7 ways to manage rising health care costs, avoid card debt
Big changes to health insurance policies for 2017 – whether it’s a hefty premium increase, a switch to a high-deductible plan or the loss of federally subsidized insurance – mean a diagnosis of financial stress for many consumers. It’s a scenario that could force people to rely on their credit cards to cover medical costs.
“Health insurance has moved from something that was passive to something that needs to be managed actively,” says Sean Stein Smith, a CPA and a member of the AICPA’s National CPA Financial Literacy Commission.
Here’s a closer look at three major health insurance issues facing consumers today, and what consumers can do about them:
Challenge No. 1: Higher premiums
The U.S. Department of Health and Human Services reported in October 2016 that consumers insured through the Affordable Care Act exchanges will see an average increase of 22 percent in 2017 for the average benchmark plan. Federal subsidies also will rise, shielding most ACA-insured consumers from the increase. Employment-based premiums are projected to rise 6 percent. No one can say what will happen once President-elect Donald Trump takes office. At least for the short term, health insurance is likely to cost more for many Americans in 2017.
Those with employer-sponsored plans are feeling a paycheck pinch as well. According to a Kaiser Family Foundation survey, workers’ average dollar contribution to family coverage has increased 78 percent since 2006, and 28 percent since 2011. On average, covered workers contribute 18 percent of the premium for single coverage and 30 percent of the premium for family coverage. If you work for a smaller company, you’re probably paying even more than that for family coverage (around 39 percent).
Challenge No. 2: High-deductible plans
In 2016, 29 percent of all workers were in high-deductible health plans, according to Kaiser Family Foundation research; and that is expected to rise even more in 2017.
The Kaiser survey also found, unsurprisingly, that those in higher deductible plans are more likely to report medical bill struggles than those in plans with lower deductibles (26 percent versus 15 percent).
3: Insufficient health care savings
For a healthy 55-year-old couple retiring in 10 years, it’s estimated that 88 percent of their lifetime Social Security benefits will go toward health care expenses, the lifetime total of which will be $465,907, according to the 2016 Retirement Health Care Costs Data Report by HealthView Services, a producer of health care cost projection software.
“People aren’t as prepared as they should be, particularly those who have the ability to retire early, several years before Medicare kicks in,” says Jeff Burrow, certified financial planner and managing director of United Capital. “For those looking to retire before 60, many times they overlook what it’s going to cost them to pay for health care on their own.”
Strategies to manage health care costs without debt
If you’re among the millions dealing with one or more of the above health care concerns, educating yourself and planning ahead is critical in order to avoid racking up card debt to compensate for cash shortages.
“If you’re having to lay out more money upfront, it’s important to make sure you have the funds to do that and to understand what the options are for you, so that these extra costs don’t impact you,” says Smith.
Here are seven strategies:
If you’re having to lay out more money upfront, it’s important to make sure you have the funds to do that and to understand what the options are for you so that these extra costs don’t impact you.
|— Sean Stein Smith
AICPA National CPA Financial Literacy Commission
1. Harness HSAs.
Since medical deductibles are not something people typically budget for, enrolling in a high-deductible premium plan when you’re not familiar with how it works has the potential to wreak havoc on your wallet. Unless you have money set aside, that is, which is where Health Savings Accounts come in.
“An HSA is a great way to have a backup plan without relying on credit cards for those doctor visits you didn’t account for in your budgeting,” says Jody Dietel, the chief compliance officer at WageWorks, a consumer-directed benefits provider. Note, however, that only people who have high-deductible health insurance plans that meet certain specifications can open an HSA, as per the IRS, so check with your provider or employer to see if your plan qualifies.
When paired with a high-deductible plan, an HSA allows you to put aside pre-tax dollars for health care expenses. Essentially, it’s like a 401(k) for health care, says Dietel. “You set aside pre-tax money without paying federal or state income tax. Unlike Flexible Spending Accounts, HSAs do not adhere to the ‘use it or lose it’ provision, so the money you put into your HSA can carry over into the next year,” she says.
When you have to pay a deductible, make a copayment, or purchase prescriptions or medical supplies, you pay from your HSA through a debit card or check. If you don’t use it all up (which is possible if you’re in good health), the funds can grow into a sizable nest egg for unexpected health care costs later on in your retirement years.
