patient treatment. Ultimately, if the hospital cannot immediately see that there is a medically necessary reason for the patient to be at the hospital, then they have to admit the patient as being in the “observation” category to run tests to determine what the patient ultimately needs.

The video also reported, correctly, on how these two different options will impact patients. The "in-patient" label will ensure that the costs of care will be covered by Medicare. The "observation" label will lead to all of the costs being the responsibility of the patient.

Now, should this information alone make the financial industry sit up and take notice? Is this information, in the financial industry, in any way, shape or form, considered to be a "fair warning"? Hopefully not, and guess what; this is nothing new.
In-patient versus under observation has been the standard process for admitting patients under Medicare coverage since the dawn of Medicare. Even more frightening is the fact that on page 32 of Medicare’s fantastic handbook, aptly titled “Medicare and You," it states very clearly, after a big, highlighted arrow, that:
    “Staying overnight in a hospital doesn't always mean you’re an in-patient. You only become an in-patient when a hospital formally admits you as an in-patient, after a doctor orders it. You’re still an out-patient if you've not been formally admitted as an in-patient, even if you’re getting emergency department services, observation services, out-patient surgery, lab tests or X-rays. You or a family member should always ask if you’re an in-patient or an out-patient each day during your stay, since it affects what you pay and whether you’ll qualify for Part A coverage in a skilled nursing facility."
Ultimately, Medicare is and has been screaming at its beneficiaries for years about this topic, a topic that is just now a so-called Internet phenomenon. And the one other industry that happens to help people plan for retirement and claims to be experts on the subject — the financial industry — find this rule to be “far worse and less known” than even the Medicare means-testing rules, which were implemented in 2007.

Again, this email is a real fair warning, but not for the reasons many would think. It is a grave warning, simply because it is highlighting the fact that many people, including those financial professionals and financial firms that hold themselves out to be retirement specialists or Certified Financial Planners, may not completely understand the one basic need people will have in retirement: their health.

See also: ​Health care costs must be factored into retirement planning

Eventually, there will come a time when those who sought financial advice will reach the age of needing care, and they will feel the brunt of today’s planning, or lack thereof. Their savings will have been depleted, their options of generating any more income or cash will have all but dried up, and they will be left the very hard decision of what to do when it comes to either their health or their lifestyle. The only thing that we have yet to see is what the reaction of their children will be when they realize that their parents are not only broke, but that they are also in pain, simply because the financial industry didn't understand the simple rules of actual retirement.

Even scarier, as Mike Padawer of Inertia/Advisor's Service Group likes to point out, "The financial industry is always looking for a niche to market to, and this issue of planning for health care costs is probably the greatest one ever. It impacts every single person, while happening to be the biggest expense anyone will face in retirement. And who is actually in this niche?" Mr. Padawer is spot on.

Besides Nationwide, Jester Financial and Fidelity, who is actually marketing to this niche? From my experience, not many. And what is even more surprising than who is or isn't marketing to this issue, is the solution to it. When the smoke clears and the information is gathered, the real solutions for clients tend to be the ones advisors currently already have access to: certain life insurance policies, specific annuities and select investments.

The fact of the matter is that the general public will now need financial planning more than ever, as there is an obvious need. But who is really there for them to not only help them plan, but also to provide them the solution?
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