What to Do About Medical Debt

A not-so-new type of debt is filling out the credit profiles of millions of people – medical debt. This has actually been going on for a long time, the difference today is that medical debts are larger than they used to be. Health insurance companies are raising deductibles and cutting payments, leaving more medical debt for the average household.

Often these debts are no more than the amount of a co-payment – say $50. Other times it may be a few hundred dollars. But on surgeries and other major procedures, you can easily be left with several thousand dollars worth of medical debt to pay. How do you handle that?

medical debt image

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Never ignore your medical bills

The first, best rule on medical debt is to never ignore it. People often do this in favor of paying other debts, such as car loans and credit cards. This is easy to do because there’s always that period of time between the performance of services, and processing by the insurance company. As the months pass, it’s very easy to let these debts fall through the cracks.

But if you do, there’s a very good chance that medical debts will be converted into collection accounts. Once they do, your credit rating will be hurt and that will carry over to other types of debt, especially credit card debt.

This is also a way for the debts to become larger, as the healthcare provider might add in administrative or legal fees to the original amount owed. This the reason it’s best to get involved early in the process and to keep the debts from going into default in the first place.

Double check insurance payments

Another good reason to get involved in your medical debts early is so that you can follow the flow of bills and insurance payments. You should be sure that every bill has at least been processed through your insurance company, even if the claim has been denied or involves a large co-payment on your part.

Health insurance providers do make mistakes, and so do the health insurance companies. For this reason it’s important that you make sure that you follow up on every bill to make sure that (a) it has actually been filed with your insurance company, (b) the proper documentation was filed enabling the claim to be processed, and (c) the claim is actually showing as having been paid to the healthcare provider.

You want to do this as soon as possible because insurance companies typically have a time limit after which they will no longer pay claims even if they’re legitimate!

Set up a payment plan

If it turns out that you do owe a certain balance to the healthcare provider you should contact the provider and set up a payment plan as soon as you can. The provider will typically request that you pay a certain amount of money upfront as a show of good faith.

Once you do they will usually be agreeable to setting up a monthly payment plan. These payment plans are often set up without requiring the payment of interest. You should set up a plan that involves the lowest monthly payment that the provider will allow.

Pay on time

Once you have an agreeable plan in place, be sure to make your monthly payments on time. If you don’t, the provider may revert to either an interest-bearing arrangement, or even declaring payment plan null and void. If they do, you’ll be back at square one with a medical debt and may even face the prospect of a collection account.

One of the reasons you want to avoid having the debt go to collection is because once it does you’ll have less chance of setting up a monthly repayment plan. Collection accounts often go to attorneys who will insist on full payment of the bill rather than monthly payments.

Work out a settlement if you can’t pay in full

One of the advantages you have with medical debt is that the providers will often settle for less than the full amount due – this is a viable debt reduction strategy but it can be difficult to come to terms with the creditor. You can sometimes settle these accounts for less than $.50 on the dollar. There are even times when you can get the debt completely forgiven.

In order to make this happen you will have to contact the medical provider’s finance department and let them know what your situation is. If you have a $2,000 debt but you have $700 available, offer it to the provider and see if they’ll accept it in full payment of the debt. Many will do this because it offers an opportunity to get a chunk of money upfront rather than waiting a year or two for the payments to come in.

You may even be able get the debt completely forgiven if you can prove some sort of hardship. In order to establish that fact, you probably will have to provide certain documentation relating to income and assets that will make it clear that you do not have the funds to pay off the debt and will not have sufficient income for the service of an additional debt.

Don’t expect this to happen with every medical debt that you owe, but if a certain debt is putting you in a deep hole this is certainly worth requesting.

How have you handled large medical debts in the past?

About the Author

By , on Jan 8, 2013
Kevin Mercadante is a professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry. He lives in Atlanta with his wife and two teenage kids and can be followed on Twitter at @OutOfYourRut.

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  1. The401Kman says:

    While not the answer for everyone high deductibles will be the future unfortunately. What most people do not realize is the variety of savings plan available to them for medical expenses H.S.A. accounts or even the cheap deductible insurance available to cover the accident, deductible or hospital visit. I really do not have room enough to go over all the things available either as stand alone for individuals or something your employer should offer with “ObamaCare” But if you need help my site has the ability to have your questions answered.

  2. Very good tips for handling a tough situation! A growing cause of bankruptcies is medical debt. Unfortunately you can’t protect yourself completely from a large charge not covered by your health insurance. It’s difficult to have a large enough emergency fund to cover some of these catastrophic costs from major diseases or surgeries. You can look for a “better” health insurance policy, but you will pay high premiums.

  3. We have recently been dealing with this. I had my daughter in May 2012, and they had the wrong insurance number listed, and baby was not listed on the insurance active until January 2013. We had no clue until a few months later. Needless to say, it has been a nightmare trying to straighten it out. We have settled most of the situations. These are wonderful tips!

  4. When I was in grad school I had to have an emergency surgery (not life threatening or serious-but so expensive). When I got the bill I cried, literally. Thankfully I called the folks that deal with the university’s health insurance company and a very nice rep negotiated on my behalf to lower the bill. If I hadn’t gotten the bill lowered I’d probably still be paying the bill now. Medical debt is so stressful.

  5. Miiockm says:

    Situations like these scare me and would probably dissuade me from ever moving to the US where I would be one medical illness away from bankruptcy.

