The Ultimate Prescription for Dealing With Medical Debt

So you went to the ER or underwent an expensive medical procedure. Now the bill is here, and you’re worried that the shock is going to send you back to the hospital — and further into debt.

Your health is your most valuable asset. Yet there’s something so frustrating about going into debt over it. You didn’t decide to splurge on a hospital stay or a costly battery of tests just because.

Add in the maze of medical jargon and coding, health insurance and hospital billing departments, and medical debt can be downright maddening.

It’s probably of little comfort, but if you can’t afford to pay your medical bills, you have plenty of company.

About 3 in 10 people reported that they or someone in their household had trouble paying a medical bill in the past year, according to a 2017 Kaiser Family Foundation poll of 1,160 Americans over age 18. That same poll also found that 45% of people reported they would struggle to pay a surprise $500 medical bill.

Consider that the average patient with health insurance will pay more than $1,000 out of pocket for a hospital stay, and it’s easy to see how medical bills can quickly become a burden.

But there is hope. You have options for reducing or eliminating medical debt that don’t involve being hounded by debt collectors or filing for bankruptcy.

How Medical Debt Really Affects Your Finances

Before we talk about how to tackle your medical bills, let’s talk about how medical debt works.

Unlike your mortgage lender or credit card company, your doctor or hospital almost certainly doesn’t regularly report your medical payments to the three major credit bureaus. That means that unless your medical debt becomes delinquent, it will not affect your credit score.

Left unpaid, a medical bill will probably end up in collections, just as any other unpaid bill would. That’s when the credit bureaus will be notified.

Even then, medical debt collection works a little differently from other types of debt collection.

Regardless of when the debt was incurred, debt collectors must wait 180 days to report a delinquent medical bill to the credit bureaus, giving you extra time to work out an agreement with your provider or insurance company.

If the collections account is reported to the bureaus, expect your credit score to plummet. The exact impact depends on your credit situation, but even someone with a good credit score could see a drop of as much as 50 to 100 points, though the effect will lessen over time.

The good news is, FICO 9 scoring model weighs medical debt in collections less heavily than past models. The bad news: Most creditors are still using FICO 8.

Like other derogatory marks, an unpaid medical bill stays on your credit report for seven years, though if your insurance company pays the bill, the credit bureaus have to remove the debt from your file.

You could also be sued for what you owe. If a creditor gets a judgment against you, it could result in your wages being garnished or your assets being taken through a court-ordered bank levy.

The statute of limitations for unpaid medical bills varies by state. Typically, it’s between three and six years after the bill was reported as delinquent, though in some states, it’s as long as 15 years. If the statute of limitations has passed on a medical bill, a creditor can’t sue you over the debt, though they still might keep bugging you to pay up.

7 Ways to Deal With Medical Debt You Can’t Afford

Closeup of a senior man at an MRI scanning clinic waiting to be examined
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When you can’t afford to pay a medical bill, the single worst thing you can do is ignore it. You have a lot of power to negotiate your bill, and medical providers are often willing to work with you.

Trust us: A hospital or doctor’s office will almost always be easier to work with than a debt collection agency. And when you’re dealing with medical debt — or any kind of debt you can’t afford — it’s in your best interest to take action right away.

If you need medical debt relief, try these seven steps. Note that these are all steps to take before your bill has been sent to collections. If your bill has already been sent to collections, don’t just silence your phone. Follow these tips for dealing with debt collectors.

1. Check Your Medical Bill for Errors

As many as 80% of hospital bills have errors, so the first thing you should do when you receive a bill is scrutinize it for mistakes.

Ask the hospital or medical provider for an itemized billing statement, which will include the charges for all medications, tests, procedures and other services.

If you have health insurance, ask your insurer for an explanation of benefits (EOB). This statement will tell you what services you were billed for, how much your insurance was billed, how much your insurance did or didn’t pay, and the amount you still owe.

