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How to Handle Unexpected Medical Expenses

   Posted On: November 6, 2019  |    Posted In: Ask Me Anything  |     Posted by: Broke Millennial®

This post is sponsored by Lively.

There is a big financial issue many of us have or will face in our lives: healthcare costs! To be honest, I’d long avoided focusing my weekly Instagram AMA on healthcare because it’s just such a daunting topic. But a recent partnership with Lively, a 100% fee-free Health Savings Account (HSA) platform, inspired me to tackle this important topic.

Lively is a Health Savings Account platform for individuals. A 401(k) for healthcare. Lively HSAs works alongside high deductible health plans to make healthcare easier for everyone.

Want guidance for ways to handle unexpected (or anticipated, but costly) medical expenses? Below is a recap of what I had to say during the AMA.

Question: How to figure out how much money to put into your company’s HSA?

Answer: First, let me quickly explain what an HSA is: Health Savings Account. It’s different than an FSA (Flexible Spending Account), because with an HSA your funds are yours to keep and rollover from year to year and you can invest the money! That means you can be building a health care costs nest egg for future anticipated expenses (e.g. pregnancy or a surgery) or just for aging and wanting a buffer in retirement.  An FSA has a “use it or lose it” policy each year. Think of an HSA like a 401(k) for healthcare. However, note everyone has access to an HSA. You need to have a High Deductible Health Plan to be eligible.

Okay, with that explainer out of the way for all, an HSA also works like a 401(k) in the sense that you not only can invest the money but you also have contribution limits. In 2019, those limits are $3,500 for an individual or $7,000 for a family.

So, how much should you do? [Here comes a lot of answering a Q with a Q!]. Well first, does your company match at all? If so, at least enough to get the match! If not, maxing out for an individual is approximately $292/month. Plus, you want to put money into a 401(k) too and have other savings goals, so it’s all about balance. How much can you reasonably afford to put into your HSA? I think a good goal is a minimum of $1,000 per year, so about $42 on a bi-weekly paycheck. Then, in 3 months try pushing up those contributions by $10 each paycheck. Keep doing that every 3 months (or more if you get a raise!).

Click here to learn more about HSAs from this AMA’s sponsor Lively.

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Question: Tips for investing an HSA?

Answer: Oh, great question! Ultimately, investing in an HSA — just like investing in a 401(k)/IRA or taxable account — comes down to your goals and your risk tolerance.

Consider how you want to use your HSA funds. Are you using it each time you’re going to the doctor’s office to pay for all bills or are you focused on squirreling those funds away for a future, big medical expense? Or maybe you’re doing a hybrid of the two. There isn’t a wrong answer here, it’s what works best for you.

However, given the triple tax-benefits nature of the HSA and that you can continue to build it up as a nest egg for future medical expenses, especially doozies like pregnancy or a necessary surgery, I’m personal partial to building a portfolio with a longer time horizon (fancy way of saying “when do you need/want access to this money?”) and applying a little more risk to those funds. But if your big need is in a few years, then you may want to be a bit more conservative in your approach now and then get more aggressive if you decide to use your HSA to supplement retirement in the future.

Lively specifically offers free access and no minimum balance required to invest your HSA funds with TD Ameritrade. You have lots of options including: individual stocks, bonds, CDs, ETFs, and more than 13,000 mutual funds.

And, as always, pay attention to the cost of fees! Even if you get free access, you can still incur trading costs and expense ratios on funds, so you always want to see how much the investments you’re picking will cost you. It could be as simple as comparing the fee on an actively managed mutual fund compared to a passively managed index fund or ETF. You just want to ensure that you’re getting value for that price point if you’re paying more for an investment.

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Question: I have Obamacare (ACA) and most places don’t take it, so should I use a credit card or those payment plans some hospitals offer?

Answer: The very first step is to see if you can negotiate the cost at all with the hospital and/or see if they have any sort of financial aid (sometimes called charity care). Not all hospitals offer financial aid, but it’s always worth asking as a first step. You also may not be eligible as it is based on income (similar to college financial aid). This could result in a portion of the amount you owe being forgiven. Non-profit hospitals are required to have some sort of financial aid assistance, but that doesn’t mean you’ll qualify.

