Unexpected expenses can derail your finances, and they are far too common. These surprise costs take many forms, from car repairs to appliances that need to be replaced. But one especially common type of unexpected expense can be very damaging to your finances: surprise medical bills.
According to the Federal Reserve, as many as one in five adults incurred major unexpected medical costs over the past year. These can carry a high price tag because it can be difficult or impossible to comparison shop when you or a loved one is sick. Furthermore, when medical care is needed, you usually can't wait until you've saved up for it -- which means it's very likely you'll need to borrow to cover the bill.
So how can you be ready in case you become one of the 20% of Americans facing surprise medical bills over the course of the year? Here are some tips.
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Choose the right insurance coverage
Some health insurance policies have high deductibles but low premiums. These types of plans increase the likelihood you'll face a surprise medical expense because you have to pay a lot out of pocket before your insurance kicks in.
Other plans have low deductibles or even no deductible, but the premiums are much higher. With these plans, you'll pay much more every month for coverage but you won't face big surprise bills because your coverage is so much more comprehensive and kicks in sooner.
If you tend to have lots of medical emergencies because you or your loved ones are prone to illnesses or accidents, a more expensive policy may be best. That way, your costs are predictable and you won't have to worry about coming up with a large sum to meet your deductible in an emergency. Make sure you weigh your options carefully when open enrollment season rolls around and don't assume your current policy is the best fit for your life.
Consider a health savings account
If you have a high-deductible health plan, you may be eligible to put money into a tax-advantaged health savings account (HSA). These triple-tax advantaged accounts allow you to take a tax deduction for funds you invest, up to annual limits. And you can withdraw money tax-free when you use it for medical care.
If you put money into an HSA, your medical care effectively costs less because you aren't being taxed on the income you use to pay for it. Plus, the money will be waiting in your HSA when a need arises so you'll be ready for any surprise medical expenses. Unlike with a flexible savings account, the money you save in an HSA never expires.
The Internal Revenue Service sets annual contribution limits for HSAs. In 2019, you can stow $3,500 for yourself or $7,000 for your family. And HSA participants who are 55 or older can contribute an additional $1,000 in catch-up contributions.
Save in an emergency fund
If you're not eligible for an HSA or if you suspect you may have medical emergencies that exceed the annual HSA contribution limits, an emergency fund is especially important.
Emergency funds are accessible money you set aside (perhaps in a high-yield savings account) for any unexpected emergency -- including a health issue -- so you don't have to go into debt when unexpected costs arise.
Your emergency fund should ideally have three to six months of living expenses. This will ensure you can cover costs associated with most medical issues, even if you temporarily can't work because of them.
Talk with your doctor about your cost concerns
If you don't have a lot of money saved for healthcare, you may still have to come up with funds when a medical emergency happens. If you're worried about how you're going to pay for healthcare, or if you know you'll have to go into debt for it, always talk with your doctor about your financial concerns.
Your doctor may be able to advise you on a more affordable treatment or could help you find manufacturer discounts or free samples for prescription drugs. Many doctors are also willing to work out payment plans or may provide discounts for patients who pay cash upfront.
Be ready to negotiate the bills
If you've incurred big medical bills, you may be able to negotiate to pay less. Many providers bill more than they expect to receive, in large part because insurers play games with billing and then pay only a small fee for services despite providers billing a fortune.
So when you get a large bill for care not covered by your insurance or because you are uninsured, don't assume you have to pay the entire amount. Call the billing department to discuss whether you can get a discount if you make a lump-sum payment or if you go on a payment plan.
Don't let unexpected medical expenses derail your finances
Since unexpected medical costs are so common, it's important to plan for them, and following these steps can hopefully help you prepare. Even if you can't save up the money before an illness or injury, you'll know what to do to try to keep costs as low as possible and avoid a blown budget -- or a whole bunch of medical debt.
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December 22, 2019 at 07:15PM
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1 in 5 Adults Experienced This Major Unexpected Expense Last Year - The Motley Fool
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