Your Money: How to plan financially for a medical crisis

Karen Risi has been free of breast cancer for a year, and has the medical bills to prove it.
Karen Risi has been free of breast cancer for a year, and has the medical bills to prove it.
Posted: June 26, 2013

Karin Risi celebrated one year free of cancer on June 12, and she has $200,000 in medical bills to prove it.

Risi, principal and head of Vanguard Group's retail-advice services, underwent a mastectomy after being found to have breast cancer last year. Her medical journey prompted her to examine breast cancer from a financial perspective.

When the actress Angelina Jolie underwent a stunningly expensive medical procedure - a double mastectomy and breast reconstruction - women everywhere began thinking about the most difficult financial decision they might ever make.

If you feel strongly about heading off breast cancer, or have been tested and are disposed to the disease, are you going to rank your health first and your money second?

Probably. Yet the surgery could leave a woman and her family with staggering expenses. So what do you do?

"So many discussions didn't have anything to do with money," Risi said, and she didn't tally up the bills - including diagnosis, treatment, and recovery - until after she was in remission.

She was lucky. She works for a mutual-fund giant and has excellent medical coverage. Still, "I counted more than 50 separate medical claims associated with my breast cancer, spanning the 11-month period from my diagnosis in early 2012 to my last surgery and follow-up in December 2012. The total amount of the claims just inched over $200,000."

She did not require chemotherapy, which would have added to the staggering price tag.

"At 39 years old, I was unprepared for breast cancer. With no family history of the disease, I had my first mammogram about a year ago," she recalled.

But while she was emotionally unprepared for cancer, Risi said, "I was reasonably well prepared from a financial perspective. Not because I'm particularly wealthy, nor because I'm a master planner. I'm neither. But I had the basics covered. And so can you."

She offers this financial advice:

Draw from your taxable assets first. Determining the best way to draw down your financial resources during a medical crisis can be overwhelming. If illness requires you to dip into your assets, tap into your nonretirement accounts first (think liquid assets like cash savings and money-market funds). Exhaust your taxable "cash accounts" first, followed by other investments.

In short, protect your retirement savings as long as you can. Investigate a hardship withdrawal from your IRA, 401(k), or other employer-sponsored retirement plan. Rules pertaining to hardship withdrawals vary, but you may be able to withdraw before retirement without incurring a penalty to cover unreimbursed medical expenses. Remember: You'll have to pay income taxes on that amount.

Understand disability coverage. Only 36 percent of all workers have access to short-term disability coverage. If you're in the lowest quartile of wage earners, that number drops to 17 percent. If you're a part-time worker, it's lower still, at 15 percent. Those percentages drop even lower for long-term disability coverage, according to the Department of Labor's National Compensation Survey.

Build an emergency fund. This is a basic principle of financial planning, and you may need to tap yours if your illness is prolonged or you lack medical coverage. Consider stockpiling three to six months of income (or longer, depending on your risk profile) in a short-term investment vehicle that allows quick access.

Request a case manager from your insurance company. Many larger insurers offer a single point of contact to help you wade through the mountain of bills you will receive. A case manager may also help you arrange a payment plan.

Amazingly, Risi estimates that of her $200,000 in medical bills, her out-of-pocket payments totaled just under $3,000. Not surprisingly, more than half the total claim amount was driven by the mastectomy surgery and the four-night hospital stay afterward.

"Three mammograms, one MRI, countless hours of Internet research, two skilled surgeons, and one bilateral mastectomy later . . . I'm grateful and relieved to be cancer free."


Erin Arvedlund is a finance reporter and a resident of Philadelphia. Contact her at 646-797-0759 or erin.arvedlund@yahoo.com.

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