If financial aid isn’t an option, I’d next ask about the hospital’s payment plan and see if you can get access to an interest-free payment plan. Discuss how much you can reasonably pay monthly and the hospital may be willing to work with you.

Finally, if both the financial aid and the payment plan isn’t going to pan out and you have to finance it on a credit card, then now is the time to look for a 0% interest rate card. Or do a balance transfer to a 0% interest rate after you pay the debt. Just make sure that 0% promotional period offers waived interest not deferred! Also, make a plan yourself to pay it all off in the 0% interest period.

Honestly, an in-person conversation may get you quicker results if you can make an appointment with the hospital’s billing department to discuss financial aid options and/or a payment plan.

But, I’ve also heard of discounts if you pay via phone, but that may be if you’re willing to lump sum pay. You can always start with a phone call and then ask for an in-person meeting if the call doesn’t get you where you need to go.

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Question: How do I handle bills that have already made it to collections?

Answer: Millions and millions of Americans deal with this each year and often without even knowing they owed anything in the first place. Peach once had a $25 bill go to collections because he’d moved and the bill went to an old address, so he didn’t know he owed anything until he checked his credit score, saw it had tanked and then pulled a credit report and saw an item in collections!

First, know your rights with collection agencies! You have a lot, so click here to read them from the FTC, but they can’t threaten you or falsely claim you’ll be arrested and there are limits on when and how they can contact you. There is also such a thing as statute of limitations on some debts in collections which they are allowed to sue you. This varies by state though, and again, I recommend checking out the FTC website for more details.

Second, you can negotiate. Collection agencies often pay pennies on the dollar for your debt, so they don’t need the full amount from you to make a profit. You may find you’ll have more leverage if you can propose a lump sum payment vs a payment plan. For example, if you owe $1,000 — say “If you’ll accept $500 as payment in full, then I can make that lump sum payment today.” Get it in writing that the partial payment is considered a full payment of the debt and that the remainder can’t be sold off again to another collections agency. If a lump sum doesn’t work, then negotiate a payment plan.

Don’t make a payment until you get the agreement in writing from the collection agency. You want receipts of all these interactions! You also want to be careful about how you pay. I wouldn’t give direct access to your primary bank account. You could even set up a new checking account with just the agreed upon balance so they can’t take out more.

Things to consider: if the debt is reported as a “partial payment” vs “paid in full” to credit bureaus, then it could impact your credit score’s recovery. Having an item go to collections already is quite damaging to your credit score, so you also want to be proactive about pumping positive into onto your credit score. Go back to the AMA from September saved in my highlights to learn more about building credit.

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Question: Less than a year until I’m off my parents’ health insurance – I work part-time and don’t know how to prep.

Answer: Great question that unfortunately doesn’t have a simple solution.

In terms of prep, there are a few considerations:

  • Is a full-time job with benefits or a part-time job at a company that offers part-time employees benefits an option? Especially with some runway until it’s an issue, you can start the job hunt now.
  • Does your state offer an extension? Some states do if you fit certain circumstances.
  • How much would it cost for you to get a plan through the ACA marketplace? Start to price out your rate and begin saving by simulating that you have to pay that in your monthly budget and then put the amount right into savings.

Finally, since you’re under 30, you may be able to get a catastrophic plan. That’s only ideal if you’re in good health. The monthly premiums aren’t too bad (I used to be on one), and it covers preventative visits, but the deductible is high.

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Question: What if the doctor who ends up treating you in the emergency room doesn’t take your insurance?

Answer: Unfortunately, this is all too common. Sometimes even if the hospital is in-network the doctor that you see isn’t, which in an emergency situation isn’t the first question that comes to mind. To clarify, there are be out-of-network doctors at in-network hospitals. It could also be someone in the surgery room like the anesthesiologists who is out-of-network.  It basically is a system we can’t beat at this point.

Start by checking out your state’s laws around surprise medical bills. You may have more protections than you think and can get assistance that way.

If you come up empty there, refer back to an earlier answer, it is smart to start with the hospital and see if there’s a payment plan or financial aid. Ideally, you want to work with the hospital proactively so the debt doesn’t discharge to collections, further causing you headaches.

