How to Deal With Medical Bills and Debt
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Americans owed $195 billion in medical debt as of 2019, according to an analysis of government data released by Kaiser in March 2022. Put another way, nearly one in 10 adults owe medical debt, and almost 23 million Americans owe a medical debt of at least $250. Research by the Consumer Financial Protection Bureau shows $88 billion in medical debt on consumer credit reports as of June 2021. Medical debt is also the most common collection tradeline on consumer credit records.
We all get sick and have to visit the doctor's office occasionally. This can mean high medical costs and sometimes overwhelming debt. If your debt has gotten out of control or you are struggling with your medical bill payments, you may want to consider using the advice in this guide. This article will explain some of the best methods for paying off medical debt.
Related: The Best Apps for Debt Repayment
In this article
What is medical debt?
Medical debt refers to the financial obligations individuals or households incur due to medical expenses and healthcare services. It arises when individuals cannot pay the full costs of medical care, either because they lack adequate health insurance coverage or because certain healthcare services are not covered by their insurance plans.
Medical debt can result from various sources, including hospital stays, surgeries, prescription medications, doctor visits, diagnostic tests, and other healthcare-related services. Addressing medical debt often requires a combination of strategies, including negotiating with medical providers, setting up payment plans, seeking financial assistance programs, and exploring options for debt consolidation or debt relief. It's essential for individuals facing medical debt to communicate openly with healthcare providers and financial institutions to find viable solutions for managing and resolving their financial obligations.
How to deal with medical bills and debt
Pay in full
Consider paying the entire bill in full, if at all possible. Sometimes, your insurance company may offer a reduced payment amount if you have paid for your medical treatments out-of-pocket. This can be very helpful if you owe a lot in medical expenses and cannot afford the monthly plan offered by the medical provider. It's a good idea to become familiar with your copays, coinsurance, and deductibles and ask your insurance company for an explanation of benefits.
Be sure to check with your healthcare provider to see if this option is available. Many providers will offer a percentage discount on your bill if you pay it in full. This can be a huge help if you need to make a large lump-sum payment.
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Customized plans
If you're a low-income individual who cannot afford the money in full, look for the best payment plan for your situation. Low-income individuals may meet eligibility for an income-driven hardship plan, but you may have to apply for Medicaid to become eligible.
Different providers offer different payment plans when it comes to medical debt. For some people, a monthly payment plan may be the best option. Others may prefer to pay more upfront, greatly reducing their monthly obligations. Many providers are open to financial assistance at discounted rates because they'll get back some of their money.
You can try to negotiate to pay via installments each month. This reduces your financial burden by lowering your payments, but you'll remain in debt longer because lower payments tend to accompany more extended repayment periods. Whatever you choose, you should make payments on time to not hurt your credit score. Also, do some research to find the best plan for your situation.
Talk to a medical billing advocate
If you have difficulty managing your medical debt, you may want to consider talking to a medical billing advocate. They can help you set up an affordable payment plan and help you get back on track financially. In many cases, they can negotiate lower monthly payments for you. Medical billing advocates can also recommend additional options to help you reduce your debt and lower your monthly payments.
Medical loans
Some financial institutions offer specific medical loans designed for healthcare expenses. These loans may have features that cater to the unique needs of individuals seeking to cover medical costs. In some cases, healthcare providers may offer financing options or payment plans to help patients cover the cost of medical treatment. These arrangements may have different terms and conditions than traditional medical loans offered by financial institutions. These plans may have low or interest-free promotional periods.
Refinance your mortgage
If you have an existing mortgage on your home, you may be able to refinance your home and use the money to pay off your medical debts. You will typically need to fill out a loan application during the refinancing process, and your will be pulled. The higher your credit score, the more likely you will receive approval for the loan and favorable rates. Refinancing your home comes with several benefits and risks. When you refinance your home, you take out a new mortgage that replaces your existing one. This means you will need to pay off any existing mortgage, such as your first one, when you close your new loan.
If you do not currently have a mortgage on your property and you have a relatively high credit score, you may consider refinancing your mortgage to pay off debts, including medical debt. Many companies offer refinancing services for homeowners. Some popular lenders include Quicken Loans, Rocket Mortgage, Bank of America, and Wells Fargo. These companies offer competitive rates and flexible payment plans. Before applying for a new loan, you should always compare the available options.
