Imagine for a moment that you had your own personal network of some of the nation’s top experts in areas ranging from personal finance to consumer credit to insurance at your disposal providing advice on the best way to prevent medical debt.
Well now you do. Emerge asked nine experts from around the country about the most important thing that the average person can do to avoid medical debt–and the answers are not only quite diverse but enlightening.
Just to put this into perspective, medical debt is the number one cause of bankruptcy in America today affecting more than 2 million people each year.
At the same time more than 56 million Americans will struggle to pay healthcare related bills this year. Although there is no one perfect strategy, it boils down to your personal situation, tolerance for risk and knowledge about your finances.
Let’s meet our experts.
Be a pricing pest. When possible, ask the cost of procedures before you get them. Don’t take “I don’t know” as an answer. Respond with, “Then find out.”
It is absurd that you may be charged hundreds if not thousands of dollars for something but not know the price until after you’ve received it.
I can’t think of any other service that works this way, and it’s wrong. Oh and if they try to send you to a specialist or to a surgery center instead of a hospital, make absolutely certain that your insurance covers it. If it doesn’t you’ll be hit with a massive bill.
Lastly, question recommendations. I had a dentist once who, every time I saw her, gave me the hard sell on teeth whitening. One day the hygienist whispered in my ear, “Don’t do it! Your teeth are great, she does this with everybody.”
I was grateful for the advice, and got a new dentist.
Consumer finance expert, TV host, reporter and author of the best seller Expecting Money: the Essential Financial Plan for New and Growing Families.
The most important thing that the average person can do to avoid medical debt is to establish an emergency fund. It’s not like most medical issues occur with a lot of forewarning – they are generally immediate in nature.
That underscores the importance of having an emergency fund, and its importance is evidenced by the fact that if you don’t have one in place, credit card debt could be just around the corner.
This could haunt you for years to come, depending upon the severity of the incident. And with the way that medical expenses are these days, with hospital stays and surgery costs seemingly through the roof, you really can’t afford to ignore this.
How do you establish an emergency fund? Get yourself on a personal budget and reduce your monthly expenses as much as possible. Cut back on personal spending as well in the short term too.
You can always upgrade your smartphone or flat screen TV a little later on down the road. Once you’ve established a surplus, start contributing a portion of that to a separate bank account designated for emergency expenses, including those of a medical nature.
In the beginning, shoot for three months worth of living expenses and make your ultimate goal nine months. These parameters are generally determined regarding a job loss, but the numbers can serve you well in the case of a major medical expense too.
You should also work on getting more exercise and eating a healthy diet, but since medical issues can befall even healthy individuals, as stated, the most important way to avoid medical debt is to have the means to pay for these expenses when they pop up.
Andrew, a former hedge fund employee and graduate of Brown University, is co-owner of Money Crashers Personal finance, a community where people can share ideas, help each other out, and grow financially together.
In general, it’s always best to financially prepare in advance as much as possible and set up emergency reserves for any unexpected expenses, including unexpected medical expenses.
Consider keeping low interest credit cards open that are not being frequently used, especially for emergency situations. In fact, closing unused cards can negatively impact your credit because old account history will be eliminated and credit utilization will be reduced.
If financially planning ahead is difficult, it is important to be proactive and get regular medical checkups. Be sure to also take advantage of the benefits of medical insurance – most preventative care is at no cost, or at low cost-sharing.
For those who don’t have insurance or have emergencies not covered by insurance, make arrangements for an installment loan that can get paid off fast.
Adrian is Co-Founder & CEO of Credit Sesame, the leading consumer and personal finance company. Adrian is a pioneer in liabilities management and prior to Credit Sesame, he was Founder & CEO of the companies Financial Crossing and Financial Circuit where he developed liability solutions for banks. Adrian holds a BSEE, and an MBA from Stanford GSB, where he was a Sloan Fellow.
People avoid emergency funds because having money sitting around in an account earning ZERO interest seems to make little sense. Yet an emergency fund is the perfect way to avoid some medical and other emergency-related debt.
