One of the key financial milestones for retirement is paying down debt — or ideally, paying it off entirely. But as you build up your nest egg, it can be tempting to delay paying down medical debt until your senior years.
If you’re stretching out your medical debt payments, you may want to consider:
As you start tackling medical debt before retirement, you should know the answers to these questions: Are medical bills considered debt? Does medical debt have interest? Can medical debt affect your credit?
When left unpaid for one year, medical bills become debt. While these bills typically do not accrue interest, medical debt over $500 can go on your credit report until it’s paid. This can lower your credit score, making new purchases difficult. Also, when repaying debt becomes too big of a burden, you may face bigger issues.
“Carrying medical debt, like carrying any other form of debt, means that you will have to spend a portion of your income in retirement servicing the debt,” said Anqi Chen, senior research economist and assistant director of savings research with the Center of Retirement Research at Boston College. “But, like other forms of non-secured debt, there isn't an asset behind medical debt that can be tapped. Depending on the interest rates, medical debt can also balloon really fast.”
Left unmanaged, medical debt can have a negative effect on your quality of life in retirement. For example, over one-third of older Americans with medical debt have declined medical care and skipped filling prescriptions, and almost 20% struggle to pay bills each month.
Fortunately, it’s possible to manage your medical debt and better secure your financial well-being in retirement.
The following tips can help you get started paying off your medical debt before retirement.
The Consumer Financial Protection Bureau often receives reports of incorrect medical bills in collections and says a complex billing system is the reason. But you can take steps to ensure you won’t overpay. First, ask your medical provider for a detailed invoice and your medical records. Compare them closely to make sure you weren’t billed for any service twice or for any service not rendered. Then, speak with your insurance company to report any errors.
It’s important to communicate with your provider to make payments affordable and to avoid collection agencies.
“For those who are faced with a large medical bill or medical debt, most hospitals are nonprofits and have financial assistance programs for patients who cannot afford care,” Chen says.
This means, if you work with your provider, you not only may be presented payment plan options for hospital bills or other medical bills, but you also may qualify to have your bills forgiven.
What is medical debt forgiveness? Also referred to as charity care, medical bill forgiveness may reduce your entire bill to nothing. The decision is based on your income, whether you have a disability, and other factors.
Patient advocates can provide the support you need to make care decisions and help you understand costs.
While hospitals generally have patient advocates on staff, nonprofit organizations also may offer additional financial resources. One potential source is the Patient Advocate Foundation, which offers copay relief and financial aid funds to qualified individuals.
“Getting insurance is crucial to help mitigate large out-of-pocket expenses in the event of a health care shock,” Chen says.
According to the 2023 Consumer Financial Protection Bureau report, 4 million seniors have medical debt, and 98% of them have insurance. Nearly 70% of those older adults have medical insurance coverage from two or more sources.
All U.S. citizens become eligible for Medicare when they reach age 65, but Medicare can have coverage gaps, so many older adults also have supplemental insurance plans to safeguard against unexpected medical debt. The Undue Medical Debt guide says that covering Medicare gaps, estimated to be 20%, with supplemental insurance could determine whether you remain solvent or develop hardships in the aftermath of an illness or injury.
Supplemental insurance options are available for most medical needs, including Medicare Supplement, Short-term Care, Dental, Hospital Indemnity, and more. For more information about Wellabe’s supplemental health products and what is available in your state:
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Wellabe offers life and supplemental health insurance plans to help you prepare for good days and bad. We’ll always be here to empower you to be well — well prepared, well protected, and well loved.