Some inaccuracies will be tough to spot if you’re not a medical coding expert, but here are some common errors that could be easier for a layperson to catch:

  • Duplicate billing, i.e., when you’re billed more than once for the same service. This is one of the most common billing errors.
  • Incorrect patient information: If your name is misspelled, or your insurance information or Social Security number is incorrect, your insurance company could deny your claim.
  • Charges for canceled tests or procedures
  • Inaccurate medication quantities

If you don’t understand a charge or believe that your bill has incorrect information, call the hospital billing department or doctor’s office. Be sure to document every conversation.

2. Review Your Insurance Policy

If you have health insurance, read up on all that stuff that made your eyes glaze over during open enrollment — your copays, deductibles, out-of-pocket maximums and whether your providers are considered in-network vs. out-of-network.

Make sure your bill and explanation of benefits match up with what your policy says it covers.

If you think a service should have been covered under your health plan, call your insurance company. You may find that your claim was denied due to an error — say, a procedure that your doctor incorrectly coded — that can be easily corrected.

But sometimes, claims are denied for more complicated reasons. For example, your insurance company may say a treatment is experimental or not medically necessary. In these cases, you have the right to appeal your insurance company’s decision. You can ask for an internal review by your insurer, but the Affordable Care Act also allows you to request an external review by an independent third party. Just be sure to ask your insurance company about any deadlines.

Pro Tip

If you’re appealing your insurance company’s decision, be sure to let your health care provider know to avoid having your bill sent to collections.

3. Negotiate to Pay Less

If you can’t afford to pay your bill, the best thing you can do is be honest about it. Call the hospital billing department or your doctor’s office and tell them about your financial situation. Be ready to provide documentation verifying your status.

Your provider is more likely to negotiate in hopes of getting something, rather than nothing, if they know you don’t have the means to pay the bill in full.

If you can afford to pay at least part of the bill in cash, you’re in an especially good position to negotiate. Try starting small by offering to settle the bill for 25% or 30% of the total in cash.

Pro Tip

Even if you can afford to pay the whole bill, ask if there’s a prompt pay discount. Some providers will give you a discount of as much as 30% when you pay upfront.

If you don’t have health insurance or were billed for out-of-network services, research what an insurance company would have paid for the services you received. Use a website such as Healthcare Bluebook, which estimates what insurers pay for treatments, and offer to pay the discounted price an insurance company would pay.

Regardless of your tactic, don’t expect to negotiate a major discount with a single phone call. Expect to hear “no” a lot. Don’t accept it. Keep asking for the supervisor of the person you’re speaking to and explaining your situation. Document every conversation. If you do agree on a reduced amount, be sure to get it in writing.

4. Ask About Financial Assistance Programs

When you think your medical bill is accurate but you still can’t afford it, call the hospital billing department or provider’s office to let them know.

Hospitals often have financial assistance and charity programs available for people who can’t afford to pay. You’re likely to qualify if you’re on a low income or don’t have a job, are uninsured or still owe a significant amount beyond what your insurance covers.

Some hospitals will require you to first apply for Medicaid, which will cover up to three months of expenses retroactively if you qualify, and then allow you to apply for financial help if you’re rejected.

5. Ask for a Payment Plan

If you can’t negotiate your bill down to an affordable number and you don’t qualify for financial assistance, many hospitals and providers will still allow you to pay your bill in monthly installments. The good news is, this option is often interest-free.

Just be realistic about what you can afford each month, and as with any agreement, be sure to get it in writing.

6. Work With a Medical Bill Advocate

If you’re dealing with an especially large or complex bill, it may be worth consulting with a medical bill advocate who can negotiate for you and possibly find billing errors you wouldn’t be able to spot on your own.

Medical bill advocates typically charge either by the hour (expect to pay $100 per hour or more) or a percentage of the amount they’re able to get reduced from the bill (25% to 35% is the norm). If you’re experiencing hardship, you may be able to get free or low-cost services through a nonprofit advocacy organization.

The Alliance of Claims Assistance Professionals and Medical Billing Advocates of America are two good resources for finding an advocate.

7. Consider Bankruptcy, but Only if You’re out of Options

There’s no such thing as “medical bankruptcy,” but if you’re overwhelmed by medical bills, filing bankruptcy might be your only option.

