A Model for Proactive Health Event Planning and Response

Journal of Financial Planning: February 2023

Chris Heye, Ph.D., is founder and
CEO of Whealthcare Planning and Whealthcare Solutions.

NOTE: Click on the images below for PDF versions.

Click here to read this article in the DIGITAL EDITION.

For many older adults in the United States, the biggest threat to financial and retirement security is not a recession, inflation, or bear market. It is a health event happening to them or a family member. More than 100 million Americans are in debt because of a medical or dental bill,¹ and the inability to pay off medical debt is the leading cause of bankruptcy in the United States.² Healthcare costs have risen more than six times faster than the rate of inflation for all goods and services since 1960,³ and approximately 70 percent of Americans will require at least three years of often expensive long-term care.⁴

These financial threats posed by health events are more than apparent to most U.S. families. Surveys consistently find that concerns about health events and costs top the list of retirement fears, regarded as more of a threat to personal finances than inflation, tax increases, or a significant economic downturn.⁵

Even for high-net-worth individuals who can afford a major home renovation to accommodate a family member’s physical limitations, annual five-figure cancer treatments, or $30,000 in monthly long-term care expenses, health events can still pose sizable financial planning challenges and generate considerable stress and anxiety.

Health events are inevitable. About 78 percent of adults over the age of 55 have at least one chronic condition, like diabetes, asthma, or cancer, and 64 percent over 65 have two or more.⁶ About 116 million Americans have hypertension,⁷ and 800,000 people in the United States experience a heart attack each year.⁸ In 2022, about 1.9 million people were diagnosed with cancer.⁹ Approximately 30 percent of adults over the age of 65 in the United States suffer from dementia or mild cognitive impairment (MCI).¹⁰ And there is still no cure for mortality.

Preparing for health events is not easy. There are many legal, medical, and financial boxes that need to be checked, documents to be drafted, and minefields to avoid. Unfortunately, most financial professionals do not have formal training in preparing for or managing health-related events, while few medical or legal professionals have much familiarity with financial planning strategies, services, or products.

This leaves many families at risk—financially, physically, and emotionally.

A Model of Health Event Planning and Response

In this article I describe a health event planning and response model. It is designed to empower families and financial professionals to identify, manage, and mitigate the financial risks posed by health events. While the particulars of every situation will be different, this framework provides both general guidelines as well as specific action steps intended to enable families to successfully prepare for some of the most financially challenging and emotionally charged situations they are ever likely to face.

Health events are highly predictable in that we know they are going to happen, but generally unpredictable in their timing and severity. For the purposes of this model, health events are viewed as exogenous episodes that generate a set of desired responses. The scope and nature of the responses are determined largely by the severity of the health event—a major heart attack will require more and different action steps than a knee replacement. Following a health episode, the person experiencing the event seeks to complete the relevant response tasks as quickly as possible, often with the help of family members and/or professional specialists. The health event response task creation and completion structure is shown in Figure 1.

But what determines the speed and effectiveness of the completion of the required response tasks? Managing a health event is the classic case of an ounce of prevention being worth a pound of cure. When it comes to reducing the financial costs as well as the emotional burdens of a health event, there is no substitute for comprehensive, proactive planning. The response task completion rate will be determined largely by the efficacy of the current plans in place that inform and direct the responses to each health event.

The Importance of Health Event Planning

Health events can have far-reaching consequences for an individual, their family, and their heirs. Planning for a health event requires more than generating a traditional financial plan, and even more than having both financial and estate plans. A comprehensive health event planning effort would include the following types of plans:

• Financial plan. A financial plan that provides protection for health events should include not only a summary of the current investment portfolio balances and performance, but also an analysis of current and expected income, expenses, assets, and liabilities. Importantly, the plan should contain estimates of healthcare costs, including insurance and out-of-pocket expenses, long-term care costs, and life expectancy. The financial plan should also include making sure that information about the location of, and access to, all financial accounts and assets is shared with financial professionals and/or trusted family members.
• Wealth transfer plan. Some health events can result in sudden, unexpected death, so having a wealth transfer plan in place is critical. This includes having, at a minimum, an up-to-date will that reflects a person’s current wishes for how they would like their assets distributed to their beneficiaries. For many families, the plan may also warrant creating a trust and identifying both a trustee and successor trustee.
• Healthcare plan. Having documentation that identifies a person’s preferences for medical treatment as well as trusted individuals who can help with healthcare decision-making is critical to the successful management of a health event. This includes drafting a healthcare proxy that identifies the person(s) who can make decisions on behalf of the individual needing medical care should they be physically or cognitively unable to make decisions on their own. The plan should also include a living will that specifies the medical treatments and life-sustaining measures a person wants to receive in the event they become incapacitated and unable to make decisions for themselves. It may also include other advance directive documents such as a do-not-resuscitate (DNR) order, or medical orders for life-sustaining treatment (MOLST), especially if the person has not drafted a living will. The healthcare plan should also include a list of current medications and the names of the primary care physician and any other medical specialists.
• Insurance plan. All families should be protected by quality health insurance that covers a broad range of medical procedures, tests, medications, and physician visits. Many families will also benefit from having life insurance. Given the high costs of long-term care, families may also want to include long-term care insurance, annuities, or other forms of guaranteed income as part of their overall health event protection strategy.
• Financial decision-making transition plan. Some health events will result in an individual being temporarily, and sometimes permanently, mentally incapacitated. It is very important therefore that every person maintains an updated power of attorney (POA) that specifies the trusted individuals who can make financial decisions on their behalf. Families working with financial professionals should also draft a letter of agreement specifying what the adviser should do if they suspect that the client might be having difficulty making financial decisions.
• Living transition plan. Most people want to remain in their home until they die, but for many adults, especially those with significant physical or cognitive limitations, staying at home can be both physically unsafe and financially impractical. Having a plan that details a person’s preferences for where and how to live later in life is important. This would include choices about geographical location, type of living arrangement (at home, independent living, assisted living), and, where relevant, the names of preferred senior living residences.
• Driving transition plan. Finally, some health events jeopardize a person’s ability to drive safely. It’s a good idea to have an agreement that places restrictions on a person’s driving experience, e.g., only drive during the day and not more than 100 miles. The agreement should also specify the circumstances in which the person agrees to stop driving altogether, e.g., more than one accident in a six-month period or failing to pass a third-party driving assessment.

Returning to the model, the task response completion rate is determined largely by the number of tasks that are covered by the current set of plans (See Figure 2). In general, health event response tasks that are already contained in one of the plans are completed faster than those that are not. A response that necessitates the execution of a POA can be completed more quickly if there is already one in place than if the family has to contact a lawyer, decide who will take on decision-making authority, and then review and approve the document. An assessment of the affordability of alternative medical treatments will be completed much faster if there is already a financial plan that contains a line item for healthcare costs, etc.

An Example of the Importance of Planning

The following hypothetical family health event provides an illustration of the importance of having a comprehensive health event plan.

Maria and José are in their mid-60s. Maria is still working as a management consultant and has always been the primary income earner. José is a retired construction site supervisor.

Maria was just diagnosed with a serious but not terminal cancer. She will require surgery and then extensive chemotherapy. There is no complete cure for her condition, so barring a major medical advancement, she will require medical procedures, doctors’ visits, and medications for the rest of her life. She will not be able to work for at least three months while she is undergoing treatment, and it is unclear if she will be able to work at all after that. Their retirement plan assumed she would be working and earning a salary for another five years.

José is pre-diabetic and has high blood pressure that needs to be regularly monitored. He has a bad knee from a work-related accident. He is concerned about his ability to take care of Maria, especially if she is seriously incapacitated for any length of time.

Before she went in for surgery, the doctor asked José for a list of Maria’s medications, her healthcare proxy document, and any advance directives.

