How To Manage Medical Debt in Retirement
Six out of 10 adults in the U.S. have a leading chronic disease, such as heart disease or diabetes. In times of high inflation with disproportionate incomes, chronic diseases can require costly treatments that dent or deplete your retirement savings. Learn how to potentially lower your medical bills, the best methods to manage your medical debt and free resources to offer relief.
- Written by Lindsey Crossmier
Lindsey Crossmier is an accomplished writer with experience working for The Florida Review and Bookstar PR. As a financial writer, she covers Medicare, life insurance and dental insurance topics for RetireGuide. Research-based data drives her work.Read More
- Edited ByLamia Chowdhury
Lamia Chowdhury is a financial content editor for RetireGuide and has over three years of marketing experience in the finance industry. She has written copy for both digital and print pieces ranging from blogs, radio scripts and search ads to billboards, brochures, mailers and more.Read More
- Reviewed ByBrandon Renfro, Ph.D., CFP®, RICP®, EA
Brandon Renfro, Ph.D., CFP®, RICP®, EA
Retirement and Social Security Expert
Brandon Renfro is a Retirement and Social Security Expert and financial planner. He focuses on helping clients create a secure financial future in retirement and co-owns Belonging Wealth Management. He is also a former finance professor and writes for several publications.Read More
- Published: May 1, 2023
- Updated: May 16, 2023
- 9 min read time
- This page features 11 Cited Research ArticlesKey Takeaways
- Negotiate lowering your medical bill before coming up with a payment plan.
- Make sure your payment plan for your debt is realistic, with a goal to eliminate your debt within three years or less.
- Consider government programs, like Medicare, Medicaid or Extra Help to cover medical costs.
- There are free nonprofit organizations to help you manage your medical debt, like the United Way and Dollar For.
Understanding Medical Debt
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.
Managing Medical Debt During Retirement
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.“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.”5 Tips To Manage Your Medical Debt
- Negotiate the bill and come up with a realistic payment plan.
- Confirm if the amount is correct and whether you will be charged interest. Try to come up with a plan to pay off your debt within a few years or less.
- Look into Medicaid for long-term care.
- Long-term care can cost up to $9,960 a month in 2023 if you need to stay in a nursing home, according to the Genworth Cost of Care Survey. While Medicare doesn’t cover long-term care — Medicaid does. Look into the eligibility rules to see if you qualify.
- Medigap to cover Medicare coverage gaps.
- Medicare Part B covers 80% of most outpatient care and services while the other 20% falls into your lap. If you must treat a costly new chronic disease, you could consider a Consider Medigap plan to cover the remaining 20% to reduce your medical debt.
- Maximize your Social Security benefit amount.
- If you haven’t already started collecting your Social Security benefits, your benefit amount will increase if you wait until you reach your full retirement age. You could also continue working if you earn a higher salary to replace lower earning years. This way, your higher benefit can help you pay off your medical debt in years to come.
- Avoid the Medicare late enrollment penalty.
- If you miss signing up for Medicare during your open enrollment period, you will face a late enrollment penalty. Some penalties, like the Part B penalty, lasts your entire life. You can keep more money in your pocket to manage debt by enrolling for Medicare coverage on time.
Planning Ahead for Medical Costs
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.”How To Plan for Medical Costs
- Review your family’s health history.
- Reassess your health insurance coverage yearly (especially if you have a new condition).
- Bulk up your savings to cover deductibles, copays and premiums.
- Consider Medicaid for long-term care costs (spend down if you’re not eligible).
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.
Negotiating and Settling Medical Debt
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.Did You Know?Starting in 2023, national credit reporting companies announced that medical collections with a balance under $500 will no longer appear on consumer credit reports.
Resources for Managing Medical Debt
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.
Medical Debt Resource Can help with costs for: Medicare Hospital visits, doctor’s visits, surgeries, drugs and more Medicaid Long-term care services, transportation services, hospital visits, doctor visits and drugs Medigap Remaining copayments, coinsurance and deductibles for Medicare Nonprofits Hospital visits, doctor’s visits, surgeries, drugs, dental and eyeglasses Extra Help Drug costs, including deductibles and copays Medicare Savings Programs Medicare premiums, deductibles, coinsurance and copayments
Last Modified: May 16, 2023Share This Page
Founder of Life Money Management
Senior research economist at the Center for Retirement Research at Boston College
11 Cited Research Articles
- Dollar For. (2023, March 14). About. Retrieved from https://dollarfor.org/about/
- National Center for Chronic Disease Prevention. (2022, December 13). Chronic Diseases in America. Retrieved from https://www.cdc.gov/chronicdisease/resources/infographic/chronic-diseases.htm
- Arapakis, K. (2022, August). How Much Do Retirees Spend on Uncertain Health Costs? Retrieved from https://crr.bc.edu/briefs/how-much-do-retirees-spend-on-uncertain-health-costs/
- McInerney, M. & et al. (2022, August). How Much Does Health Spending Eat Away at Retirement Income? Retrieved from https://crr.bc.edu/briefs/how-much-does-health-spending-eat-away-at-retirement-income/
- Consumer Financial Protection Bureau. (2022, July 27). Paid and Low-Balance Medical Collections on Consumer Credit Reports. Retrieved from https://www.consumerfinance.gov/data-research/research-reports/paid-and-low-balance-medical-collections-on-consumer-credit-reports/
- Genworth Financial. (2022, June, 2). Cost of Care Survey. Retrieved from https://www.genworth.com/aging-and-you/finances/cost-of-care.html
- Heath, S. (2021, March 22). 93% of Patients Negotiate Out-of-Pocket Patient Costs, Debt Away. Retrieved from https://patientengagementhit.com/news/93-of-patients-negotiate-out-of-pocket-patient-costs-debt-away
- Kaiser Family Foundation. (2022, March 10). 1 in 10 Adults Owe Medical Debt, With Millions Owing More Than $10,000. Retrieved from https://www.kff.org/health-costs/press-release/1-in-10-adults-owe-medical-debt-with-millions-owing-more-than-10000/
- The LBL Group. (2020, September 25). How Common Are Medical Billing Errors? Retrieved from https://www.lblgroup.com/how-common-are-medical-billing-errors/
- Hamel, L. & et al. (2016, January 5). The Burden of Medical Debt: Results from the Kaiser Family Foundation/New York Times Medical Bills Survey. Retrieved from https://www.kff.org/report-section/the-burden-of-medical-debt-section-1-who-has-medical-bill-problems-and-what-are-the-contributing-factors/
- Administration for Community Living. (n.d.). How Much Care Will You Need? Retrieved from https://acl.gov/ltc/basic-needs/how-much-care-will-you-need
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