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How to include Medical Debt in Your Financial Plan

How to include Medical Debt in Your Financial Plan

August 13, 2020

Hi everyone! Welcome back to Melissa Making Cents!

With coronavirus cases continuing to rise in Texas--and around the U.S.--issues surrounding healthcare have been on my mind a lot lately. Not only do medical emergencies affect our physical health, but they take a toll on our financial well-being, too.  In fact... they can completely wreck a financial plan!

Medical Debt can give your Financial Plan a knock out punch! Melissa Cox CERTIFIED FINANCIAL PLANNER™ can help you create a plan to protect yourself.

As a CERTIFIED FINANCIAL PLANNER™, something I hear a lot from my clients is about their struggles with medical expenses. And it turns out, this is a common problem.  According to CNBC, 32% of American workers have medical debt—and more than half have defaulted on it. We’ve all heard a horror story from a friend or family member who received medical care and was slammed with unexpectedly high costs that they couldn’t afford. Or maybe we know someone who pays all their bills diligently, but somehow missed a payment for a hospital visit and ended up getting a call from a debt collector. It happens to the best of us. I know that it can be scary to have medical debt hanging over your head, and you may not know where to turn.

The good news is that we can create a comprehensive financial plan to help pay off the debt! There are several steps you can take if you find yourself in trouble for not paying your medical bills on time. Here is a rundown of what to do and how to make a plan to take control of your medical debt.

Make sure you are only being charged for services you received.

First, keep in mind that the medical bill you received might not be totally accurate. Billing mistakes are fairly common, especially when it comes to medical care with a long list of itemized expenses. For example, on a multi-page medical bill for a hospital stay, you might see expenses for different types of medications, diagnostic tests, and per-hour observation fees. Because these bills are so long and so detailed, it’s easy for some extra expenses to sneak in there too, without anyone noticing. You could also be accidentally charged for medications or services that you didn’t have during your visit! That’s why you should always review the bill carefully to make sure you aren’t being overcharged--and dispute the bill with the healthcare provider if you find any inaccuracies.

Contact your insurance company to make sure the bill was sent to them for payment.

Okay, so let’s assume the medical bill is correct. Sometimes, for whatever reason, the medical bill doesn’t make it to your insurance company, so it wasn’t paid on your behalf. If you suspect that this is the case, call the number on the back of your insurance card to speak with an insurance representative.  Provide them with information about the bill, including the date of service, provider, cost, and bill number. If they did not receive the bill, send them a copy and/or request your healthcare provider to do the same (depending on the process that the representative requests). If your health insurance plan covers the expense, the insurance company should remit payment shortly after receiving the bill. When the insurance company confirms that the bill will be covered, you can contact the healthcare provider again to inform them that the insurance company will pay--and provide the estimated date. Then you’re off the hook!  (Just follow up to make sure the payment was made!)

If you still have a balance due, it’s time to call the provider.

Suppose after these steps, it turns out you do, in fact, owe the money. At this point, it’s time to call the provider and try to make payment arrangements. It’s always better to deal with healthcare providers directly, rather than collection agencies, because healthcare providers tend to be more flexible (and often friendlier!). 

Keep in mind that while most billing companies will send multiple late notices if you miss a payment, this isn’t necessarily the case for healthcare services. In fact, some providers will only send one or two bills to the patient before turning them over to collections. And having a bill sent to collections could have a huge, negative impact on your credit score. Ouch!

Don't let medical debt hurt your finances. Let Melissa Cox CERTIFIED FINANCIAL PLANNER™ help you create a plan to get out of debt.

This is also why it’s so, so important to always read your bills rather than throw them away. Ignoring a medical bill could result in a call from a debt collector, but confronting it head-on--even if you don’t think you can pay--will ultimately work out better for you in the long run.

If you can, pay the balance in full right away.

If your finances allow it, I recommend requesting a cash payment price. Some medical providers will offer a “pay in full” discount if you submit a lump sum payment within a specified time frame, such as 30 days. You may even have some negotiating power over the total amount if you offer to pay upfront in cash. Paying in full can also mitigate any negative effect on your credit score. And just as important, it will give you peace of mind that you don’t have this large medical expense hanging over your head.

If you can’t pay it all upfront, work with the healthcare provider to set up a payment plan. 

However, you may not have the cash on hand to pay off the entire debt, especially if it’s for a big expense like surgery or a hospital stay. Unlike most other forms of debt, medical bills can offer a variety of payment options that better suit your financial situation. This is especially true with hospitals. You might be able to get on a low-interest or no-interest payment plan until your debt is fully discharged. Any money you are able to pay is better than no money at all, and this also helps to offset any damage to your credit score.

Don’t be afraid to ask for financial assistance if you are experiencing hardship.

