Financial Planning: A Guide to Managing Finances After a Medical Diagnosis
A medical diagnosis can usher in a mix of emotions, including frustration, fear, and uncertainty about the future. For many, monetary concerns are also high on the list of things to worry about.
As you work with your care team to manage your diagnosis, you may need to make some important financial decisions. Here are six considerations to keep in mind when it comes to health insurance, absence from work, long-term financial planning, and more.
1. Find out if you’re eligible for medical leave from work
If you need to step away from work to address an illness, your role may be protected by the federal Family and Medical Leave Act (FLMA). This act ensures that eligible employees can take up to 12 weeks away from work for medical reasons or to care for family members. Qualifying reasons for FMLA leave include treatment for a serious health condition, including mental health conditions.
Keep in mind that FMLA protection doesn’t require employers to pay you for the time you’re away from work; it only provides job protection to prevent you from losing your role while receiving treatment. A handful of states offer paid medical leave on top of FMLA protection.
2. Explore disability benefits through your employer
If you’re enrolled in short-term or long-term disability insurance through your employer, you may be eligible to receive a portion of your wages for the time you need to take away from work. Depending on your insurance policy, you may qualify to receive up to 80% of your usual pay for a period of time.
Even if you don’t remember enrolling in disability insurance, check to see if your employer offers it—some companies automatically enroll employees in a disability insurance plan and pay the full premium.
Don’t forget to take a close look at the terms of your disability insurance policy. Pre-existing health conditions may not be covered, and you will need to file a claim in order to take advantage of your benefits.
3. Understand your health insurance coverage
More than half of Americans say they worry about unexpected medical bills. By understanding the ins and outs of your health insurance coverage, you’ll be better prepared for the costs you may face as you address your diagnosis.
Before meeting with new healthcare providers or specialists, make sure the provider is in your insurance network. Work closely with both your medical provider and your insurance company to be sure procedures and treatments are properly coded and covered by your plan.
If you're uninsured, reach out to a local community health center to learn about free and low-cost care in your area. You may also qualify for Medicaid, a program that offers health coverage to low-income and "medically needy" individuals. If you're over age 65—or if you're younger and living with a disability—you may be eligible for Medicare coverage.
If you have life insurance, some policies also provide living benefits, which could be used to offset the cost of medical treatments and make up for lost wages.
4. Use HSA and FSA funds to offset medical expenses
For many people, a Health Savings Account (HSA) or a Flexible Savings Account (FSA) offer a tax-advantaged way to offset medical expenses.
These accounts let you set aside pre-tax income to use toward qualified health expenses. If you have a high-deductible health insurance plan, you may be eligible to open an HSA. An FSA, on the other hand, is a health savings account provided through your employer.
The two accounts are governed by slightly different rules, but both allow you to save money on income taxes while setting funds aside to help pay your deductible and other approved medical expenses.
5. Weigh your options for paying medical bills
If you're facing mounting medical bills, your first instinct might be to pull money from savings or take advantage of a hospital payment plan. These tactics can work for some people, but they also come with potential downsides.
Medical credit cards and financing plans, for example, can impact your credit score and carry high interest rates. And although the IRS permits hardship withdrawals from 401(k) plans, these withdrawals may still be subject to tax. Plus, an early withdrawal can significantly reduce the amount you'll have saved at retirement.
Work with a trusted financial professional to weigh your options and create a financial strategy that helps you meet your obligations without hurting your overall financial picture.
6. Update estate plans
It’s a good idea for everyone—regardless of age and health status—to document their wishes and outline how their finances should be handled after they die.
A major life event like a medical diagnosis provides an opportunity to revisit your estate plans. Make sure your documents are up-to-date with the correct beneficiaries and directives for your loved ones. Create or revisit your will, and designate both a financial and healthcare power of attorney to make decisions about your finances and medical care if you become unable to do so.
Facing an illness is never easy. But your finances don’t need to be a source of stress. Work with a financial professional to create a plan for covering medical expenses, taking time away from work, and organizing estate plans.
