If you’ve had any medical issues—even those that aren’t considered “serious”—you may have racked up a considerable amount of debt. It doesn’t take long for medical bills to spiral out of control.
Medical debt is the leading cause of bankruptcy in the United States. In some cases, people forgo getting the health care that they need because of the high cost. But this can be dangerous to your well-being, and possibly even to your life. So it’s essential to have strategies in place to help prevent hospital and doctor bills from piling up, as well as a strategy for chipping away at medical debt that you may already have.
Medical Debt and Retirement Savings
Even a small amount of medical debt could negatively impact your retirement savings. In fact, the more money you have going toward paying down these bills, the less you’ll have available to save or invest for the future.
Studies show that nearly 1 in 5 Americans have medical debt in collections. This means that millions of consumers are (or have been) unable to pay for various types of care. Further, more than half of debtors have medical expenses as a part of their bankruptcy filings.
Medical Debt Strategies
There are ways that you can plan ahead for potential healthcare costs in the future. While some of these require an up-front expenditure, it can be well worth it if you’re able to reduce or eliminate future expenses. These strategies include obtaining health insurance coverage, starting or adding to an emergency fund, and always checking your medical bills closely.
Certainly, one of the best ways to avoid high healthcare expenses is to have health insurance coverage. If you or your partner work for an employer that provides coverage to its workers, a Health Savings Account (HSA) may be included in the benefits package. This type of account allows you to set aside money on a pre-tax basis to pay for qualified medical expenses—including specific services not covered by your insurance policy. The cost of your health insurance deductibles and/or copayments is also a qualified HSA expense.
Unfortunately, not all companies include domestic-partner coverage in their benefits packages. So if you or your same-sex partner aren’t covered, it may be necessary to purchase a stand-alone health insurance policy.
The same holds true if you are an independent contractor or self-employed. A good place to start is the government’s Health Insurance Marketplace at healthcare.gov. There are numerous plans offered, many with low premiums and deductibles.
Another option to help cushion the blow of high medical costs is to start or add to an emergency fund. This refers to money you put in a savings account or other “safe” financial vehicle that you can easily access in an emergency.
By having an emergency fund in place, you could avoid the need to use other sav- ings or high-interest credit cards to pay your healthcare costs. Ideally, you should have the equivalent of six months of living expenses in an emergency account. But when you’re just getting started, any amount is better than nothing at all.
You may also find that there are expensive errors on the medical bills you receive. These could include being double-billed, or charged for items that are supposed to be covered by your insurance. So make sure that you check those bills closely before you make any payments.
If you already have a sizable amount of medical debt, you may be able to reduce the amount you owe—or even have it forgiven. Some of the best strategies for doing so can include:
Negotiating medical bills – Many people are not aware that they can negotiate some of their medical bills. For instance, you could reach out to a hospital’s billing department and ask for a discount. You could also use a healthcare cost-comparison tool like Health- care Bluebook to find comparable rates for the care you received. This can help you to determine if you were overcharged—and if so, give you a good reason to contact the provider and ask for a billing adjustment.
Consolidating debt with a personal loan – You might be able to borrow funds at a lower interest rate to pay off any higher-interest medical debt. Doing so could not only reduce the amount of your total monthly outlay, but also allow you to make just one convenient payment each month. Depending on where you received your healthcare services, you may also qualify for financial aid. For instance, the Affordable Care Act requires nonprofit hospitals to offer financial assistance and discounted care to low-income patients, as well as interest- free payment plans.
Borrowing money from your retirement plan – Although it isn’t recommended, if you have no other options standing between you and a mountain of medical debt, you could consider borrowing funds from an employer-sponsored retirement plan like a 401(k), if you’re a participant in one. But pay attention to the interest rate charged on the loan. In addition, if you do not repay this type of loan from a retirement account, the unpaid funds could be considered as a taxable withdrawal.
Getting Your Debt on the Right Track – Juggling large medical bills and health- care-related debt can be challenging, so it can help to talk over your situation with a financial professional who can assist you with a plan to move forward.
In addition, working with a professional who is also LGBTQ-friendly can better ensure that your plan is in line with the most up-to-date legislation regarding benefits for same-sex couples and other related issues.
Grace S. Yung, CFP ®, is a Certified finanCial Planner practitioner with experience in helping LGBTQ individuals, domestic partners, and families plan and manage their finances since 1994. She is the managing director at Midtown Financial Group, LLC, in Houston.Yung can be reached at [email protected]. Visit letsmakeaplan.org or midtownfg.com/lgbtqplus.10.htm.