Sometimes, life circumstances change. Maybe you’ve lost your job (and your health insurance) before incurring a big medical expense. Or maybe you’ve been living paycheck-to-paycheck for a while, and the medical bill will cause undue financial hardship. In these cases, you can also ask the healthcare provider if they offer financial assistance programs. A lot of hospitals do for low-income patients (although some might require you to try Medicaid first). It never hurts to ask, but keep in mind that the application process can be time-consuming and you would need to meet the eligibility criteria. 

Make a plan for tackling that medical debt.

There are several options for finding the funds to pay off your medical debt. If you want to pay off your debt in a lump sum, you may wish to tap into your emergency fund or Health Savings Account (HSA) if you have one. Remember that you don’t want to totally deplete your savings to pay a medical bill--especially if another emergency would plunge you into debt or jeopardize your ability to pay other bills. 

Sometimes, my clients ask me if they should pay off medical debt all at once on their credit card or by taking out a loan. I generally don’t recommend either of these options, since you’d be on the hook for interest payments, too. For credit cards in particular, you don’t want the debt to end up combined with other expenses, snowballing even higher over time. If you can’t pay your medical debt upfront, you’d be better off working out a payment plan with the healthcare provider and chipping away at it gradually.

Create a Comprehensive Financial Plan to help eliminate debt!

When paying off medical debt over time, try to find things that you can trim out of your monthly budget. If you’re not already in the habit of tracking all your income and expenses, now is the perfect time to start. Maybe cut down on dining out, forgo a family vacation, or look for other discretionary expenses that you can pause for now. If you get a large lump sum payment such as a bonus at the end of the year, or if you get a substantial raise at work, you can also put that extra money toward paying off your medical debt even faster.

Choose your health insurance plans wisely to avoid medical debt in the future.

We can’t plan when we get sick. But we can often plan for unexpected medical expenses when choosing our health insurance.

Help protect your finances from medical debt! Let Melissa Cox CFP show you how!

Healthy people get sick or injured too, and an unexpected accident could cost thousands of dollars out-of-pocket if you aren’t prepared. If you have incurred medical debt because you are uninsured, in the future look into buying coverage through the federal health insurance marketplace at (open enrollment starts in November) or see if you qualify for a federal program such as Medicare or Medicaid. Even a low-cost catastrophic health insurance policy, which has high deductibles and provides coverage for serious illnesses and injuries, is better than nothing at all.

However, having insurance isn’t a guarantee that you won’t incur medical debts. For example, you might have health insurance with a high deductible, which means you’d have to pay up to the amount of the deductible out-of-pocket before coverage kicks in. Depending on the plan, your deductible could range from hundreds to thousands of dollars per year. Your plan might also have a coinsurance, which means you are responsible for a percentage of the costs (often between 10% and 40%) even after you’ve met your deductible. 

Furthermore, if your plan only offers “in-network” benefits, seeing an “out-of-network” provider means that insurance won’t cover it at all and you’ll be responsible for the full bill. Sometimes, patients will go to an in-network hospital only to find later that one of the doctors they saw as part of their treatment was out-of-network, so they were responsible for the cost of that doctor’s services. If you only have an “in-network” plan, try to stick with in-network doctors and hospitals. Or, if your preferred providers don’t take your insurance (or you have a health condition that requires frequent hospitalizations), consider switching to a plan with out-of-network benefits. As open enrollment season approaches this fall, it’s always a good idea to review other coverage options offered through your employer to find the plan that best suits your needs. 

Consider investing in a supplemental policy. 

In my recent blog post Healthcare is Expensive I mentioned the value of supplemental insurance! Supplemental policies can step in to pay off medical expenses that aren’t covered by your primary insurance. Many Medicare recipients opt for a Medigap policy for this reason. But some policies are even more specific and could be a good fit if you are at higher risk of certain types of medical expenses. For example, a policy that might be of interest for active and outdoorsy individuals is the supplemental accident indemnity policy. Likewise, a supplemental hospital indemnity policy may be useful for covering hospitalization costs after surgery. Another option to consider is a supplemental short-term disability policy, which doesn’t cover medical expenses, but still pays you a percentage of your income if you’re out of work due to an injury. The last thing you want is to be slammed with a high medical bill, and unable to pay it because you can’t work!

Save, save, save!

Melissa Cox CFP teaches learning to save at a young age!

Even after you’ve paid off your medical debt, you should always build healthcare savings into your monthly budget, whether that’s contributing to an emergency fund or an HSA (if you have a high deductible health insurance plan that allows it). Depending on your health and medical history, I recommend setting aside between 5-10% of your monthly discretionary income for healthcare expenses (not including monthly premiums). Your future self will thank you!

Remember, if you’re stuck with medical debt, you’re not alone. I’ve worked with clients throughout Dallas on making plans to pay off medical expenses and preparing for future emergencies. If you have any questions about how to manage outstanding medical debt, please call or email to schedule an appointment with me. And in the meantime--stay healthy!

Schedule a call with Melissa Cox CFP®

Until next time...this is Melissa Making Cents!

Melissa Anne Cox CERTIFIED FINANCIAL PLANNER™ is also a College Planning and Student Loan Advisor in Dallas, Texas.