Related: Best Online Lenders for Mortgages
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Home equity loans
Another option you can consider is a home equity loan. A home equity loan allows you to borrow money against the equity in your home. Home equity loans are based on the value of your home and are secured by your property. The difference between what you owe on the mortgage and what your home is worth is known as equity. For example, if you have a home worth $100,000 and owe $80,000 on your mortgage, you have $20,000 in equity. So, if you take out a home equity loan of $30,000, you will have an additional $10,000 in cash to pay off your debt.
However, it is important to note that taking out a home equity loan can put your home at risk if you cannot make payments. Your lender can on your home to recover your borrowed money if you fail to make payments on your home equity loan. In addition, not all homeowners are eligible for home equity loans. The terms of your loan will be based on your credit history, so if you have a good credit history and a substantial amount of equity in your home, you may be eligible for a home equity loan.
Before you apply for a home equity loan, you should consider all options. You may get a lower interest rate with a personal or debt consolidation loan instead.
Credit cards
Using a medical credit card to pay bills is another option. If you have a credit card with a sufficient credit limit and reasonable interest rates, this can be a convenient way to cover medical expenses. While using a credit card to pay off medical debt is one option, it's essential to consider the interest rates and fees associated with credit card transactions. Depending on your credit card terms, you may incur high interest charges if you carry a balance from month to month.
Consider bankruptcy
Bankruptcy can be an effective way of eliminating your debt and resolving your financial issues. While filing for bankruptcy will damage your credit score, in some cases, it may be the only way to resolve your medical debt problems. If you struggle to manage your medical bills, discussing your options with a qualified attorney is important before making any decisions. An attorney can help you determine whether or not filing for bankruptcy is right for you.
However, the impact of bankruptcy on your credit can be severe. For consumers with bad credit, bankruptcy is the absolute last resort. Before filing for bankruptcy, you should review your finances thoroughly and discuss your options with an attorney.
Government assistance programs
Depending on your situation, you may qualify for government assistance programs that can help cover medical expenses. It's important to note that these programs have specific eligibility criteria, and individuals must meet certain income and other requirements to qualify.
The availability and structure of government assistance programs can change, so it's advisable to check with relevant government agencies or consult with a social worker at a local healthcare facility for the most up-to-date information and guidance based on your specific situation.
Medicaid
Medicaid is a joint federal and state program that provides health coverage for low-income individuals and families. Eligibility requirements vary by state, but Medicaid often covers medical expenses retroactively for up to three months prior to application. If you qualify for Medicaid, it may help cover outstanding medical bills.
Medicaid covers many medical services, including doctor visits, hospital stays, preventive care, prescription drugs, mental health services, and long-term care. If you qualify for Medicaid and receive medical services covered by the program, you typically won't have to pay out-of-pocket for those services.
If you have medical debt that accrued before you were enrolled in Medicaid, the program may retroactively cover those expenses, potentially relieving you of the obligation to pay them out-of-pocket. However, the specific rules regarding retroactive coverage and debt relief vary by state, so it's essential to check with your state's Medicaid agency for details.
Medicare savings programs
Medicare Savings Programs are designed to help low-income individuals and families with some of their Medicare costs, including premiums, deductibles, and copayments. The primary purpose of the Medicaid Savings Program is to help Medicare beneficiaries with limited income and resources pay for their Medicare-related expenses.
This includes Medicare Part A and Part B premiums, deductibles, coinsurance, and copayments. By covering some or all of the out-of-pocket costs associated with Medicare, the Medicaid Savings Program provides significant financial assistance to eligible individuals.
This can help reduce the financial burden of medical expenses and prevent or alleviate medical debt among Medicare beneficiaries with limited financial means. Eligibility for the Medicaid Savings Program is based on income and resource limits, which vary by state.
Supplemental Security Income (SSI)
Supplemental Security Income (SSI) is a federal assistance program in the United States that provides financial assistance to elderly, blind, and disabled individuals with limited income and resources. It is administered by the Social Security Administration (SSA). It is designed to ensure a basic income level for those unable to support themselves financially due to age, blindness, or disability.
