Dave Ramsey is right. He's always saying that you have to be prepared because of Murphy's Law. Murphy eventually catches up to all of us. The law says that whatever can go wrong, will eventually go wrong. It applies perfectly to personal finance because we all know that cars need repairs, the AC goes out in the heat of summer, and so on.
Today I'd like to talk about Murphy shows up in your medical expenses.
In general, I feel like my wife and I have done a pretty good job preparing for expenses. At least for the routine ones. Each year we review what we've spent in medical costs and either make a decision to increase or decrease contributions to my company's Flexible Spending Account (FSA). If you know anything about these “use it or lose it” plans, you know you've got to be pretty good at your estimates or you stand to lose some money. Overall, we've done a good job. Most of the time we're a bit short, which is far better than overestimating contributions.
You may know that contributions to your FSA are good for routine medical expenses, but you shouldn't ever use them for an emergency savings account. So if you have to reasonably limit contributions, what do you do when medical expenses become the not so routine, when they demand more money from your budget each month than what you're contributing to your FSA?
This situation occurred for our family this year. Some unplanned medical expenses came our way and we ended up depleting our FSA account nearly half way through the year.
I think we handled the situation well, but it's still a bit of a challenge when the bills continue to come in the mail. I don't know for sure, but my feeling is a lot of people encounter this issue. It can be stressful from a financial standpoint — where do you get the extra money? — but add that to what's generating the costs and you're dealing with a lot!
So, I thought I'd offer some thoughts and ideas around how to handle unplanned medical expenses from a financial standpoint. I haven't used all of these ideas, but I think they're worth considering.
- Understand what you owe. Before getting out your checkbook review your claims and understand what your insurance has paid. If this seems low, you need to contact your insurance company and understand the reasons why. Also make sure the provider hasn't incorrectly billed you. Make sure you fully understand your situation and your responsibilities before making any payments. Don't hesitate to pick up the phone and call the provider as well as your insurance company to get to the bottom of things (I've had them both on a 3 way call before).
- Negotiate the amount due. I always say that it never hurts to ask. Perhaps you've received a few medical bills that are well beyond on your FSA account balance as well as your short-term cash savings. Perhaps there were out of network costs you didn't know about (this sometimes occurs in hospitals). Ask the provider if they can negotiate the balance due. State your case, ask for some additional help and then be quiet to see what they say. On top of that, ask to speak to the office manager if you're not getting help from the front line.
- Use emergency savings. Tried all of the above? Well overall, the easiest answer is to fall back on your emergency fund to help make payments or cover the costs. Hopefully, you've prepared, at least with an initial $1000, like Dave Ramsey and other gurus suggest, and can cover such expenses. But what if you don't have the savings? There are still a few options…
- Negotiate the payments. In the past I received a medical bill that was much larger than I could pay at the time. We were tight on cash and I couldn't even afford the monthly payments, so I told the provider what I could pay each month and they accepted it. The point is that sometimes you can only pay what you can pay. You didn't ask for the surprise medical situation, so don't beat yourself up about it. Pay a little bit and try to increase it down the road. Most medical providers are helpful if you agree to start a payment plan with them.
- Budget wisely. Certainly you also have to do your part to evaluate your monthly budget. Life throws us a curve ball every now and then and that just might mean you have to go to the movies once per month versus every weekend. Or perhaps it means you have to postpone a vacation which is never fun. But it's our job as household CFOs to make wise decisions with how we're spending money. Just keep in mind that any budget cuts you have to make will likely be temporary and you can get back to your normal course of entertainment later.
- Consider a family loan. Sometimes families are closest to these medical situations so you might have an opportunity to get a family member loan to get you over the hump for a while. I do want to state that you must use caution here and consider it only as a last resort. Family loans can impact relationships. Just remember you're likely to sit across from the Thanksgiving table with your lender and that could impact your relationship. If you go this route, make sure you're able to agree to the terms (in writing), make payments consistently and never, ever default!
I'm confident one of the options above will help you along your way even if it means paying smaller payments for a while. That option doesn't move you a long fast, but it's about taking these situations month by month. Unplanned medical expenses are no fun and sometimes the best of planning and smart money management can't prepare you for them. I truly believe in the month to month planning for these situations. It helps lessen the stress and keeps your mind from wondering and stressing about things you can't control more than a few weeks of financial planning into the future.
Have you encountered an unplanned medical expense? If so, how did you handle the situation?
Photo by Thomas Mueller.