Many people think HSAs are offered only by employers, says Burrow. “If it’s not offered, you can open one separately on your own. Once it’s opened, you can contribute up to the maximum allowed depending on if your plan is covering you as an individual or your family,” he says. For 2017, the maximum contribution is $3,400 for individuals, and $6,750 for family.
2. Know your policy inside and out.
In years past, for many people, if they needed a diagnostic exam or wanted to see a specialist for some reason, they just went, confident their health insurance would fully cover it. Today, that’s rarely the case. “You have to make sure you understand what your policy covers. Read the fine print,” says Smith.
For example, most insurers cover well visits (a scheduled appointment with your doctor or nurse when you are not sick), vaccinations and other preventative care, so you should be taking advantage of such wellness programs.
On the other hand, some medical procedures or tests might be considered elective (even if your doctor deems those to be necessary), and therefore not fully covered by health insurance, says Burrow. Depending on your plan, you may need a referral to see a specialist, and you will likely pay more if you choose a physician who is out of network. That’s why it’s imperative to contact your insurer before you make an appointment. “If you determine something needs to be done, ask how much the procedure costs as well as how much is covered. That way there are no surprises,” he says.
3. Shop around and negotiate prices.
Although people tend to go wherever their doctor sends them for outpatient services, it might benefit you to shop around first. “There’s a tremendous difference in pricing for both drugs and clinical services,” says Smith. As such, many health insurers offer tools and resources to help you comparison shop everything from an MRI to a dental procedure. “It’s on the consumer to take advantage of all of that information put out there by the health plans,” he says.
4. Don’t let medical debt go to
So what happens if an emergency room visit results in a huge bill you can’t afford to pay? For starters, it’s always worth a phone call to your insurer to make sure you aren’t being charged for covered services. You also can call the service provider to confirm there are no billing errors, and that your health coverage was properly applied. If everything is correct, however, ignoring the debt for a long period of time could have serious repercussions, the worst of which is being hounded by collectors or being sued for repayment.
Thanks to some recent policy changes, credit bureaus must now wait 180 days before adding unpaid medical debt to your credit report. After that, it will appear as a negative item on your credit report and can impact your credit score. A ding like that can move you into a lower tier of credit, and prevent you from qualifying for favorable interest rates or for new lines of credit. The credit scoring community, though, is working toward becoming more lenient regarding medical debt. For instance, FICO Score 9 distinguishes between medical and nonmedical collection agency accounts so that health-related debt has less of an impact on your score.
If you determine something needs to be done, ask how much the procedure costs as well as how much is covered. That way there are no surprises.
|— Jeff Burrow
Before you even get to the point at which your credit health is in jeopardy, it’s best to work with the health care provider directly so your account isn’t sent to a collection agency, says Burrow.
5. Refrain from paying medical bills with
your credit card.
While it might seem like a good solution to get a medical bill off your plate, avoid swiping your credit card at the doctor’s office. Burrow points out a doctor or hospital will be more willing to work with you than a creditor on setting up a payment plan, or even reducing the total balance if you can come up with a large payment. “Most are more than willing to negotiate with you,” he says. You won’t get that type of flexibility with a credit card issuer.
Bulk up your emergency fund even more.
Medical bill problems are sometimes the result of a one-time or short-term medical expense, according to the Kaiser Family Foundation survey, and 18 percent of the time it’s due to an accident. In other words, nearly 1 in 5 people are one accident away from a major financial setback.
That’s why that rainy day fund is more important than ever, says Smith. “When building an emergency fund, set up a separate account for those savings. Then, automate the process as much as possible by having a portion of your paycheck redirect to those accounts,” says Smith.
Take care of yourself.
When it comes to rising health care costs, you have at least some control in terms of your personal nutrition, how much you exercise, and if you are following through with preventative care.
“Health care costs over time have a large correlation to how you take care of your body. When we start paying better attention and eating better and exercising more, the reality is your health care costs will go down,” says Burrow. Along those lines, it’s unwise to put off a routine doctor visit just to save a buck – catching potential issues early can not only save your finances in the long run, but also your life.
If you’re not already being proactive about managing health care costs, get started. It’s the only way to improve your overall financial health prognosis and avoid that dreaded disease called debt.
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