How To Manage Medical Debt in Retirement

A steady trend presents retirees with a dilemma: Health care costs are steadily rising with inflation and income levels aren’t keeping up. Nearly one in 10 adults owe medical debt, with some owing over $10,000, according to the Kaiser Family Foundation.

“Medical debt is one of the highest increasing expenses in people’s everyday budgets that’s just continuing to get bigger and bigger,” Julianna Miller, AFC®, the Founder of Life Money Management told RetireGuide.

The New York Times conducted a medical bills survey with the Kaiser Family Foundation. The survey results showed that 66% had medical debt for a short-term medical expense, such as a hospital stay or treatment, and 33% had medical debt that built up over time from a chronic illness, like cancer.

When your finances are already tight, a hefty medical bill can make a comfortable retirement feel impossible. Those with a lower income or disabilities are even more susceptible to high medical debt, according to KFF.

If you don’t learn how to manage medical debt, whether for yourself or a loved one if you’re their caretaker, it’ll be difficult to save for retirement. In severe cases, you may have to declare bankruptcy or risk losing your home.

If you’re already retired, you can face difficulties managing your medical debt on a potentially fixed income. According to a brief from the Center for Retirement Research, the typical retiree only has 75% of Social Security benefits and 88% of regular income remaining after paying back medical costs.

This doesn’t leave much wiggle room to add to your savings or investment vehicles. In most cases, especially if you’ve been hit with a sudden, costly illness, it will take time to pay off your medical debt.

It’s important to come up with a well-thought-out plan to pay off your debt. “A good rule of thumb is if you can’t work out a payment plan that will let you pay off that debt in three years or less, you probably need to get help to negotiate some sort of settlement with that debt,” Gerri Detweiler, a debt expert, told RetireGuide.

“A trap that people will fall into is agreeing to a payment plan on medical debt that just won’t get them anywhere. They’ll agree to pay $10 or $20 a month on a debt that’s thousands of dollars and they don’t have any idea whether interest is being charged or how long it will take them to pay it back.”

There are other ways to manage your medical debt, like maximizing your Social Security benefit and avoiding Medicare late enrollment penalties.

On average, those over 65 can expect to pay $67,000 in out-of-pocket medical costs over the remainder of their lifetime, according to the Center for Retirement Research. It may be worth looking into your family’s health history to start planning for potential medical costs.

“People don’t reassess their health insurance coverage often enough, especially when they’ve been diagnosed with a new condition,” Gal Wettstein, the senior research economist at the Center for Retirement Research at Boston College, told RetireGuide.

“If you’re aiming at a specific diagnosis, make sure that the plan you have offers good terms for the providers and medications that you will need.”

Does your family have a history of a chronic disease that will likely require extensive, costly treatment? If so, confirm whether the condition is covered by Medicare. If not, consider other options and bulk up your savings.

“I advocate for savings to cover potential medical debt. Whether your savings cut your deductibles, cover your copays or even your premiums, at some point, you’re going to need to cover expenses that are sometimes even more than your mortgage,” Julianna Miller, AFC®, the Founder of Life Money Management told RetireGuide.

“That’s a lot of money to have to plan for. Even if you have to start out with only a couple of dollars, it’s really important that you start to plan ahead.”

Consider potential long-term care costs as well, which are not covered by Medicare. Those over 65 years old have a 70% chance of needing long-term care services, according to the Administration for Community Living. Long-term care can be required for years and result in a hefty bill.

This may beg the question, should you prepare by getting long-term care insurance? The answer depends on your financial stability. Wettstein offered advice on the security of long-term care insurance for those with low income.

“I don’t think a long-term care insurance policy is necessarily right for everybody, especially individuals faced with medical debt and very limited income assets. For example, people who are already eligible for Medicaid probably don’t need to get their own long-term care insurance,” Wettstein told RetireGuide.

Instead of considering long-term care insurance, consider Medicaid instead. There are income limits, which vary by state, to be eligible for Medicaid. If you’re on the cusp of becoming eligible, you could spend down your assets to qualify. This likely wouldn’t be too difficult if you’re spending thousands on long-term care services.

It’s in your best interest to always review and question items on your medical bills. Start by trying to lower the initial bill and then come up with a payment plan. According to the CEO of Medical Billing Advocates of America, three out of four medical bills have errors, which are commonly overcharges.

“Research what the typical costs are for your particular type of test or procedure. To get an estimate, you can upload your medical bills and credit sources to Clear Health Costs to see the costs of different procedures,” Detweiler told RetireGuide.

According to a U.S. survey with 1,550 participants, 93% were successful with negotiating their medical bill, 60% of the participants got the medical bill dropped altogether and 32% had a portion of the bill dropped. If you suspect you’re being overcharged for a medical service, negotiation has a successful track record.

Once you’ve negotiated your medical bill, request a payment plan. This can help avoid your debt from being sent to a collector. According to Detweiler, having a low income can be beneficial when negotiating your medical debt.

“If you’re on a fixed income, you’re actually in a much better position to negotiate debts. A lot of times, those with lower incomes are protected from creditors. You may be able to negotiate a better deal because your income protects you from creditors,” Detweiler told RetireGuide.

Medicare, Medicaid, Medigap, nonprofits and various government programs can help you manage your medical debt. Some resources have eligibility criteria in order to receive assistance.

Nonprofits are a free option that not everyone considers. They are typically a one-time resource and offer aid on a case-by-case basis.

“I often point people to the United Way, since they know which nonprofits are likely to cover medical expenses. They can check around with other nonprofits in the area, especially if they’re already helping with other low-income individuals,” Miller told RetireGuide.

“A lot of those places will help with covering other medical costs, like dental, eyeglasses and prescriptions.”

If you want someone to negotiate your medical debt on your behalf, consider Dollar For. Dollar For is a national nonprofit, funded by philanthropic grants and donations, so their services are free.

Each resource can cover different types of medical debt. For example, Extra Help is a government program that can cover drug costs. Learn how each resource can manage different medical costs to reduce your debt.