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Updated on Monday, June 10, 2019
Your physical well-being isn’t the only thing at stake when you go to the hospital. So, too, is your financial health.
According to the Consumer Financial Protection Bureau, more than half of all collection notices on consumer credit reports stem from outstanding medical debt, and roughly 43 million consumers – nearly 20% of all those in the nationwide credit reporting system – have at least one medical collection on their credit report.
Now, you might be inclined to think that, because you’re young or have both a job and health insurance, medical debt poses you no risk. Think again. According to a report from the Kaiser Family Foundation, roughly one-third of non-elderly adults report difficulty paying medical bills. Moreover, roughly 70% of people with medical debt are insured, mostly through employer-sponsored plans.
Not concerned yet? Consider that a medical collection notice on your credit report, even for a small bill, can lower your credit score 100 points or more. You can’t pay your way out of the mess after the fact, either. Medical debt notifications stay on your credit report for seven years after you’ve paid off the bill.
The good news is that you can often prevent medical debt from ruining your credit simply by being attentive and proactive. Here’s how.
Pay close attention to your bills
Certainly, a considerable portion of unpaid medical debt exists on account of bills so large and overwhelming that patients don’t have the ability to cover them. But many unpaid medical debts catch patients completely by surprise, according to Deanna Hathaway, a consumer and small business bankruptcy lawyer in Richmond, Va.
“Most people don’t routinely check their credit reports, assume everything is fine, and then a mark on their credit shows up when they go to buy a car or home,” Hathaway said.
The confusion often traces back to one of two common occurrences, according to Ron Sykstus, a consumer bankruptcy attorney in Birmingham, Ala.
“People usually get caught off guard either because they thought their insurance was supposed to pick something up and it didn’t, or because they paid the bill but it got miscoded and applied to the wrong account,” Sykstus said. “It’s a hassle, but track your payments and make sure they get where they are supposed to get.”
Stay in your network
One of the major ways insured patients wind up with unmanageable medical bills is through services rendered – often not known to the patient – by out-of-network providers, according to Kevin Haney, president of A.S.K. Benefit Solutions.
“You check into an in-network hospital and think you’re covered, but while you’re there, you’re treated by an out-of-network specialist such as an anesthesiologist, and then your coverage isn’t nearly as good,” Haney said. “The medical industry does a poor job of explaining this, and it’s where many people get hurt.”
According to Haney, if you were unknowingly treated by an out-of-network provider, it’s would not be unreasonable for you to contact the provider and ask them to bill you at their in-network rate.
“You can push back on lack of disclosure and negotiate,” Haney said. “They’re accepting much lower amounts for the same service with their in-network patients.”
Work it out with your provider BEFORE your bills are sent to collections
Even if you’re insured and are diligent about staying in-network, medical bills can still become untenable. Whether on account of a high deductible or an even higher out-of-pocket maximum, patients both insured and uninsured encounter medical bills they simply can’t afford to pay.
If you find yourself in this situation, it’s critical to understand that most health care providers turn unpaid debt over to a collection agency, and it’s the agency that in turn reports the debt to the credit bureaus should it remain unpaid.
The key then is to be proactive about working out an arrangement with your health care provider before the debt is ever sent to a collection agency. And make no mistake – most providers are more than happy to work with you, according to Howard Dvorkin, CPA and chairman of Debt.com.
“The health care providers you owe know very well how crushing medical debt is,” he said. “They want to work with you, but they also need to get paid.”
If you receive a bill you can’t afford to pay in its entirety, you should immediately call your provider and negotiate.
“Most providers, if the bill is large, will recognize there’s a good chance you don’t have the money to pay it off all at once, and most of the time, they’ll work with you,” Dvorkin said. “But you have to be proactive about it. Don’t just hope it will go away. Call them immediately, explain your situation and ask for a payment plan.”
If the bill you’re struggling with is from a hospital, you may also have the option to apply for financial aid, according to Thomas Nitzsche, a financial educator with Clearpoint Credit Counseling Solutions, a personal finance counseling firm.
“Most hospitals are required to offer financial aid,” Nitzsche said. “They’ll look at your financials to determine your need, and even if you’re denied, just the act of applying usually extends the window within which you have to pay that bill.”
Negotiate with the collection agency
In the event that your debt is passed along to a collection agency, all is not immediately lost, Sykstus said.
“You can usually negotiate with the collection agency the same as you would with the provider,” he said. “Tell them you’ll work out a payment plan and that, in return, you’re asking them to not report it.”
Most collection agencies, according to Haney, actually have little interest in reporting debt to the credit bureaus.
“The best leverage they have to get you to pay is to threaten to report the bill to the credit agencies,” he said. “That means as soon as they report it, they’ve lost their leverage. So, they’re going to want to talk to you long before they ever report it to the bureau.
“Don’t duck their calls,” he added. “Talk to them and offer to work something out.”
Take out a personal loan
Refinancing your medical debt into a personal loan is another move you can consider making, particularly if you can get a lower interest rate than you could with a credit card, and you aren’t able to secure a 0% credit card deal. Peer-to-peer lender LendingClub has an APR starting at 10.68% and Prosper starts with an APR as low as 7.95%, and LendingClub‘s origination fee is 2.00% - 6.00%.
Even better, SoFi offers personal loans at a APR as low as 5.99% and has no origination fee (although you do need a relatively high minimum credit score to get a loan, at 680).
MagnifyMoney’s parent company, LendingTree, features a handy personal loan tool* where you can shop for the best loan for you.
*You may or may not be matched with any lender mentioned in this article. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.
Dealing with medical debt can be particularly stressful, as you have to worry about money matters along with managing health issues. However, having medical debt does not have to spell disaster. If you follow one or more of the steps above, you should be able to keep your finances healthy.