How advisors can help clients navigate medical debt and plan for emergencies

As the health care system becomes an increasingly complicated landscape, wealth managers said negotiating medical expenses, building a plan for health emergencies and investing in HSAs early and wisely can help clients navigate medical debt and prepare for future emergencies. 

High medical bills during times of illness can cause more tension and stress during an already overwhelming era of a client's life. Complicated billing systems, hazy insurance coverage and extra charges only compound the trouble. 

In 2024, 6% of U.S. adults, or 14 million people, owed more than $1,000 in medical debt, according to the Kaiser Family Foundation. At least $220 billion is owed in total medical debt nationwide, according to KFF. 

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Financial advisors can help clients navigate medical debt that impedes wealth building, as well as build a plan for future medical crises.

Medical debt differs

In a way, medical debt is the best debt to be in, said Brayden Oswald, director and wealth manager at Nashville, Tennessee-based Burney Wealth Management. Medical debt is treated differently from mortgage or credit card debt by the credit bureau, he said. Oswald advises clients to slow down when dealing with medical expenses and to take time to verify the bills, line by line. 

After pinpointing an accurate number based on their providers' services, Oswald said to call the hospitals and providers and ask whether they can pay in cash, set up a payment plan or reduce overall costs through financial assistance. 

"Negotiating is a big factor," Oswald said. "Ninety percent of the time when our clients ask for a reduction in price, it is granted to them."

Once negotiations are completed, Oswald often sets up a payment plan for clients, since interest is state-dependent and can range from 0% to 5%, and medical debt doesn't need to be paid back urgently. 

"We would rather see them continue to save and to invest, while also paying monthly payments within their budget along the way," Oswald said. 

James M. Dahle, an emergency physician and the founder of The White Coat Investor, said medical debt is unique in that it has no collateral. Doctors and hospitals are far more likely to negotiate about debt and may accept 25 cents on the dollar and consider the debt paid in full, he added. 

Having a provider plan for the future

John Samuels, founder and CEO of Wellworth, a New York City-based healthcare advisory firm, said medical debt can happen even for high income earners. What happens often is that clients don't have a plan when something medically goes awry — they end up going to the wrong hospital, emergency room or to a provider that their insurance doesn't cover, burying them in bills. 

"If somebody has back pain and if you're self-referring, you might see a chiropractor, a physical therapist, then an orthopedic surgeon, then you might go see a physiatrist, a rehab doctor, then a neurologist," Samuels said. "That's five or six different appointments, more expenses, more time off work and medical confusion."

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Advisors and companies like Wellworth can work with clients to make sure they have strategic plans and refer them to providers covered by their insurance, Samuels said. 

"The work is to get clients to the right treatment by building a foundation and understanding what care would cost before somebody gets engaged in it," Samuels said. 

Health savings accounts are key

Also to keep clients out of debt and plan for future emergencies, advisors can help pick the right insurance policies and support the use of health savings accounts. Encouraging health insurance, whether through an employer, purchased on the open market or obtained via the government like Medicaid, Medicare or Tricare, is the most important thing an advisor can do, Dahle said.

"While one can still have medical debt while having health insurance, it will dramatically reduce the possibility of medical expenses blowing up the entire financial plan," Dahle said. 

Using a health savings account can also go a long way to avoid medical debt, Dahle added. 

Oswald said he always advises clients to use HSAs as an investment vehicle and to max them out every year, since it's a triple tax benefit and allows clients to get a tax deduction on the payment. 

When investing in HSAs, start young, Oswald said, since the investments grow tax-free. 

"For younger clients, HSA accounts could realistically grow to over a million, million and a half (dollars) over their lifetime," Oswald said. "If something like long-term care comes up, they have an account that is completely tax-free."

In addition to starting HSAs early, young people using high deductible health insurance plans can reduce premiums, allowing more savings, which could ultimately set up a client for life, Dahle said. 

"If some of that is invested for the long term, within a decade it can create a six-figure fund that will essentially eliminate the possibility of medical debt for that family ever again," Dahle said.