If you’re drowning in medical debt, you’re not alone. Learn your options for tackling this obstacle.
Your health is arguably the single most important aspect of your life. Without your health, you will cease to exist. Unfortunately in today’s America, medical prices are at an all-time high while income hasn’t exactly kept up to pace with inflation.
Combined with the fact that a surprising amount of Americans are either uninsured or underinsured, and it's a prescription for financial disaster. Medical debt can begin unexpectedly, with a broken ankle, a heart attack, or even a persistent headache.
If you’re drowning in debt, you’re not alone. As of the most recent data, about 530,000 Americans file for bankruptcy every year solely because of medical debt alone. It’s not like they were racking up huge credit card bills – they simply needed medical attention and now they're in debt.
How Does Medical Debt Affect Your Credit?
Before we explore options for medical debt relief, let’s take a look at how this specific type of debt can affect your credit, because it’s much different than other forms of debt that many consumers have.
Medical debt is fundamentally different from other types of consumer debt. Most purchases made with a credit card, for example, are voluntary. Medical debt, on the other hand, is not something people voluntarily get into. You don’t voluntarily catch pneumonia.
Because of this, many hospitals are not regularly reporting the debt to the credit bureaus like other creditors might. In fact, medical providers must wait between 60 and 180 days before notifying the big three bureaus of any unpaid debt.
The new FICO 9 scoring system weighs medical debt a lot differently than consumer debt like a mortgage, car loan, or credit card. However, creditors that still use FICO 8 scoring may result in a 50-100 point drop in your credit score. This will be severe in the beginning, but the effects will diminish over time.
Finally, you can expect unpaid medical debt to stay on your credit for about 7 years from the time that the account was reported as delinquent. The amount of time that creditors can pester you to pay your bills varies from state to state, but could be anywhere from 3-10 years.
Your Medical Bills Are Very Important
There are two main reasons why you shouldn’t just throw them away.
First, simply ignoring the problem will not make it go away. When you get into the habit of just tossing the bills as they arrive, it becomes easier and easier for you to ignore your obligations.
Second, there are over 70,000 hospital diagnosis codes and 71,000 procedure codes that medical billing agents must sift through. Your bill is based on these codes. Different codes charge different amounts, and because there are so many codes, it is estimated that up to 80% of medical bills have errors on them
Some of these errors are tough to spot unless you’re a medical billing expert, but you can look out for some of the more common and easier-to-notice inaccuracies like duplicate billing errors, being billed for a procedure that was cancelled or that you didn’t have, or even being billed for the wrong quantity of medicine you took while admitted.
Think something seems off? There are entire departments dedicated to handling calls about these inaccuracies, so get in touch with the service provider. You’ll need a copy of your bill for some of the other medical debt relief methods listed here, definitely don’t throw your bills away.
Your Medical Bills Are Negotiable
It may seem strange, but medical bills are negotiable, and not just by large insurance companies. Negotiation is usually an option reserved for those who genuinely cannot pay their bills, rather than those who simply disagree on the amount billed.
Your medical provider exists to help people, but also to make money. If they feel like their only option is to get something rather than nothing, they will be open to negotiation. Simply call the billing department, explain your situation to them, give them an honest figure of what you are able to pay, and see if they will work with you.
You May Need To Become A Medical Insurance Expert
By thoroughly reviewing your own health insurance policy, you can get a general understanding of what your copays should be, what kinds of out-of-pocket costs to expect, and your in network or out-of-network costs. By doing this, you can compare your hospital bills with what your insurance should have been covering to ensure nothing was left out.
Additionally, you can review your bill to see if there may be room to appeal the insurance company’s decision. You can actually submit a formal appeal to your insurance company to try and cover something that they previously denied you for. They may say a procedure is elective, cosmetic, or even experimental and refuse to cover it on those grounds. It’s within your rights to appeal these decisions and it’s not uncommon for them to change their minds.
Don’t Have Insurance? You May Qualify For Assistance
Many people think that because they received treatment without having insurance that they’re just on the hook for the entire bill. If you don’t have insurance and don’t have the means with which to pay up, many hospitals offer hardship assistance and have a variety of charity programs available.
In fact, without insurance, you may qualify for Medicaid. Medicaid typically will retroactively cover treatment costs for up to 90 days prior to your applying for coverage. This 90 day window goes quickly so anyone without insurance should see if they qualify as soon as possible.
Can Medical Debt Be Consolidated or Restructured?
A very common reason for cash-out refinances, second mortgages, and home equity lines of credit is to cover medical expenses. It’s sad whenever a homeowner has to take out a lien on their home to cover life-saving medical treatment, but it’s good to have the option to do this in order to properly pay the bill.
If you’re swamped in medical debt, tapping into the equity in your home may be a great way to restructure the debt. In fact, you may be able to lower the interest rate on your mortgage in the process.
What Are Medical Bill Advocates?
A medical bill advocate specializes in combing through bills looking for errors, regardless of how minute they may seem. In addition to spotting inaccuracies, they’re also great at negotiating lower medical debt on your behalf.
Medical Bill Advocates aren't usually classified as a nonprofit or charitable organization, so you can expect them to bill you for their expertise. Some of them charge hourly rates of $100-$200/hr while others may charge you for a percentage of the debt that was reduced. A medical bill advocate may only be a good option for those who have 5 or 6-figure medical bills.
Bankruptcy Sucks, But It’s Not The End Of The World
Well over half a million Americans file bankruptcy every year, solely because of medical debt. If you have exhausted all of your options but still can’t keep your head above water, filing for bankruptcy may be your last resort.
Medical providers are allowed to sue you in civil court for the debt you owe, this could result in wage garnishments and a ruined credit history. If this is something that you’re facing, then you may want to get in touch with a bankruptcy professional.
Medical Debt Is A Way Of American Life
Around 71 million Americans have unpaid medical debt and 50% of all Americans over the last 50 years have been in a position where they struggled to pay medical bills – you're not alone. There are many options available to you to tackle this obstacle. Stay positive, be persistent, and read the fine print.