No matter how carefully you budget your money, it doesn’t take much for medical debt to derail your carefully made plans. A kid falling off a bike, missing that bottom step, or an unexpected health emergency like pneumonia or a kidney stone are just a few of the ways you can end up with medical debt totaling thousands of dollars in less than a week’s time.
In my family alone, we have dealt with a broken arm that required orthopedic intervention, asthma, a kidney stone, gall bladder removal, and type two diabetes. It’s nearly inevitable that you or a family member will have some kind of health issue that required medical attention. The problem could result in hundreds or thousands of dollars in medical costs. What if that happens this year or in the near future — are you financially prepared to handle the cost of medical care?
Medical debt can become a problem if it isn’t dealt with within a few months’ time. Ignoring the problem will lead to collections efforts that can ruin your credit and cost you more money down the road in interest rates on mortgages, car loans, and credit cards if you can even get them at all. But you can get rid of medical debt using one of several methods and preserve your credit rating in most cases.
Use Your Insurance
Medical insurance should provide some coverage for most medical costs, depending on your plan. Get familiar with your medical insurance plan and what it’s supposed to cover so that you can follow up if you feel that the coverage wasn’t correct. Some insurance companies are very creative with their rejections. They may not provide the coverage you pay for each month unless you follow up with them about the medical debt.
Deductibles and coinsurance amounts have risen in recent years, however, so you could still be left with a hefty bill once the insurance company pays its part. You also might be one of the millions of U.S. citizens still without health insurance as rates have increased and priced many people out of the market.
Many plans with high deductibles are eligible for health savings accounts, which allow you to put money in and deduct it from your taxes. If you are eligible for an HSA, you should open the account right away and not wait until a medical emergency happens, because you will not be able to use funds retroactively to pay for costs that were incurred before the account was opened.
Because HSAs are based on tax-free money, these accounts essentially provide a discount on out-of-pocket medical costs.
Your medical bills will be sent to collections unless you make a plan to deal with them.
Your medical bills will be sent to collections unless you make a plan to deal with them.
How to Reduce Medical Debt Without Insurance
The uninsured are often charged more than those with insurance, so you could end up paying more than you would have if you had insurance. Talk to your doctor or hospital about how you can get assistance to reduce your medical bill debt. You may be able to apply for Medicaid even after the bill is incurred, and even if you didn’t qualify before the medical emergency, you may qualify retroactively because of the way the medical bill impacts your overall expenses.
You can also apply for CHIP (for your kids) in many states, which is a low-cost health insurance plan for children that, while income-sensitive, has fairly high-income limits. Most households will qualify for the program, and it can provide coverage for kids until they turn 18.
Many hospitals also have hardship programs that can significantly reduce your bill. When my mother had a heart attack a few years ago, she was working a temporary job and didn’t have medical insurance. The hospital was able to reduce her bill by 80 percent through the hardship program, which was a tremendous relief.
You can also negotiate directly with a doctor or hospital. Explain your situation and ask for a reduction in cost. This works particularly well if you can offer to pay a chunk of the bill in cash right away, but negotiation can also sometimes work even if you can’t. Billing departments are well aware that once they sell a debt to a collections agency, they will never see the full amount that is owed. This provides an incentive for the healthcare firm to settle with you — they know even a reduced amount is more than they would get through collections.
Making a Payment Plan
Most doctors and hospitals will allow you to make a payment plan to pay off a large bill over time. Sometimes you will have to give financial information about your income and expenses to qualify for this plan, and sometimes you can just tell them how much you can pay and they will agree. Be sure to pay your agreed amount on time each month to avoid having the bill sent to collections, and set up the plan as soon as you can for the same reason.
If your budget is stretched to the limit, you may need to bring in some extra cash to make good on your payment plan. Since you are recovering from the medical problem that caused the bill in the first place (or taking care of a spouse or child who is recovering), working at a second job may not be possible. In that situation, you might want to consider doing surveys with Survey Junkie or Opinion Outpost or tasks on Fiverr. These options may help you increase your income enough to pay off the debt without a huge investment of time.
You may also be able to implement cost-cutting measures to free up some cash to pay off medical debt. Trim is an app that automatically looks for ways to save you money, canceling subscriptions you don’t use, and negotiating with companies to lower your existing bills.
Using Credit Cards
While most payment plans through doctors and hospitals don’t charge interest, using a credit card will usually require interest payments of 16 percent or more. It is sometimes possible to get a deferred interest medical credit card (CareCredit is one example) that gives you six to 12 months to pay off the bill before interest is accrued.
The problem with using a credit card is that minimum payments are so attractively low that you could end up paying double the amount of the original bill or even more if you just pay the minimum each month until the debt is paid off. While you may have good intentions at the time you charge the bill, life often throws you curve balls and prevents you from paying off the amount during the interest-free period.
Still, if a credit card is the only way you have to pay off a medical bill before it is sent to collections, you may have to use it to avoid worse consequences like collections or medical bankruptcy.
A personal loan through Avant may offer a lower interest rate than a credit card and could give you another option if the provider will not agree to a payment plan.
If the Bill Is Sent to Collections
Once the bill has been sent to collections, usually about 3 to 6 months after you first get it, there is usually little you can do to stop the process. Occasionally, you can call the doctor’s office and they can still accept payment there, or you can set up a payment plan and they can cancel the collections contract, but more often than not it is too late for all that.
There is a new rule in place that makes agencies wait 180 days before reporting a medical debt to credit reporting agencies, so if you can pay the bill within that time it should never show up on your credit report. You may also be able to set up a payment plan with the collections agency, although they are usually less sympathetic than the doctor’s office or hospital.
Another option is to negotiate a lower payment with the collection agency, which can sometimes be only 10 percent of the amount owed. This may be the best way of handling the debt if you can’t pay it all, but it will reflect negatively on your credit report in most cases (you can request them to report it as “paid as agreed,” but they won’t always agree to do that).
For large bills that you have no way to pay, even over time, medical bankruptcy may be needed. There are two basic types: one that arranges a three to five-year plan to pay off the debt, and one that just cancels it. Both of these types of bankruptcy will be reported to credit agencies and will stay on your report for seven years.
While medical bankruptcy is never an ideal situation, it can allow you to move forward after a catastrophic expense without having bills hanging over your head in collections indefinitely. There are some legal costs involved with filing bankruptcy, so it should only be used in severe cases, usually for tens or hundreds of thousands of dollars in bills.
A proactive approach will help eliminate stress about ways to reduce medical debt and concerns about dings on your credit. Put some money aside in an emergency fund (or an HSA if you’re eligible) to use for unexpected healthcare expenses. That money will make it much easier to deal with healthcare costs and other emergencies; it will help keep your budget on track without damaging your credit.