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?
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.
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!
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.
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.
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?
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