  6. In the past, we did the worst possible thing and just paid off debts with a credit card.
    These days, we have become smarter about it. We recently had a large medical expense and negotiated with the hospital to make monthly payments.. They were very willing to work with us.

  7. I luckily have fantastic benefits, but I can’t imagine being saddled with crazy amounts of medical debt!

  8. It’s great that many medical establishments work with you to set up an affordable payment plan. I can personally testify to this saving my skin once before when I didn’t have health insurance.

  9. Catherine says:

    Ugh I honestly cannot imagine. I thank my lucky stars every single day for my Universal healthcare. I’ve had major surgery, given birth to my daughter, multiple xrays etc etc and the most I have EVER paid for anything was $20.00 and that was b/c I wanted TV hooked up when I was hospitalized for my daughters birth, not even a ‘health care cost’.

  10. Courtney says:

    We have four children, all via c-section, and terrible insurance since I am a stay at home mom. The hospital I delivered has allowed me to negotiate down my bill with them, not an outside creditor, thus no damage to my credit, by offering to pay, in full, the amount we agree upon. It has usually been about HALF of the origianl amount.

  11. Living in Canada, our health care is paid for by our taxes. I’m so happy about this arrangement. I broke my wrist in July of 2011 in a car accident. I was a new grad with tons of student loan debt and I couldn’t even afford the pain medication because I had no prescription drug insurance yet – so I went without. I can’t imagine how different my life would’ve been if I’d had to pay the medical bills for the actual treatments.

    • Kevin says:

      Hi Jordann–For all the criticisms I’ve heard of the Canadian healthcare system everyone in Canada seems happy with it. We claim to have the “best healthcare system in the world”, but no one here in the US seems happy with it.

  12. It can be very worth it to make basic phone calls to insurance companies inquire about bills. Sometimes what you are billed from the provider might not be what you should pay, as perhaps there was an issue with the insurance company. Bottom line is that we should check every bill.

    • Kevin says:

      Unfortunately the process between insurance companies and medical providers isn’t nearly as efficient as it needs to be. Coding errors are routine, and there can be disputes over pre-certifications. We have no choice but to get involved.

  13. krantcents says:

    Doctors or any other medical provider is no different than any other business person. If you talk to them and make arrangements for payment they will go along with it. Just keep your end of the bargain. Too often, the patient does not keep their end up.

  14. I’m actually dealing with this situation right now. I have a good amount of medical debt to pay off because my son had surgery to put tubes in his ears. I was able to pay a far bit upfront but I’m going to have to make payments to the hospital to get it all paid off.

  15. AverageJoe says:

    I feel lucky, Kevin, that I’ve never had to deal with this personally. However, when I’ve had clients that had this problem I used much of the advice you had here: we contacted the hospital immediately and tried to figure out what plan would be preserve my client’s credit and cash reserves (if they had any) while getting the debt paid down. Often just calling and talking got rid of a ton of problems with the facility.

  16. I mentioned this yesterday, but my local hospital gives you two options for paying your bill. Pay it in full within 90 days or get a loan from the local bank that has a loan officer in the hospital billing office. They will not take a settlement payment and they will not work with a debt consolidation company. Oh, they will take the payments from the debt consolidation company and deduct it from your balance, but will still send you collection notices.
    After dealing with this twice now, we’ve decided that if we ever have to go to the hospital again, we will go to a different one in the next town.
    Our insurance has a $3000 deductible, which means that for our average health care spending, we basically have no insurance.

    • Kevin says:

      Hi Edward–It pays to shop around, but that’s a tough consideration when you need the services that a particular facility specializes in, as many hospitals do.

      It also makes a strong case for having a well stocked emergency fund at all times.

    • Thad says:

      If that hospital is a not-for-profit, they will get busted for those practices eventually.

  17. As someone who has crappy insurance and has to pay for my own, this is totally true. I have been WAY more diligent about double checking if it’s the final amount both with the doctor’s office and my insurance. I got a bill recently for $500 for something so stupid. It took some time, but I called around and now the bill is being processed by my insurance. It’s a pain, but so is paying $500!

    • Kevin says:

      I included that point from experience! As much as we like to think that the provider and insurance company will work it all out, they usually don’t, not completely. We have to get involved.

  18. Monica Clark says:

    Great information for everyone to know, especially now that so many people are self -employed and may have higher medical bills to pay. I think many people just assume that medical debt isn’t a big deal and that it won’t affect your credit, which you’ve shown is not the case. Good article!

  19. We’ve never had anything major, beyond the delivery of a child that is and thankful for that. We have though had several billing errors in the past and is always a headache to get rectified.

    • Kevin says:

      Billing errors are always best caught and corrected early, otherwise the trail tends to get cold. Good for you for catching them.

  20. Thad says:

    Great post. I work at a company that has done exactly this kind of work (negotiating medical bills for uninsured or under insured people for 16 years). There can be times it is simply overwhelming. If you need assistance, most folks have access to our services via a benefit plan of one type or another, but if somebody needs direct help with negotiating medical bills then they can reach us at http://www.medicalbillmediation.com and finally http://www.kare360.com.

    WSL Editor: links have been approved and I can testify that Thad is a great, Christian guy with an intent to help others in difficult situations.

  21. Michelle says:

    Luckily I have never really had to go to the doctor for anything and therefore have never had to worry about medical debt.

  22. I had a serious surgery when I was about 20 years old and I didn’t have the funds to pay my deductible and large co-insurance. The hospital let me make payments until it was paid off.

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