prepping for medical bills

Smart Ways Clients Can Financially Plan for Pandemic-Related Medical Bills


The Coronavirus pandemic has placed a spotlight on the importance of having an emergency fund. Accountants and financial advisors must work with their clients to ensure they are financially ready for the unexpected.

Apr 7th 2020
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The Coronavirus pandemic has placed a spotlight on the importance of having an emergency fund. Accountants and financial advisors must work with their clients to ensure they are financially ready for the unexpected.

This truly is one of the prime tenants of financial planning, and you never know when it will come in handy (which is why it’s called an emergency fund). It will allow clients to absorb unexpected costs without having to stop working towards their other goals or inhibiting their current cash flow, and it will give them the flexibility of not having to sell investments during a time that may not be ideal to do so. In the case of a pandemic, like coronavirus, the emergency money should be ready for any health expenses incurred by your client’s family.

The number of cases in the US continues to go up precipitously, and this means large medical bills for those who stay in the hospital, fighting for their lives. Health insurers have stepped up to cover some of the potential financial exposures of the coronavirus, but many people will still need additional financial help. This includes the large number of Americans who are not insured and who have large deductibles and co-pays that present a burgeoning concern. In the months to come, it will be highly likely that tax and financial advisors will see an increase in conversations with clients who are experiencing a financial stressor due to their battle with the virus.

Tax and financial advisors alike will see a growing number of people with large medicals bills as a result of this virus. Clients will be asking for advice on how to pay for these expenses; they could be exorbitant, depending on the level of infection and whether there were any complications. Those who have planned properly and have an emergency fund will certainly be in a better position than those who have not.  

Unfortunately, as important as it is, many families do not have an emergency fund in place for these sudden expenses. Even those who do may see it drawn down to zero with the bills that amass from the cost of fighting the virus. Remember: Just because people have money set aside doesn’t mean they won’t need your advice. Families who have successfully navigated this medical event using their emergency fund will need to determine how they will replenish it in preparation for the next unexpected event.

Those families who did not have an emergency fund or find that theirs is drained will need assistance in paying for these expenses. Several options currently exist, some made available through the CARE Act, and there may be more unveiled as the financial fallout becomes clearer.

As an example, those who have a retirement account and are under the age of 59 ½ are allowed to withdraw up to $100,000 without incurring the 10 percent penalty, and they can defer the taxes. There are also provisions that would allow your client to replace those funds within 3 years, not pay taxes and have it as if they never removed the funds. Further provisions exist that will allow them to spread the tax liability over several years.

Additionally, retirement plans, such as 401(k)s, are being given the ability to raise the thresholds for loans. Typically, you are limited to borrowing the greater of 50 percent of your account balance or $50,000 from your account. Through the CARE Act, plans can make an amendment that would allow participants to borrow the greater of 100 percent of their account balance or $100,000 from the account. The new provisions also allow the participant to delay loan payments for up to one year.

These are all the current possible options that may allow clients to pay their large medical bills due to Coronavirus, but it is important for tax and financial advisors to work together to help their respective clients make these tough financial decisions. The decisions they make today may impact their lives for many years to come and they must take the right path for them.

In my view, the CARE Act will not be the last piece of legislation assisting US citizens through this unique event. It is important that, as advisors, we stay current on all the new developments as they arise. Tomorrow, another option that is better for our clients may present itself, and we need to work together to make sure they have all the information needed to implement the right strategy.

In the meantime, I recommend that you advise your clients to track all expenses they are incurring due to the Coronavirus, medical or otherwise. This will be especially important for your business clients. When the current situation dissipates, it will be important to be able to take a look and see what expenses were incurred specifically due to this pandemic. There may be future legislation passed that may help alleviate some of these, and it would be ideal if clients had an accurate accounting of them in advance.

We are certainly in interesting times that place a spotlight on the importance of planning. We should use this opportunity to educate our clients on the importance of having a plan and show them how we have used plans for our current clients to mitigate some of the financial stresses related to this health crisis. Doing this will allow us to prepare more of our clients for the next event they will experience and provide them with a foundation to deal with it too.

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