Maria’s oncologist recommends that she try a new cancer treatment that offers the best hope for a rapid recovery and high quality of life. However, the treatment is expensive, costing somewhere between $18,000 and $20,000 per year beyond what her insurance covers. José and Maria will need to do home renovations to ensure that Maria is safe and comfortable. José also plans to hire a part-time home health aide and a house cleaner.

Maria’s recovery will require frequent appointments at a clinic that is more than one hour’s drive from their home. José is not comfortable with her driving alone, especially long distances after dark or in bad weather. They have two cars, but both are older and lack many of the newer safety features like automatic breaking and blind spot warning.

While she was recovering from surgery, their financial adviser asked Maria to sign some important documents. He also wanted to make some adjustments to their investment portfolio. Since she was incapacitated at the time, the adviser asked José if he could act as her power of attorney. He said he wasn’t sure and asked the adviser to wait.

José and Maria have two children to whom they plan to transfer most of their wealth. They have drafted a will, but it is many years old, and they are not sure if it reflects their current wishes or financial holdings. They do not have a trust but have assets that would need to pass through probate court without one. They do not currently work with an estate attorney.

Since José has medical conditions of his own to worry about, they will need a lot more help around the house for them to be safe if Maria’s health deteriorates much further. They live in an affluent community, where in-home care is expensive and sometimes difficult to find. There are senior living facilities in their area, but they have not investigated them.

José and Maria do not have long-term care insurance or own any annuities. Maria has a life insurance policy but has not checked the terms recently.

If you or any of your family members are over 60, much of this should sound familiar. While the specifics may differ, health events often have wide-ranging impacts and can be as or more consequential than losing a job, getting divorced or (re)married, or moving to a new location.

Learning Feedback Loop

It is highly likely that families will experience more than one health event. Given that a substantial proportion of most financial adviser clients are over the age of 60, advisers will inevitably work with families who experience health events. So, it is important for both families and financial professionals to incorporate the lessons learned from each health event into their planning efforts so that they are better prepared to respond to the next event.

Figure 3 shows the health event learning feedback loop. Many responses to health events can be converted into planning steps that in turn improve the speed and quality of responses to future events. Following a health event, new estimates of expenses for healthcare or caregiving should be incorporated into a revised financial plan. The names of new medications and/or physicians should be added to the healthcare plan. A new or updated POA should be provided to the relevant financial institutions, etc.

In short, the goal after any health event is to convert as many of the relevant response tasks into plan updates. This will ensure that the number of future responses covered by existing plans increases over time, while the volume of responses not covered by plans decreases. As the quantity of tasks covered by plans grows, families become better prepared for the challenges presented by health events in the future and more capable of completing response tasks thoroughly and quickly.

The successful conversion of responses into plans is an essential component of the health event management process, but it requires some degree of vigilance and maintenance. Here are some recommendations to help ensure that health event responses are effectively converted into plan updates:

• Keep documents and related plan information up to date. Some of the information in plan documents, like the prescriptions in the current medication list or the names of beneficiaries in a will or insurance policy, may need to change as a result of a health event. It is important to make sure that the relevant documents are updated. In general, it is a good idea to periodically check all legal, medical, insurance, and other documents to make sure that the information contained in them is up to date and reflects the family’s current preferences.
• Store plan information in locations where family members and other trusted individuals can access them. Disorganized finances, including multiple investment accounts and products that are managed by only one family member (or not at all), can present a major risk to financial security. Families should strive to ensure that knowledge about financial accounts and access credentials is shared and not controlled by a single family member. Moreover, health events can often require changes to plan documents, and it is important to track revisions to documents and make sure it is clear which is the most up to date.
• Strive to delegate financial decision-making authority. Health events can trigger cognitive changes that may jeopardize the effective conversion of responses into plans. At some point in our lives, none of us should be making important financial decisions on our own. A high-level goal for health event planning is to gradually transfer financial decision-making authority away from the primary decision maker to a team of trusted individuals who can provide a check on decisions and protect assets from unsound or impulsive decision-making.
• Seek help from relevant professionals. Planning for health events is complicated, and most families at some point will need help from specialists with more experience and greater expertise. Financial, legal, and healthcare professionals should all be included as part of the team that manages the responses to health events as well as their conversion into plan updates.
• Communicate frequently. Because health status, personal preferences, and decision-making behaviors change over time, sometimes quickly, frequent communication is important. Family members and professionals alike should be in touch frequently with at-risk individuals to make sure that there is agreement on the plans and actions that will be taken in the future.