Unlike your student loan or tax debt, medical debt can be discharged in bankruptcy. Individuals and couples have two options: Chapter 7 bankruptcy, aka “liquidation bankruptcy,” which is for those who don’t have the means to repay their debt; or Chapter 13 bankruptcy, aka “wage-earner bankruptcy,” for those whose income makes them ineligible for Chapter 7.

Bankruptcy will kill your credit score, so be sure you’ve considered all your options before filing. Chapter 7 bankruptcy stays on your credit report for 10 years, while Chapter 13 sticks around for seven years.

Pro Tip

Keep in mind that bankruptcy won’t protect you from future debts, so if you’re anticipating significant medical bills in the near future, you might want to hold off on filing.

Medical Debt Relief: 4 Mistakes to Avoid

Pharmacist taking a credit card payment from a female customer in a pharmacy
ljubaphoto/Getty Images

Being proactive is key to getting medical debt relief. That said, some solutions sound good but are either unreliable or could make your financial situation even shakier. Here are four things to avoid if possible.

1. Paying Your Bill With a Credit Card

Medical bills typically don’t accrue interest, while credit card interest rates are currently north of 17%. That means you’ll save money on interest by negotiating a payment plan directly with the hospital or doctor’s office.

Even if you have a credit card with a zero-interest introductory period, it’s way better to work out a payment plan. You won’t increase your credit-utilization ratio, which you want to keep low to have a healthy FICO score. Plus, your provider is way more likely to be flexible about adjusting your payment plans or late payments than your credit card company.

2. … Especially a Medical Credit Card

If you can’t afford a medical bill, your doctor’s office or hospital might suggest applying for a medical credit card that typically comes with what’s advertised as an interest-free period. Once that’s up, though, you’ll often pay more in interest than you would with a regular credit card.

But what makes medical credit cards really scary is that “interest-free period” is actually deferred interest. With a deferred-interest card, if you don’t pay your bill in full by the end of the introductory period, you’ll owe interest on the entire amount you charged. Seriously. So if you charge $3,000 and have a $500 balance at the end of the so-called interest-free period, you’ll owe interest on the entire $3,000.

3. Consolidating Your Medical Bills

If you have multiple medical bills, it can be tempting to consolidate them with a loan so you’re making a single payment. But remember: Medical debt usually isn’t accruing interest. So with medical debt consolidation, you’re likely to pay more in the long term.

4. Taking Money From Your Retirement Plan

You may be able to avoid the 10% penalty you’d normally pay on an early 401(k) or IRA withdrawal if you can prove medical hardship. But your 401(k) is protected from creditors in bankruptcy, as is up to $1,283,025 in your IRA, so avoid tapping into these funds if possible.

Plus, when you withdraw from retirement savings, you’re borrowing against your future. If you’re 35, withdrawing $20,000 from a Roth IRA to pay a hospital bill could amount to nearly $115,000 in lost savings by the time you’re 65, assuming average annual returns of 6%.

Pro Tip

Don’t count on crowdfunding to make your medical debt disappear. A 2017 review of 200 GoFundMe campaigns for health care expenses found that 90% of them did not reach their goal.

How to Avoid Medical Debt in the Future

This advice isn’t helpful when you’re already facing medical bills you can’t pay, but the best way to avoid medical debt is to plan ahead before you get treatment.

If you’re planning to get medical care, be sure to verify that your doctor is in your insurer’s network and that your insurer covers the procedure. Ask upfront about projected costs, and then comparison shop.

Also ask your doctor about cheaper generic alternatives to pricy name-brand drugs. If you have health coverage, your insurance company’s drug formulary is a great resource for figuring out what your plan covers.

When possible, avoid the ER and get treatment from your primary care doctor. If you can’t afford to go to the doctor, try these alternative ways to get treatment.

But when it comes to medical bills, the most important thing to remember is this: Don’t put off treatment because you’re worried about the bill. You’ll pay more money in the long term, and it could cost you your most valuable asset: your health.

Robin Hartill is a senior editor at The Penny Hoarder.

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