Some families find it difficult to pay medical bills. Does this sound familiar?
Here is a quick quiz. What is the top reason people enter bankruptcy?
- credit card debt
- hospital and medical bills
- student loan debt
- other debt, such as housing, auto, etc.
What do you think?
If you said number “2”, you are right. Obviously, this is the topic of our article. Families are going bankrupt from unpaid medical bills. CNBC and numerous other media outlets have reported this reason.
It is a sad situation, really. One enters the hospital unexpectedly and leaves with a potentially overwhelming bill. If the condition is chronic and forces a disability, the financial stress can be magnified. You might think that those people who are struggling with medical bills do not have health insurance. Think again. A Kaiser Family Foundation study revealed most people who struggle to pay medical bills have health insurance.
In this article, we will address the ways people can mitigate the cost of unforeseen and high medical bills. Or, as we said in our title, “Ways to pay for medical bills without financial pain!”
Ways To Pay Medical Bills Without Financial Pain!
We list the top ways to pay for medical bills. Truth be told, these require effort to start. But, you must start. It’s not painful. Just start! Starting gets you moving. Moving gets you somewhere. And, once you are there, the stress level of worrying about paying for medical bills will be a thing of the past.
Establish An Emergency Fund
This answer might sound strange coming from an insurance agency. If you have followed our articles and what we are about, we take a different approach to solutions. (Remember, we were planners, too.) We believe the easiest way to battle medical costs is to have some money in the bank earmarked for emergencies. It is really that simple. (But, we know it is hard; read on.)
When working with an individual or family, we make it a point to determine their level of emergency savings. Additionally, we try to understand their ability to save. Most planners recommend 6 months of annual salary reserved for emergencies. While that is a nice goal, we are well aware that most Americans just have the inability to do so – whether because of other financial constraints such as retirement or simply immaturity when it comes to saving. An article from Forbes illustrates that 63% of Americans can’t cover a $500 emergency. We know it is hard. Not as easy as it sounds.
How about this? Start with the deductible. That should be easier, right? Then, build from there. We generally recommend that a family keep in the bank the amount of the health insurance deductible and another $5,000 to $10,000 for additional out-of-pocket costs. This amount is a little less daunting than striving for 6 months of emergency savings right off the bat.
Again, I know it is easier said than done, but it is a start.
There Isn’t A “Right” Amount
Although the “right” amount depends on you, a family should try to keep $10,000 to $15,000 in the bank for these kinds of emergencies. They also need make it a point to replenish immediately upon withdrawal.
All heath insurances have out-of-pocket limits, and we try to have the family aim for that out-of-pocket number as a goal. Additionally, if they are covered by a HDHP (High Deductible Health Plan) at work, we always suggest they start adding to a health savings account as contributions are tax deductible and withdrawals are tax free if used for qualified medical expenses. Moreover, companies may also contribute to the HSA on your behalf – a nice feature as that contribution is free money.
If the individual or family can keep this money and replenish it, we suspect, based on our experience, the availability of this money will mitigate most medical bill impacts. There is a positive, psychological effect, too. Knowing you have this money “just in case” should make those conversations with hospitals and third-party bill collectors much easier (see below).
Available Insurances That Pay Medical Bills
However, although establishing an emergency savings account would be the easiest solution, actually saving this amount is easier said than done. We know this!
Chronic illnesses and some injuries can also pose a long-term financial problem and strain. It can be difficult to replenish this savings amount if a spouse or primary breadwinner cannot work. Depending on the condition, the services and treatment can also wipe out their savings. While most financial planners recommend and tell their clients the following policies are a waste of money, one only needs to look at the rising medical cost and debt to see these policies can be useful. These policies, on the contrary, are not a waste of money. In fact, they are critical to protecting you and your family from the rising cost of medical expenses of today’s environment.
These policies include:
- hospital indemnity / gap insurance
- critical illness insurance
- cancer, heart, stroke insurance
- accident insurance
- disability insurance
Read on to learn more.
Hospital Indemnity / GAP Insurance Plans
Truth be told, hospital indemnity insurance is a great concept. Why? These policies can help pay for costs attributed to a hospital stay or outpatient situation. It doesn’t matter why you are admitted to the hospital or had outpatient surgery. These plans pay a lump sum dollar amount that you can use for whatever you want.
For example, let’s say you had carpal tunnel surgery. One plan we like will pay up to $3,000 for that surgery. You can use the money to pay the medical bills or for whatever you want.
Some plans are basic in nature while others are more detailed and robust. These are flexible plans. Did you know we could use these plans as supplemental pregnancy insurance? Additionally, these plans can act like your own paid maternity leave.
Some plans coordinate with your underlying health insurance and others do not.
It is important to state these policies are NOT health insurance. They plug the gaps in your health insurance. Hence, the interchangeable name, “gap insurance.”
