Medical Debt: A Financial Strain

Why It Matters:

  • Unexpected medical bills can deplete savings accounts.
  • More than 1 in 5 Americans have unpaid, past due medical bills.2
  • Medical debt even puts a strain on the insured.

Courtney Harris tkc.profilePicture Written by: Courtney Harris | Transamerica
July 24, 2019

7 Min readClock Icon

Chances are, at some point in your life, an unexpected illness or injury has taken you or someone you know by surprise. While it stands to reason that that’s why you have health insurance, it turns out insurance may not always be enough. From coverage gaps to high deductibles, medical debt can easily add up and put a strain on finances.

Whether you’re insured by your employer, buy your own insurance, or are covered by Medicare, unexpected and significant medical debt can be stressful on any budget. According to the Kaiser Family Foundation Health Tracking poll, conducted in 2019, 26 percent of adults report they or a household member had problems paying medical bills in the past year.1

An additional study by FINRA Investor Education Foundation found 23% of Americans have unpaid past-due medical bills, and women are more likely than men to put off medical services due to cost. Including those without health insurance, the number increases to 33%.2

Medical debt and retirement planning

What does all this mean for anyone planning for or already in retirement? Whether you’re years from retirement or years into it, unexpected bills are something you probably want to avoid. However, unexpected bills are just that: They’re not expected — and it’s not the type of expense you can or should put off.

The question, therefore, becomes what should you do if you find you’ve incurred medical debt? And what steps can you take to prepare for the unexpected down the road?

Emergency plans for medical debt

Even if you have a solid retirement plan and limited outstanding debt, medical bills can quickly wreak havoc on your finances. One of the first steps you can take in protecting yourself from unexpected medical bills is to look into opening an HSA, or Health Savings Account.

The HSA — the silver bullet to unexpected medical expenses

Just as you made a plan to retire, it’s just as important to make a plan for the unfortunate occurrence of major medical expenses. Whether you’re the picture of good health or have dealt with your fair share of health concerns along the way, there are steps you can take to plan for future medical expenses.

Plus, Americans are living longer. According to data collected from the Social Security Administration, about one out of every three 65-year olds will live past age 90. It only makes sense to take steps now to help offset medical costs that could come your way down the line. One option you might want to discuss with a financial professional is a Health Savings Account (HSA).

HSAs can offer a way to save for out-of-pocket medical expenses while you’re employed or for health expenses in retirement. And they’re portable, meaning that even if you start one while employed, the account stays with you, not your employer. HSAs can be thought of as a long-term savings account with significant tax benefits, including:

  • The money you contribute reduces your taxable income.
  • Your money grows tax-free.
  • Withdrawals are tax-free when used for qualified health expenses.

HSAs do have restrictions. Consult with your financial professional, and review your insurance plan options to find the best option for your needs.

2019 HSA Contribution Limits:

Maximum Contribution Limit $3,500 (Single plan) $7,000 (Family plan)

Minimum Deductible $1,350 (Single plan) $2,700 (Family plan)

Maximum Out-of-Pocket $6,750 (Single plan) $13,500 (Family plan) 

Catch-up Contribution (55+) $1,000 (Single plan) $1,000 (Family plan)3

Learn who qualifies for an HSA and if it’s right for you. Keep in mind you can no longer contribute to one if you’re enrolled in Medicare.

A no-time-for-preparation payment strategy

While being prepared is the ideal, it’s not always the reality. If you find that you have incurred unexpected medical bills that aren’t covered by insurance and you don’t have a back-up plan such as an HSA, you can still put together a payment strategy.

Let’s say you have a medical emergency resulting in $20,000 in uncovered expenses. In all likelihood the bills will start coming in pretty quickly and be due almost before you know it. The last thing you want to do in this situation is avoid payment. Lack of payment will most likely result in your debt being turned over to a collections agency, which spells trouble for you and your credit score.

According to, “Once you’ve taken on medical debt, you should treat it just like any other debt.” If you find a payment plan isn’t enough and that repayment isn’t an option, suggests, “settling your medical debt with the assistance of a professional debt settlement firm.”4 lists debt reduction options if you’ve exhausted all other payment options. These options include:

  • Apply for a bank loan.
  • Use your credit cards to pay off medical debt.
  • Take out a home equity loan or line of credit.
  • Consider medical debt consolidation.

Chris McGovern, Chartered Financial Consultant®, Certified Funds Specialist®, Chartered Life Underwriter®, Accredited Estate Planner®, and director of Advanced Markets at Transamerica, lays out a strategic approach you may want to consider to pay off debt and keep your credit score intact.

  • If you have a credit card available that allows you to pay the full amount owed for your medical bills, consider using the card to pay the bill in full.
  • Next, you may want to apply for a home equity line of credit to pay off your credit card balance in full.
  • Make your monthly payments to your home equity line of credit. Paying this way, you’re paying a substantially lower interest rate than your credit card.

Should you borrow from your 401 (k) for medical debt?

If you have a 401(k), borrowing from your plan can seem like a tangible option if medical debt becomes an issue. However, borrowing from your 401(k) can come with consequences and should be discussed with a financial professional first. In addition, some plans don’t allow you to borrow against the plan at all.

Medical debt, like most other debt, can result in collections if not paid, which can begin after only a few months of no payment. Medical debt collections numbers in the U.S. are on the rise in recent years. If you find yourself faced with collections, remember according to the Fair Debt Collection Practices Act you have rights and that collectors cannot harass or lie to you.

Practice cost-conscious behaviors

When it comes to unplanned medical expenses, there are steps you can take to protect yourself and your wallet. Consider adopting these behaviors:

  • Research insurance plans with lower deductibles.
  • Make sure you understand what care is covered by the healthcare options available in your area.
  • Ask your doctor about generic options that might cost less.

Medical debt can come when you least expect it and at a high price tag. However, the prognosis isn’t all bad news. By informing yourself of your financial options, you can get back to what really matters, which is recovering.

Things to Consider:

  • Treat medical debt like any other debt and develop a repayment plan that works with your budget.
  • Look into HSAs as a way to help plan for healthcare costs.
  • Remember, if you do have medical debt, you also have rights.


1 “Data Note: American’s Challenges with Health Care Costs,” Kaiser Family Foundation, June 2019

2 “The State of U.S. Financial Capability: The 2018 National Financial Capability Study,” FINRA Investor Education Foundation, June 2019

3 “2019 HSA Limits Rise, IRS Says,” Society for Human Resource Management, November 2018

4 “Medical Debt and Collections,”, May 2019

Neither Transamerica nor its agents or representatives may provide tax, investment or legal advice. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely on their own independent tax and legal advisors and financial professional regarding their particular situation and the concepts presented herein.



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