Final Thoughts

Health events can have wide-ranging implications for the financial and retirement security of all families, often in ways that are hard to predict. There are so many financial variables that need to be considered. A single health event can necessitate large and recurring outlays not only for healthcare services and products, but for everything from home renovations to attorney’s fees to caregiving services and new cars. Given their broad impacts, it is not surprising that so many adults in the United States view health events and related costs as the number one retirement threat.

Health events also invariably generate emotional responses that can be equally consequential and difficult to manage. Even for well-off families who can afford to cover all of the necessary expenses, health events invariably raise levels of stress, anxiety, and too often depression. Financial professionals frequently highlight the importance of successfully managing their clients’ impulsive reactions to a market downturn, but these responses often pale in comparison to the range of emotions caused by a family health event.

For many families, the psychological benefits of effective health event planning and management can be as significant as the financial security these activities afford. Knowing that there are plans in place can provide peace of mind and foster a confidence level that cannot be measured in dollars alone.

And if you are a financial professional, or just a concerned family member or friend, you do not need to be a mental health specialist to deliver meaningful emotional support. You can help just by showing empathy and offering a shoulder to lean on. By helping families respond to a recent health event or prepare for the next one, you will be delivering some of the most valuable assistance you can ever provide. 

Endnotes

1. Levey, Noam. 2022, June 16. “100 Million People in America Are Saddled With Health Care Debt” Kaiser Family Foundation. https://khn.org/news/article/diagnosis-debt-investigation-100-million-americans-hidden-medical-debt/.
2. See “Medical Bankruptcy: Still Common Despite the Affordable Care Act.” Available at www.pnhp.org/docs/AJPHBankruptcy2019.pdf.
3. Kurani, Nisha, Jared Ortaliza, Emma Wager, Lucas Fox, and Krutika Amin. 2022, February 25. “How Has U.S. Spending on Healthcare Changed Over Time?” U.S. Centers for Medicare & Medicaid Services. www.healthsystemtracker.org/chart-collection/u-s-spending-healthcare-changed-time/#item-usspendingovertime_3.
4. U.S. Department of Health & Human Services. n.d. “How Much Care Will You Need?” https://acl.gov/ltc/basic-needs/how-much-care-will-you-need.
5. See for example Merrill Lynch’s “2017 Retirement Survey”, Franklin Templeton’s “2019 Retirement Income Strategies and Expectations (RISE) Survey”, or Edward Jones’ “The Four Pillars of the New Retirement” from 2021.
6. U.S. Centers for Disease Control and Protection, National Center for Health Statistics. n.d. “Percent of U.S. Adults 55 and Over with Chronic Conditions.” www.cdc.gov/nchs/health_policy/adult_chronic_conditions.htm.
7. U.S. Centers of Disease Control and Prevention. n.d. “Facts About Hypertension.” www.cdc.gov/bloodpressure/facts.htm.
8. Tsao, Connie W., et al. 2022 January 26. “Heart Disease and Stroke Statistics—2022 Update: A Report from the American Heart Association.”  www.ahajournals.org/doi/10.1161/CIR.0000000000001052.
9. American Cancer Society. n.d. “Cancer Facts & Figures 2022.” www.cancer.org/research/cancer-facts-statistics/all-cancer-facts-figures/cancer-facts-figures-2022.html.
10. Heye, C. 2022. “Examining the Prevalence of Diminished Capacity.” Journal of Financial Planning 35 (8): 62–66.