In this case it sounds like you know the cause is that the doctor is out-of-network, but for people who get surprise bills and denied coverage by their insurance providers (especially if it seems like it should be covered), you can try contesting the bill. You can also check to see if the procedures were coded correctly by the hospital to get the proper coverage.

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Fact check

One community member messaged me when I previously mentioned the triple-tax advantage of an HSA to point out that it does vary by state. California, Alabama, New Hampshire and New Jersey all tax HSA contributions and all but NH tax earnings and dividends. Regardless of your state, there are tax forms you’ll need if/when you use your HSA to claim your deductions.

If you currently have an HSA (or are interested), click here to learn more from Lively about how to handle the forms and minimize your taxes.

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Question: How to deal with doctors/insurance? Keep getting the runaround on who does what.

Answer: My inclination is to focus on the doctor’s office first because improper coding of the medical procedure could be the root of the issue with the insurance company. I also feel like it’s easier to get a face-to-face contact at the doctor’s office if necessary.

It’s so frustrating, but also just keeping at it on both sides until you get someone who can calmly explain where the glitch may be happening.

People want their money, so maybe also emphasizing with the doctor’s office that you want to/can pay your bill but really need the information to be correct in order for you to get that done. Could be a helpful negotiation tactic in trying to get someone to help.

Then I crowdsourced the community for some ideas on how they’ve dealt with similar issues.

 

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Question: Is an HSA worth it for someone with chronic illness?

Answer: It can be but it depends on the cost of the various plans and whether the tax savings can offset some costs. The premiums matter a lot in this equation, so a high deductible health plan (which is a requirement of getting an HSA) may not be the best fit.

However, if you’ve determined that a HDHP still does make sense for you with your chronic illness (or maybe that’s all that’s offered through your employer), then taking advantage of an HSA would be beneficial.

Our AMA sponsor this week, Lively, does have an insurance plan comparison calculator, which may be helpful. Click here to check it out

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Question: What medical expenses can I pay for with an HSA?

Answer: Of course the first things that come to mind are the obvious like co-payments or the bill for a medical procedure or medicine (unfortunately, you can’t pay for premiums with an HSA). But there is a HUGE list of all the things for which you can use a Health Savings Account — and reminder: those funds don’t expire so it’s not a use it or lose it situation.

Here are a few other examples:

  • Medical care outside the US can be eligible for coverage
  • Ambulance rides, airlifts and flights to hospitals an emergency situations can be covered
  • Midwife treatment
  • A rental car if necessary for transportation to or from a medical related appointment or stay (you’d need a doctor’s note though)

Click here for a comprehensive list to find out what is and isn’t eligible!

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Question: When is an FSA a good choice for someone?

Answer: You do need a high deductible health plan (HDHP) to qualify for an HSA, which is not the right fit for everyone. So if you don’t have a HDHP and your employer offers an FSA, that could be a good option.

A Flexible Spending Account (FSA) does not require a HDHP for eligibility, but the money you put in there is a use it or lose it situation. It’s still a way to set aside pre-tax dollars for medical costs, like an HSA, but with an FSA you have to use it up in a calendar year and can’t save it up/invest it for the future like you can with an HSA.

Some companies allow you to roll over maximum of $500 of unused funds to the next year, but that too usually has an expiration date.

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Question: I have a chronic illness and am facing surgery. Any tips on shoring up finances?  

Answer: I empathize with how financially frustrating that can be.

A good starting place is saving up the deductible on your health insurance plan, so you know paying that off won’t be a problem.

Then see if your doctors/insurance company can start giving you a realistic expectation of cost and ensure everyone in that room is in-network.

Find out if the hospital has a financial aid option and if you’d be eligible or if you can get on an affordable payment plan after the fact. It’s great to know early so you can better plan your financial life.

Another consideration is if you’ll need to take time off work and if that’s paid. If not, starting to build up savings to float you (as well as trying to minimize expenses during that time).

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Thanks again to Lively for sponsoring! Click here to learn more about Lively and get all your HSA questions answered!

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