How To Protect Your Assets From Medical Bills
According to a report, 36% of households in the US had medical debt in 2024. Another national survey, sponsored by the American Cancer Society Cancer Action Network, The Leukemia and Lymphoma Society, and Undue Medical Debt in 2023, found that about one in three Americans had issues with medical debt.
Healthcare costs continue to rise, and so does the likelihood of developing a medical condition. Blame it on changing lifestyles, unhealthy diets, stress, or other factors, but one thing is clear – healthcare expenses are becoming increasingly difficult to avoid.
Being financially prepared is more important than ever. If you are unable to pay your medical bills, you may need to rely on appropriate asset protection strategies to safeguard your wealth. Let’s explore some of these strategies.
Table of Contents
Below are some ways to protect your assets from medical bills:
1. Start by reviewing the medical bill and understanding your insurance coverage
Medical bills can arise from a wide range of situations. Sometimes you may be in and out of the hospital in a day, while in other cases you may need to stay for an extended period. Regardless of the situation, your bill is likely to include several different charges.
The first thing you do is review your medical bill to understand exactly what you owe the hospital. This also gives you an opportunity to verify the charges and identify any errors. You can request an itemized bill to make this process easier. An itemized bill can help you spot duplicate charges, billing errors, or services you may have been charged for but did not receive. If you find any discrepancies, you can ask the hospital to correct them before making the payment.
You also need to understand how much of the bill is covered by your health insurance. Once you have reviewed the bill, contact your insurance provider to verify the claim, understand your deductible status, and check your coinsurance and co-payment responsibilities. Once all of this is done, confirm the final amount that you are required to pay.
You should also check whether any of the charges qualify as surprise medical bills. Under the No Surprises Act (NSA), which came into effect on 1 January 2022, you are protected from certain unexpected medical charges. For example, you may unknowingly receive treatment from an out-of-network provider. Since the provider is outside your insurance network, you could be billed directly for some services. Thankfully, the No Surprises Act prohibits many of these unexpected charges, helping protect you from paying higher out-of-network costs.
The lower your medical charges, the easier they are to pay. Reducing your bill can lessen the financial burden and minimize the need to use your assets to cover the expenses. If most of the bill is covered by your health insurance, your out-of-pocket costs will also be significantly lower.
2. See if you can negotiate the bill with the hospital
Did you know that you may be able to negotiate your hospital bill? While you may not always be able to reduce it by thousands of dollars, it may still be worth trying to negotiate. Even a small reduction can make the bill easier to pay. The lower the amount you owe, the less likely you are to dip into your assets or face aggressive debt collection.
It helps to contact the hospital’s billing department and ask whether they can offer any discounts. Some hospitals may have financial assistance programs for patients who are unable to clear their medical bills. You can always check for these. If you qualify for reduced charges or discounted rates, you may be able to save money. You can also ask them whether they offer any free medically necessary services. Some hospitals also offer extended payment plans that allow you to repay the bill over time. This can make it easier to manage the bills without putting your assets at risk.
You can also ask to speak with a patient advocate. Many hospitals have patient advocates on staff. These are mostly nurses employed by the hospital. They can help you understand your medical bills and available payment options. They can also help you with filing insurance claims. And, they may be able to assist you in negotiating with the hospital to reduce your bill.
3. Set up an irrevocable trust to protect your assets from creditors
Medical debt can have serious financial consequences. You can be sued for debt. In some cases, hospitals may sell unpaid medical debt to third-party debt buyers. These debt collectors can be way more hostile and pressing when it comes to repayments. There have also been cases where hospitals or debt collectors have obtained court judgments that allowed them to place liens on a patient’s home or take money directly from their paycheck. A lien can prevent you from selling, transferring, or refinancing your property until the debt is paid. This basically cripples you from exercising any kind of financial control over the property, even though you may be the owner.
Fortunately, there are legal medical debt protection strategies that may help protect certain assets from creditors. One such strategy is setting up a trust. You can consider setting up an irrevocable trust. An irrevocable trust allows you to transfer your assets, such as your home, into the trust. When you do this, you no longer legally own these assets. This protects you from all kinds of creditors, including hospitals and third-party debt collectors.
When creating an irrevocable trust, make sure to review your assets carefully. You can transfer cash, checking and savings accounts, home, vehicles, investments, intellectual property, etc. Once transferred, these assets are managed by a trustee for the benefit of your chosen beneficiaries. An important thing to remember is that once you have created an irrevocable trust, it cannot be changed or canceled. So, make sure to consult an experienced financial advisor or estate planning attorney before setting one up.
4. Use a Health Savings Account (HSA)
If you have a High-Deductible Health Plan (HDHP), you may be eligible to open and contribute to a Health Savings Account (HSA). An HSA is a tax-advantaged account that helps you save for qualified healthcare costs before and after retirement, including medical debt.
You can use your HSA to pay eligible medical expenses, provided the expenses were incurred after you opened your HSA. You can either pay the bill directly using your HSA debit card or pay it yourself and then apply for a reimbursement from your account later.
