3 Tips for Healthy Finances if You Get Sick

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Even with gold-plated health insurance, the cost of a major illness can wipe out your savings. Here's how to do your best while preparing for the worst.

A new study by insurer MetLife shows that half of all Americans have only $5,000 in savings to tap for a major illness – while critical illness like cancer or stroke can reduce a family’s income by more than $12,000 in the first year alone. And that’s for those with medical insurance.

Many people realize that their insurance won’t cover 100 percent of the treatment and recovery for, say, a heart attack. But not only have they not saved enough to offset their share of the cost – they also typically underestimate how long they’ll be out of work and not making any money.

“The MetLife studies found that many people are unprepared to cope with the toll of lost income as well the out-of-pocket medical expenses and other illness-related costs,” said Clea Barth, MetLife’s vice president for critical illness insurance products. “A critical illness can have a long-term impact – even three to five years after being diagnosed, 60 percent of people experiencing these serious medical situations are still incurring out-of-pocket expenses.”

Even worse, the recession has devastated the amount we’re saving. Another new study, this one by financial services provider First Command, reveals, “consumers put an average of $1,059 into short- and long-term savings in June, down from a year-to-date high of $1,469 in January. It was the lowest monthly total since October 2009, when short- and long-term savings averaged $957.”

So besides winning the lottery or suddenly coming into an inheritance, how can you do your best to avoid the worst? Here are some do’s and don’ts…

DO take advantage of the new healthcare reforms that make preventative care – like annual physicals – immune to deductible and co-pays. “In this economic climate, many Americans have delayed or avoided visits to the doctor because they were concerned about the costs they might have to incur,” says Randall Abbott, a senior health care consultant with Towers Watson, a global professional services company. “Now, covered individuals and their families will not face even nominal financial barriers to preventive care services.”

For more about healthcare reform, read How Health Care Reform Will Affect You and 8 Positive Changes from Health Care Reform.

DON’T buy specialty insurance, like cancer coverage. MetLife and many other large insurance companies offers “critical illness coverage.” The big advantage is a big payout: Within 30 days of your diagnosis of a life-threatening illness, you get a tax-free, lump-sum payment. But such policies are expensive, and you’d likely benefit most from putting that same money into a general health insurance plan or savings account. Granted, everyone’s circumstances are different: Here’s a brief list of the pros and cons.

DO shop around for health insurance – again. That’s because the new healthcare reforms may drive smaller providers out of business, according to a new report by insurance rating organization A.M. Best that claims “many smaller individual and small group carriers may consider exiting the market.” The reason? The end of easy and massive profits. “Those that stay in the market may have to change their business plan/strategies in order to continue to operate profitably in the new environment,” the report says. “This could include revisiting their product portfolios.” And when insurance companies “revisit” their products, it’s seldom to offer more to their customers. So if you have a plan from one of these smaller providers, you may want to do some revisiting yourself.

We have a health insurance shopping tool that will allow you to compare rates from major companies. Check it out! Another place to compare health insurance is a new site from Uncle Sam: see Healthcare.gov: Now Helping With Health Insurance

Bottom line? Keep in mind that while having health insurance is critical, even the best insurance won’t prevent out-of-pocket expense. It’s important to save, to plan for contingencies that could keep you out of work, and to shop for the best coverage at the lowest price.

Stacy Johnson

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