9 Ways to Finance Your Back and Spine Surgery
Low back pain affects an estimated 31 million Americans each year. Health care costs to treat back pain range between $50 to $100 billion each year, and that figures in lost wages and decreased productivity. Data from Center for Health Statistics cites that annually, surgeons perform 1.2 million spinal surgeries with lumbar spinal fusion surgeries ranging from $60,000 to $110,000 each.
Let’s position those numbers next to reporting from the Bureau of Labor & Statistics regarding the median weekly wage for the average American worker. A white paper from the department reported median weekly earnings of the nation's 118.3 million full-time wage and salary workers was $936. This means it would take the average worker 64-117 weeks’ worth of salary to pay for surgery.
When your doctor recommends surgery and you have a fixed salary and your health care insurance won’t pick up the bill, here are a few ways to finance you back surgery.
Health Savings Accounts
Approximately 22 million people use an HSA as a means to create employer-contributed savings to help pay for or offset the cost of medical expenses. Health savings account (HSA) plans offer employers a means of helping employees save money for managing their health care costs. These consumer-directed health plans (CDHP) do so by allowing for pre-tax dollars to cover the cost of qualified medical expenses. While money drafted from your HSA is not subject to federal taxes, contributions to HDAs are limited—individual contributions up to $3,550 and a family contribution up $7,110. When using these funds to cover surgeries, there are a few things of note.
“[HSAs] requires you have a high deductible plan. The minimum [deductible] is $1,400 for an individual and $2,800 for families,” says Colin Slabach, assistant professor of retirement, Deppe Chairholder of Pension and Retirement Planning, Assistant Director, New York Life Center for Retirement Income, The American College.
He says the plan offers additional financial growth benefits that the account holders should consider.
“The largest pro is your tax benefits. You’re putting money in tax-free and taking it out tax-free. Another thing is you can invest the money [into the market]. So having this pot of money for future medical expenses that continues to grow is helpful. You can buy stock funds, bond funds, etc, to make your money work for you until you need it,” Slaback says.
Health savings accounts do have stipulations. Only qualified medical expenses can be withdrawn from the account tax-free. These include:
- Dental work
- Non-cosmetic surgeries
- Doctor’s examinations and co-pays
- Optometry visits and eyeglasses
- Physical therapy
- Flu shots
- Prescriptions and over-the-counter medications
The redeeming quality of health savings accounts is rollover. If you don’t use any or all of the available funds within your HSA, you have access to all the money in the account the following year with the option of maxing out the allowable contribution again.
“The fundamental advantage is you can save it up over time,” says Slabach. “It’s tax-free if you use it on medical expenses. It never goes away and follows you wherever you go.”
Other Health-Focused Savings Accounts
Related to the health savings account are FSAs, flexible spending accounts. These operate similarly to an HSA with one caveat: they must be used within the calendar year or forfeited at the end of each year, thought your employer can elect to allow a grace period for a small rollover of up to $500.
“FSA is a use-it-or-lose-it system. If you don’t use in a 12-month period, you lose it. There is a little grace period, and you can only roll over $500,” says Slobach. “Sometimes employers don’t let you roll over the $500 and the max contribution is $2,750. If you have both—HSA and FSA—it limits the FSA. You can only use it for vision and dental.”
Your employer may have what is called a health reimbursement arrangement (HRA). This is a tax-free reimbursement by your employer of qualified medical expenses that works in tandem with your existing employer-provided health care package.
Dip into Savings
In most cases you should avoid dipping into your life savings account, however, when an emergency surgical need arises, drawing from your savings is wise. The money you have accumulated in your emergency should be used to pay for the surgery, cover the deductible, or cover some other large cap expense related to your back surgery. Once you’ve used the money in your emergency fund and are back on your feet, immediate get back to work replenishing it. You never know when the next need will arise.