The brilliance of the HSA is that it offers a triple tax benefit, which maximizes your savings:
- Contributions are tax-deductible
- Investments within the HSA grow tax-free
- Withdrawals are tax-free when used for qualified medical expenses
However, if you use HSA funds for non-qualified expenses, you will have to pay federal income tax on the amount withdrawn. In addition, you may also have to pay a 20% penalty on the withdrawal. You can open an HSA through your employer, if offered, or on your own through an eligible HSA provider. Some employers also contribute to employees’ HSAs, which can help you build additional savings over time.
5. Proactively protect your assets from creditors by building an emergency fund
Another medical debt protection strategy is to build an emergency fund. If you have sufficient savings to pay for an unexpected medical bill that is not fully covered by your health insurance, you may not have to worry about creditors at all.
Building an emergency fund is one of the first steps in financial planning. As soon as you start earning, you should set money aside for unexpected situations, such as medical emergencies. Most financial experts recommend maintaining an emergency fund that covers at least 3 to 6 months of your living expenses. This can be a suitable amount to manage a wide range of unexpected expenses, including medical bills. For example, if you earn $5,000 per month, you could aim to save between $15,000 and $30,000 in a savings, checking, or other highly liquid account. This ensures that you can access the money whenever you need it.
If you receive a hospital bill that is not fully covered by your insurance, you can use your emergency fund to pay it instead of worrying about debt collectors or risking your assets. It also helps you avoid liquidating your long-term retirement savings or paying taxes and penalties on early withdrawals.
But if you do use your emergency fund, make it a priority to replenish it as soon as you can. You may have another financial emergency, and you must remain prepared.
6. Speak to a financial advisor
No matter your situation, whether you are dealing with medical debt or proactively trying to avoid it, working with a financial advisor can make a real difference. A financial advisor can help you develop a financial plan that includes the right asset protection strategies to manage debt.
Medical debt can have severe financial consequences. For starters, it impacts your credit profile. While recent changes have provided better protection for consumers, unpaid medical bills can still affect your financial health. In general, unpaid medical debt is not reported to the major credit bureaus until it has been unpaid for at least one year, which gives you time to react. Additionally, medical collections under $500 are no longer included on consumer credit reports. Even with these measures in place, it is still important to maintain a healthy credit score. A financial advisor can also help you with such issues. They can help you improve your credit score and employ strategies to ensure it is not affected by medical debt.
Financial advisors can also help with strategies such as setting up a trust. If you are facing a lien on your home or other legal claims from creditors, they can help you understand your options. In addition, they can guide you on Health Savings Accounts (HSAs), insurance coverage, and other financial planning steps to prepare for future medical expenses.
Adopt the right asset protection strategies
It is important to take medical debt seriously. Debt can slow your financial progress, affect your credit score, and cause a lot of stress. It may even put your assets at risk and force you to deal with aggressive debt collectors. This is why it is important to use the right strategies, both proactively and if you ever find yourself facing medical debt.
If you need personalized guidance, you can speak with a financial advisor. They can help you protect your assets from creditors, manage debt, and prepare for future medical expenses. You may explore our financial advisor directory to find vetted professionals who can guide you and clarify any doubts you have.
Frequently Asked Questions (FAQs) about medical debt protection
1. How can you protect your assets from creditors?
There are several steps you can take to reduce the financial impact of medical debt, such as:
- Consider setting up a trust to help protect certain assets.
- Build an emergency fund and, if you are eligible, contribute to a Health Savings Account (HSA), so you have money set aside for healthcare expenses.
- Negotiate your medical bills with healthcare providers or request a payment plan to make the debt more manageable.
- Ensure you have adequate health insurance coverage to cover medical expenses.
2. Why should you prepare for healthcare costs in retirement?
Planning for healthcare costs in advance can help you avoid dipping into your retirement savings or taking on debt to pay for medical care. It also ensures you can access quality healthcare in the future.
3. I am struggling with medical debt. What should I do?
If you are struggling with medical debt, contact your healthcare provider to discuss a suitable payment plan. Inquire about possible financial assistance. You can also try to reduce the amount you owe by negotiating the bill if possible. Additionally, it may be helpful to work with a financial advisor.
To learn more about the most suitable tax-saving strategies for your specific financial requirements, visit Dash Investments or email me directly at dash@dashinvestments.com.
About Dash Investments
Dash Investments is privately owned by Jonathan Dash and is an independent investment advisory firm, managing private client accounts for individuals and families across America. As a Registered Investment Advisor (RIA) firm with the SEC, they are fiduciaries who put clients’ interests ahead of everything else.
Dash Investments offers a full range of investment advisory and financial services, which are tailored to each client’s unique needs providing institutional-caliber money management services that are based upon a solid, proven research approach. Additionally, each client receives comprehensive financial planning to ensure they are moving toward their financial goals. CEO & Chief Investment Officer Jonathan Dash has been covered in major business publications such as Barron’s, The Wall Street Journal, and The New York Times as a leader in the investment industry with a track record of creating value for his firm’s clients.
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