To qualify for SSI, individuals must meet certain eligibility criteria, including having limited income and resources, being aged 65 or older, being blind or disabled (including children), and being a U.S. citizen or legal resident. The eligibility requirements are strict, and the federal government sets income and resource limits.
Affordable Care Act subsidies
The Affordable Care Act (ACA), or Obamacare, provides financial assistance to eligible individuals and families to help them afford health insurance coverage through subsidies. These subsidies are designed to make health insurance more affordable for low and moderate-income individuals and families who purchase coverage through the Health Insurance Marketplace, also known as the Exchange.
There are two main types of subsidies available under the ACA. Premium tax credits are available to help lower the cost of monthly health insurance premiums for individuals and families who purchase coverage through the Health Insurance Marketplace. The amount of the premium tax credit is based on income and household size and is calculated on a sliding scale. Individuals and families with lower incomes receive larger premium tax credits to help offset the cost of insurance premiums.
Cost-sharing reductions (CSRs) help lower out-of-pocket costs, such as deductibles, copayments, and coinsurance, for low-income individuals and families who purchase certain silver-level health insurance plans through the Health Insurance Marketplace.
Charity care and nonprofit organizations
Charity care refers to providing medical services or assistance with medical expenses provided by healthcare providers or nonprofit organizations to individuals who cannot afford healthcare services due to financial hardship or lack of insurance coverage.
Nonprofit hospitals operate for purposes other than generating profit and often play a significant role in providing charity care and other community services. Individuals may qualify for charity care based on income, household size, and financial need. Eligibility criteria vary by provider and organization but are generally designed to assist individuals who are uninsured, underinsured, or experiencing financial hardship.
Veterans Affairs Health System
The Veterans Affairs (VA) Health System is a comprehensive healthcare system in the United States that provides medical care and support services to eligible military veterans. It is operated by the U.S. Department of Veterans Affairs (VA) and is one of the largest integrated healthcare systems in the country.
Eligibility for VA healthcare services is based on a veteran's military service, discharge status, and other factors. Generally, veterans who served in the active military, naval, or air service and were discharged under conditions other than dishonorable may be eligible for VA healthcare benefits.
Unpaid medical bills and credit scores
The impact of medical bills on credit scores will vary depending on the individual's credit history and debt-to-income ratio. However, medical debt will generally negatively impact a person's credit score if it remains unpaid and is obtained by debt collectors. Payment information, however, isn't always reported to the major credit bureaus. But there's good news. A law called the No Surprises Act prevents a debt collection agency from collecting on prohibited bills. If these agencies report any invalid debts to the credit bureaus, they may face punishment under consumer protection laws like the Fair Debt Collection Practices Act and the Fair Credit Reporting Act.
Typically, medical debt collections will fall off of a person's credit report after a certain amount of time – usually six to seven years – depending on the state where the debt was incurred. Effective July 1, 2022, paid medical debt will no longer appear on credit reports under the No Surprises Act, which has also put a one-year delay from when a medical debt becomes delinquent and appears on your credit report. In addition, unpaid debts of less than $500 will stop appearing on credit reports starting in the first half of 2023.
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The bottom line
Hospital bills are a massive burden for Americans. Bare-minimum insurance policies don't even cover all the costs associated with medical care. This leaves many people no choice but to go deeper into the debt hole or forego the care they need. After all, medical bills are the leading cause of bankruptcy in the U.S. But unlike other debts like a personal loan or credit card, medical debts have more room for negotiations to work out a payment plan and perhaps pay less than you owe.
Paying the money in full or exploring installments are two methods to pay your medical debt. Nonprofit hospitals have to screen patients for any assistance programs, and many organizations can help you with charity care if you're uninsured. People who do not have insurance may qualify for public insurance like Medicaid or Medicare. There are also debt relief options for seniors and veterans.
It's important for people dealing with unpaid medical debt to be aware of the impact that this may have on their credit scores and financial futures. By taking steps to minimize the cost of medical care and reduce the amount of debt they accumulate, individuals can preserve their financial health for years to come.
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Writer
Jasir Jawaid is Joy Wallet's Assistant Editor. He has more than 13 years of experience as a journalist covering Wall Street, equities, financial policy and regulation, and cryptocurrency and blockchain.
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