“First look to use money you may have in an account like a HSA. Then look toward using funds you have for emergencies, perhaps in a savings account. This is an example of why it is important to have an emergency fund. It is absolutely appropriate to ask your medical provider for guidance on possible follow up appointments and their cost. Be persistent to get the best answer you can to avoid surprises when possible. Take care before tapping into retirement accounts,” says Charles H Thomas III, CFP, of Intrepid Eagle Finance.
Borrowing from Retirement
If you’ve got a retirement savings plan, be it a Roth IRA or a 401k, you may eligible to borrow money against retirement funds and avoid early withdrawal penalties.
“Using retirement savings account like a 401K or IRA to pay for the medical debt should be a last resort. When a doctor or hospital administrator presents a medical bill after a procedure, the costs are usually inflated for insurance purposes,” says Dennis Shirshikov, a financial authority on small business financing with FitSmallBusiness.
To avoid IRS penalties when withdrawing from your Roth IRA, the following requirement must be met: your unreimbursed medical expenses are greater than 10% of your adjusted gross income.
For a 401k withdrawal, that percentage is 7.5% of your adjusted gross income.
“Borrowers can withdraw a short-term loan of up to $50,000 from their IRA for up to 6 months, without incurring taxes or penalties. Although the amount won’t incur any penalties or taxes, it must be repaid in full before the six month period is over,” Shirshikov says.
“Alternatively, borrowers can also liquidate a 401K or IRA but should consult a financial advisor beforehand. This is mainly because a full liquidation is not only taxed, but also incurs high penalties. In most cases, the interest in medical debt is lower than the penalties for the IRA, so financing or payment plans are a better option.”
Taking Out a Line of Credit or a Personal Loan
If you intend to use a credit card or open a line of credit to pay for your surgery, be sure to read the fine print. The average interest rates on credit cards is 19.02%. This option could more nearly double the cost of your surgery while having you on the hook to pay back the creditor for many years to come.
If your procedure costs $10,000 on an 19% credit card and your monthly minimum payment is $400, you’ll need nearly 30 months to pay it off (and you’ll accumulate $1,900 in interest!).
“With rising medical costs we have seen an alarming trend of people turning to high APR personal loans to pay for surgeries,“ says Mark B. Huntley, co-founder of Credit Knocks. “The largest growing financial product on the market today is the personal installment loan and we have seen a steady decline in the required credit score to qualify for these loans.“
While some credit cards offer cash back, points and perks, or no annual fee, it may be in your best interest to negotiate your rate with the lender to see which type of rate you can get and find out how long that rate lasts. If you’re unable to qualify for a line of credit, and choose to shop fore a personal loan, beware of predatory lenders.
“Today, many of the largest personal loan lenders now actively market them to pay for medical expenses. They aren't a bad option if you have good credit and an income history because APR rates start as low as 2.9%. The problem is that if you are a higher risk borrower, we are seeing APR rates starting at 35% and rising to predatory levels of 155%,” Huntley says.
Taking a Home Equity Loan
A home equity loan can provide you enough money to offset the cost of your surgery. Defined as the difference between the market value of your home and the remaining balance of your mortgage, a home equity loan can easily free up tens of thousands of dollars for surgery. A few basic requirements to meet before applying are: a good credit score, a well-documented history of good borrowing, and proof of consistent income to show your ability to handle the payments. Home equity loans come with fixed payments, low interest, and extended repayment schedules, which can alleviate financial stress and burden post-surgery.
“If you’re faced with an expensive surgery, it is important to look at what you have...Personally, when I was diagnosed with cancer, I set up a home equity line of credit just in case —you may not use it, but it is there if you need it. From there, you can look at the taxable impact of the account you are drawing from. The IRS will allow you to deduct anything over 7.5% of your adjusted gross income,“ says Steve Sexton, inancial consultant and CEO of Sexton Advisory Group.