Think of an emergency fund like insurance: you never really want it until you need it. Having three month’s worth of expenses in a safety-net account is a small price to pay to avoid huge interest rates, collection agencies, and ruined credit.
If you don’t have one, I’d start building today by direct depositing some money toward a spot separate from your daily expense account.
While there is no one perfect strategy that will protect you against all forms of medical debt, there are a number of strategies that one can take to mitigate the financial impact should an emergency occur.
Health insurance is a necessary minimum in today’s landscape of rising out-of-pocket costs, higher premiums and High Deductible Health Plans (HDHPs) although it still leaves many financial gaps unplugged when it comes to unexpected emergencies.
With that said, after the basics are covered having an emergency insurance policy in place that is designed to protect you against the unexpected cost of a medical emergency can be part of a sound strategy. It’s also cost-effective considering that these kinds of plans protect you financially without the need to dip into your hard-earned savings.
This is important because it’s not just the cost of the hospital bill that adds up, but in situations such as a personal injury or a critical illness such as cancer, heart attack or a stroke, many hidden expenses that your primary health insurance does not cover.
These not so obvious expenses include the out-of-pocket costs such as deductibles, coinsurance, copayments and the non-medical costs such as lost wages, homecare, childcare, travel, lodging, etc.
Considering a supplemental or emergency insurance plan to cover the costs of accidents and critical illnesses go a long way in protecting you from an unexpected medical emergency especially if you do not already have a “rainy day” savings fund or HSA to help you through those turbulent times.
Wes Thompson, Founder and CEO, Emerge
Wes, the former president of Sun Life Financial U.S. and in the insurance industry for more than 30 years founded Emerge as he saw that no one has claimed the space of developing a cohesive consumer experience that effectively connects the challenge of increasing out-of-pocket cost of healthcare to critical illness, accident and other supplemental insurance products.
Building an emergency fund, a liquid, accessible savings account with 3-6 months worth of living expenses is critical for avoiding medical debt. Even if you’re paying down student loans, be sure to prioritize emergency savings.
A $1,000 cash cushion should be you first financial goal, from there, contribute a small percentage of your paycheck each month to building that emergency savings account until it’s fully funded.
Life happens and unexpected expenses arise. It’s not a matter of if, but when. By realizing that and remaining proactive about your savings, you can avoid the stress of medical debt while coping with any medical emergencies.
I’d also recommend making sure you have sufficient health insurance and that you review all your medical bills and be proactive about challenging expenses that seem exorbitant or inaccurate.
Sophia Bera, CFP
Founder of Gen Y Planning
As a personal finance expert Sophia’s accolades include the “Top 40 Under 40” by Investment News, “10 young Advisors to Watch” by Financial Advisor Magazine, and “10 of the Best Personal Finance Experts on Twitter.”
It’s really important to have a health insurance policy that meets your needs. But sometimes life is unfair and if you have a serious illness, it’s difficult to avoid medical expenses.
So if you do have a medical crisis, the number one thing you need to survive the expense is an emergency fund.
If the expense is too high, and you can’t pay your medical bill, don’t despair. Talk to your medical provider and ask if you can make payments or even reduce the amount owed.
Credit Card Expert, Author & Consumer Advocate
The most important thing is to have adequate health insurance coverage. By this I mean a true major medical policy that has unlimited lifetime payouts and fulfills all the requirements of the Affordable Care Act.
For those of modest incomes coverage can be purchased with subsidies reducing the premiums and sometimes deductibles. If you make more than 400% of the federal poverty level you bear the brunt of the entire premium. And for those in poverty you can enroll in Medicaid if your state opted to expand the program, and has very little cost.
To handle potential deductibles it’s also smart to also have a rainy day fund of at least a few thousand dollars.
Hillenbrand & Company
Ryan Hillenbrand joined Hillenbrand & Company Advisors after a career in the pharmaceutical industry, working mainly in human resources. He leveraged his experience running benefit programs and managing a start up company to offer employee benefits, HR and insurance consulting to both new and established companies.