Critical Illness Insurance
Probably 20 years ago, I would have said that purchasing a critical illness policy is foolish. Not anymore. Seems like the incident of a critical illness, such as cancer and heart disease, keeps rocketing upward. Along with the cost of insurance and high deductibles! Admittedly, I have changed my tune (and have policies on myself and family).
These policies will pay a benefit upon diagnosis of a critical illness, the most common being cancer, stroke, or heart attack. Some policies will cover additional conditions such as Multiple Sclerosis, ALS, Alzheimer’s, Parkinson’s, and end stage renal disease. Some family plans will cover type 1 diabetes for children. Policies will typically pay a lump sum upon diagnosis and an annual wellness benefit. Benefit amounts can be up to $100,000.
We recommend policies that offer more coverage for other conditions. In addition, the policy should offer ongoing, longer-term benefits, if that is possible. Why? Because chronic conditions require more of your time and money, probably for life. If there is family history of health conditions, this type of policy could be beneficial and should be considered.
Premiums, you ask? We can make critical illness as affordable as you want. However, personally, I like to keep premiums in the $50/month per person range.
Accident insurance are beneficial. Like hospital indemnity plans, they will pay a benefit upon a covered accident. Let’s say your son was playing soccer and broke his ankle. The medical services attributed would be a covered accident with many carriers. We recommend policies that offer extensive coverage including death and dismemberment and family coverage. Moreover, we recommend policies that offer 24 hour coverage with no limitation on profession.
These usually pay a scheduled lump sum on the services rendered; however, a few good plans coordinate with your health insurance. This gives peace-of-mind because you won’t have any medical bills to pay for.
Most accident insurance policies cost around $20 to $30 per month for individuals and up to $50 per month for families. Because of the low premium / high benefit of these plans, we feel that accident insurance is worth the money.
Premium Cost Of These Policies
The above policies may cost anywhere from $25 to $50 per month or more, depending on the benefits, carrier, and family dynamics. We always customize our client’s plans to their needs and budget.
Applications are usually simplified with one or two health questions. Some carriers will review your application against the MIB database. If you do take a benefit from these policies, the benefit could be used to replenish the emergency fund. We do not recommend these polices if a family does not have adequate health insurance.
The Most Often Overlooked Insurance That Can Really Help Pay Medical Bills
Although the above policies generate disagreement among many planners, there is one type of insurance that most planners agree is needed: the disability income insurance policy. These policies will pay a benefit upon ongoing, long-term disability. Think it won’t happen to you? LIMRA and other orgainzations routinely show that 1 out of 3 working adults will have a long-term disability in their lifetime.
Sure, you are right: most people do have coverage through their employer. Most people do not realize, however, that their employer-sponsored disability benefits are taxable, creating a potential, significant financial constraint when a family needs money. For example, let’s say you receive a $3,000 monthly disability benefit through your employer’s plan. Depending on your tax rate, you may receive net only $2,000! What do you do now?
We recommend the purchase of an individual disability insurance policy as well since these benefits are not taxable. Since the benefits are not taxable, an individual policy can bridge the income gap between the employer-sponsored plan and your everyday needs.
We can customize the premium cost to your needs and budget.
Get Ahead Of The Medical Bills Before You Have To Pay
While we have addressed savings and insurances so far, there are ways individuals and families can get ahead of any potential medical bills. The emergency savings fund comes in really handy at these steps. Here are suggestions for your review:
First, know your insurance plan. We can’t stress this enough! Most families are unaware what services are covered, what are not, what is the deductible, etc. This is one of the most important steps a family can take. If a family is confused, we recommend hiring someone like My Family Life Insurance for a nominal fee to walk them through the insurance details.
Second, understand what services are in or out of network. If you are having a procedure, it is important to know that, while the hospital services might be in-network, the anesthesiologist might not be and neither the surgeon. You can expect a huge out-of-network bill, which, in our experience, has been one of the reasons people struggle to pay medical bills. You can utilize pre-authorization services. Ask questions. You can ask for an itinerary of steps and who will be administering. You can then contact each provider to see if they fall under your network. Sounds like a lot of work. Is it worth it to ensure no surprises and negotiate (see next)?
Finally, if you have services that are not covered, you can and should negotiate the bill – even after the procedure is done. Providers want to be paid something. While you can’t low-ball an offer, your offer should commensurate with the work performed. Some providers will offer a payment plan. Others may offer a discount. In our personal experience, many providers offer a discount for a quick pay. This makes having the emergency fund and insurance ideal.
If this all seems daunting; it is not. You have a true partner in us. We hope you found this article to be educational and valuable. We at My Family Life Insurance can help you with your situation. The last thing we want is to see families struggling to pay medical bills, which can compound into other areas of a family’s situation. The effects can be stressful and devastating. Feel free to contact us to learn more. We only work with you with your best interests first and foremost.