A popular method of raising money for surgery is crowdfunding thought websites like GoFundMe. According to the platform, nearly 250,000 campaigns have been placed on the website aimed at helping pay for health care costs. GoFundMe campaigns have raised $650 million in contributions. The secret to getting your camping funded lies in your ability to tell (and sell) your medical story. It can feel like a popularity contest and sometimes the sheer magnitude of other needs can make you feel petty for using the site. However, the site offers users expert tips for drawing attention to campaigns to better increase the chances of funding. Oftentimes, it’s the friends and family members of the person needing the procedure that puts up the page and invariably shares it across social media.
Opening CareCredit Account
CareCredit is a line of medical credit used for paying out-of-pocket expenses not covered by health insurance. Over 200,000 enrolled providers across the nation accept it. It requires the recipient to apply to receive benefits and a stipulation of earning the line of credit is good consumer credit. One of the best parts to CareCredit is once you have it, it can be used for other services you may need post-op, like chiropractic care, prescriptions, and additional tests.
“Debt is debt. Whether debt comes from a medical procedure or somewhere else, it can pose a challenge. Medical financing companies or other sources of financing may be worth considering, but should not be your first option,“ says Thomas.
He advises seeking out medical sharing organizations as a better option.
“An additional option I sometimes discuss with clients is a medical sharing ministry. Some Christian uninsured families have found solace for medical expenses with medical sharing ministries. These are an insurance alternative that for certain households are worth exploring,” he says.
Talk to Your Hospital Foundations Coordinator
What many people may not know is that some hospitals have a fund set aside for indigent patients and those who cannot pay for expensive surgeries. In some cases they will pick up the complete tab for a patient or offer assistance on a sliding scale to buffer the cost based on the income of the patient. This type of goodwill is available if you contact your hospital. An example of this can be found here.
“Before anything, a patient should speak with the hospitals billing department and explain they do not have insurance. This is an opportunity to ask for a ‘cash discount’ or reduction in the bill for being uninsured. This can be a substantial difference sometimes as much as 50%. Negotiating may also be required to bring down the price. They may also offer a payment plan at a low or sometimes zero interest rate,“ says Thomas.
Surgery is one of the most expensive decisions you will make in your life. Knowing what your options are for financing it will help to ease your mind and get you back on your feet quickly—and hopefully with lower overhanging debt.
Ken Rupert’s Experience
Financial expert Ken Rupert’s son has had 11 major surgeries. Here is what he’s learned from the financial side of them all.
If I were to advise someone facing the challenges I have faced, I would start by saying do not use a 401k loan to pay for medical expenses. After the medical procedure is completed, you might still have medical costs as well as a loan that must be paid back. This increases a risk of a taxable event that includes a 10% penalty in the event the account holder is not 59 1/2 years of age. I would also resist using any pre-retirement distribution from an IRA as this too will complicate your tax positions on the back end of a surgery.
What I did do, and I would council others to do, is to suspend any contributions to the IRA and or 401k until such a time that your medical expenses are at least under control and at best satisfied. Forgoing the company match is a sacrifice, however, it is better than increasing risk. Keep funding the HSA as that tax-favored money can be used to pay medical expenses. If you are not fully funding the HSA at this time up to the IRS maximum contribution limit, do so with the money you have suspended from the IRA and or 401k. Contributions made with post tax dollars can be written off on your taxes, so there can be a benefit at the end of the year for pivoting to this contribution direction.
For me, the best case scenario was that we could adsorb the medical expenses into our monthly income distribution strategy. We did have a few advantages going into my son's surgeries. First, when our son was born, we began planning for his eventual needs by opening a trust. I studied investing and market dynamics and was able to double the money we had contributed (from $27,000 to $54,000) to his trust in just a couple years before he needed the first surgery. We also had paid off our house before that time so we were able to invest our "house payment" and increase our wealth. This allowed us the ability to absorb the medical expenses without having a financial crisis. Financial management is about priorities and positioning. The 401k, IRA, and HSA are priorities that I fund in the first quarter of the year, every year, up to the IRA maximum. By doing so, we were positioned to absorb the financial costs of multiple surgeries over a six year period.
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