The high costs of medical care are of a growing concern for most Americans. One in six have unpaid healthcare bills on their credit report, according to a study published in Health Affairs. But these debts are not due to fiscal irresponsibility. Over half (54%) of those with medical debt have no other obligation on record.
In this article, we will discuss why healthcare puts people in debt and three ways to help insulate yourself from unforeseen medical costs.
Why Is Medical Debt Such an Issue?
The main reason most people have problems with health care costs is that pricing the pricing system is not transparent. The medical industry is one of the only places where prices are not fully disclosed or discussed before service.
The lack of transparency is due in large part to the relationship between medical providers and insurance companies. Every insurance provider and plan has a different discount and fee structure. Your doctor cannot provide an accurate quote for the procedures they perform without placing an inquiry with your insurance provider.
Even then, the accuracy of the final quote is dependent on how the administrators write up the billing details submitted to insurance, which uses that information to either approve or deny payment. Differences between how an inquiry is submitted versus the final bill can even result in differences in the discounting and final payment amount provided by the insurance.
In addition to a lack of pricing transparency, medical billing timelines can be an issue. It is commonplace to visit a doctor or a hospital and find a bill in the mail months later.
Once services are performed, bills are issued to the insurance company. The insurance company then processes the information to approve or deny payment. All of this can take weeks. If the end cost was already known, the length of time could be used to plan ahead and be prepared to pay. But a lack of knowledge leaves most unprepared for the costs that ensue.
When nearly half of Americans cannot afford a $400 emergency, and over 70% have less than $1,000 in the bank, an unforeseen bill can quickly snowball. It is a small wonder that one in five Americans avoid going to the doctor for fear of the costs (SCIO Health Analytics).
How to Be Better Prepared
While there is no way to be 100% prepared for medical emergencies, there are several ways to insulate your budget for standard procedures.
- Plan ahead as much as possible. Doctor’s recommend colonoscopies at forty. Cholesterol screenings should begin by 20. These are just a couple of the standard tests you might anticipate. Then there are your regular sick visits, dental examinations, prescriptions, and specialist appointments. Find out what testing and procedures are recommended for your age. Make a list of your medical history for the past year or two. Then compare this information to what your insurance provider covers. For more costly items, work with your insurance company and doctors to get estimates. All of this information should be used to create the medical portion of your ongoing budget.
- Use your Health Savings Account (HSA). High deductible insurance plans usually offer an HSA program. HSAs are a particular account to collect your money pre-tax to be used for future medical expenses. HSA funds can be used for copays, deductibles, prescriptions, and medical equipment without penalty. However, funds used for non-medical needs before reaching the age of 65 are subject to a 20% penalty. Because the money is pulled pre-tax, electing to use an HSA for your medical care budget is a reliable way to maximize your regular earnings while setting aside the appropriate funds before you even see your paycheck. If an HSA is not provided directly through your employer or exchange, you can usually arrange one through a bank or other financial institution.
- Check into Flexible Spending Accounts (FSA). For those with lower deductible plans where an HSA is not an option, there are FSAs. Like an HSA, these accounts are funded by pre-tax dollars and can be used to pay for deductibles, copays, prescription medications, and medical equipment. However, FSAs are not provided as add-ons through outside institutions. In addition, funds contributed to an FSA must be used within the plan year or the remainder of the money is lost. As a result, FSAs are a good option to pull money pre-tax to cover expected medical procedures but should not be seen as a long-term solution for covering healthcare expenses.
Healthcare expenses are a big concern for many Americans. The lack of transparency and slow billing procedures can make anticipating actual costs very difficult. However, by reviewing your medical history, gathering information about recommended procedures, and leveraging available savings options, it is possible to insulate yourself from unanticipated medical expenses.