Recently, I was speaking with my younger sister, who is juggling caring for two young boys, a full-time job and a husband who travels. She’s tired. I’ve been there and know first hand it can be a busy, wearing and challenging time of life. What’s different from our two experiences is that she is also dealing with a chronic illness.
As a Financial Advisor, I know that she and the millions of people living with a chronic illness need to give special care to their finances. Even though you may have your hand’s full managing life, you can benefit from taking the time to bolster your financial defenses. Below are seven steps you can take to help you or a loved one create a sustainable financial and health care plan.
Make sure you have health insurance
If you or your spouse is still working, you may have access to employer health insurance. If you are given a choice between traditional health care options and a high deductible plan, run the numbers to see which is the most affordable. In your circumstance, the traditional plan may beat the high deductible plan. If you are married, run the numbers from both of your plans to see if you should take your company’s insurance or your spouse’s. It may be beneficial to assume you will burn through the deductible for this exercise.
Affordable Care Act
If you don’t have employer insurance, you can purchase insurance through the independent health insurance market or your state’s Affordable Care Act options. Currently, there is no preexisting conditional clause so you will pay a premium based on your age. If your income is below certain amounts, your state may subsidize the premium to some degree.
If you have no or a low income, you may qualify for your state’s Medicaid insurance. In the state of Minnesota where I reside, this is generally a good option.
If you or your spouse leaves the company that has provided your insurance, you can continue using it and paying for it for 18 months. If you are already disabled, you can continue the cobra policy for 3 years.
Disability insurance is valuable
If you have a chronic illness, you may not qualify for disability insurance on your own. Consider yourself fortunate if you work for an employer that provides disability insurance as you could receive almost 60 percent of your income for some time if you become disabled. (The amount varies but is seldom over 66 percent). Sometimes the payout is two to five years. Other policies may provide you with income until age 65.
You may be offered this benefit by paying for the premium or being grossed-up the premium, which means your employer pays the cost of the premium and will “gross-up” your paycheck by the same amount so you will be taxed on the premium amount. If your employer pays the premium and you go on claim, your benefit will be taxed. If you pay the premium or if you are grossed-up the premium amount, any claim you receive will not be taxed. In this case, you may end up receiving an amount close to your net paycheck.
If you have an independent policy that you purchased before you were diagnosed, it likely will pay to keep the policy.
Take all the tax deductions you can get
If you have a lot of out-of-pocket medical expenses, you may be able to deduct some of them. The Internal Revenue Service (IRS) allows taxpayers to deduct the total qualified unreimbursed medical care expenses for the year that exceeds 10 percent of adjusted gross income. You can also write off home improvements such as installing wheelchair ramps, etc. These deductions work only if you itemize deductions.
Plan for needing more care in the future
If you have a long term care insurance policy, keep it. If you don’t and have been diagnosed, you likely will not be able to get one. Instead, you may want to start a savings account for a probable rainy day. Research to see if there is a typical progression with your diagnosis. Some people may eventually need help managing around their home, some may eventually need assisted living and others may need nursing care. Setting aside money now for the eventual care cost would be prudent.
You might have extra income to help you
Depending on your age and circumstances you may have some income to help you out in the form of an insurance disability payment or Social Security Disability. Additionally, if you are disabled, you can withdraw funds from your retirement account under the age of 59 ½ without penalty.
Be sure to have your estate plan complete and updated
An estate plan is not only needed to help sort things out after you have passed away. It can also be beneficial when you are alive. A health care directive can lay out what you would like to have to happen given a variety of health care situations. More importantly, it names a person who can make health care decisions for you if you are unable.
A power of attorney designates someone to make financial and legal decisions for you if you become disabled. For all of these documents, we suggest working with an estate planning attorney who has experience helping people with chronic illnesses.
Don’t forget to plan for living
Even though you may be managing a chronic illness, you may also have many wonderful years ahead of you. You may want to educate your children, retire someday, and check off bucket list items. We suggest working with a financial advisor who can help you see how all your goals fit together and to create a financial plan that supports your dreams as well as your chronic illness.