Use tips to help avoid medical debt

Medical debt is a leading cause of bankruptcy in this country -- a fact made even more frightening because it is devastating people who actually have health insurance. According to January statistics from the Commonwealth Fund, a nonprofit health care action group, more than one in six Americans -- or 17.7 percent of the nonelderly population -- lived in families spending more than 10 percent of after-tax income on health care in 2004, up from 15.9 percent in 2001.

One of the most damaging aspects of medical debt is that it may occur suddenly and pile up at lightning speed. An overnight hospital stay -- depending on tests and treatments -- can easily cost several thousand dollars.

The bottom line: Your health is potentially your biggest money issue.

Yet like most financial crises, it's tough to find solutions when you're facing an emergency. If you're in good health, first, count your blessings. Then do the following:

» See if you can get healthier. The Centers for Disease Control and Prevention reports that 66.3 percent of noninstitutionalized U.S. adults 20 or older are overweight or obese. Getting involved in a personal or group weight-loss program and actually cutting pounds will significantly lower your health risk factors. Quitting smoking and limiting alcohol intake are other good moves to make, but consult your primary care physician first to map out a strategy.

» Review your health insurance coverage. If you are insured through an employer or buy your own coverage as a self-employed person, investigate what that coverage actually provides in everything from minor emergency room visits to major catastrophic diseases, such as heart problems or cancer. There's a good chance those benefits change -- and probably have decreased -- year-to-year. It's a good idea to seek help with this process. A trusted insurance agent or a trained financial adviser, such as a certified financial planner, can review this coverage with you or recommend an expert who can.

» Check your disability coverage. If you were sick and unable to work for a lengthy period of time, when would your disability coverage kick in and how long would it pay your living expenses? If you are self-employed or don't have this benefit at work, you should discuss it with an expert.

» Pre-plan a health care spending strategy. Granted, it's tough to ask how much a hospital's tests, medications and procedures are going to cost if you're strapped unconscious to a gurney. But everything in a hospital has a price -- everything from tissues to MRIs. Talk to your primary care physician about ways to save on costs during office visits and prior to any planned hospital stays and also talk about extended payment options if you feel you'll need one.

Talk to a financial planner or health insurance expert about ways to scrutinize hospital bills so you can refuse unnecessary items during your stay. Once you have these ideas written down, make sure the person you've designated as your health care power of attorney has them so they can act in your stead if you're incapacitated. One more thing -- these are particularly important questions to ask if you are moving an elderly relative into a nursing home or assisted-care situation where everything from aspirin to adult diapers carries an inflated price.

» Put tax-advantaged savings strategies in place. You may have the option to put money into flexible spending accounts at work and/or set up health savings accounts as part of your enrollment in a qualified high-deductible health plan. Unlike FSAs, HSAs allow balances to be carried forward year-to-year, growing on a tax-free basis as long as they're used for medical expenses -- this way, you can accrue a fairly large nest egg against uncovered expenses while you're still healthy. Get some advice from an expert on how to best use one or both kinds of accounts if you have those options available to you.

» Create a health insurance emergency fund. An emergency fund -- separate from your main emergency fund -- would be useful to cover the deductibles and co-insurance on your health insurance if you don't have an HSA in place. Health insurance policies will list a "total out of pocket" amount on the coverage page, which can run thousands of dollars -- try to keep this amount in reserve.

This column is produced by the Financial Planning Association of Colorado. Based in Denver, FPA has more than100 chapters throughout the country representing more than 28,000 members involved in all facets of providing financial planning services. Call (303) 759-4900.