Written by: Amber Westover | Best Company Editorial Team
Last Updated: February 24th, 2020
After an accident or illness, the last thing you want to worry about is medical bills. Unfortunately, medical debt is all too common in the United States. According to a study by the Kaiser Family Foundation, 26 percent of Americans struggle to pay medical bills, including individuals with health insurance. Even if medical bills do not result in severe financial hardship, they regularly lead to financial sacrifices, including delayed vacations, drained savings, money borrowed from loved ones, new loans, and cutbacks on basic household items.
Medical debt is surprisingly widespread. Of those contacted by collection agencies, 59 percent reported medical bills as the reason, according to a Consumer Financial Protection Bureau study. Interestingly, those with past-due bills were not restricted to a specific income level or credit score, unlike other types of debt. Medical debt is not limited to a segment of the population and is certainly not only common among the uninsured.
The Price of Health
The high price of medical care is a major factor in the prevalence of this type of debt. The price for emergency room visits can be minor or severe, depending on insurance coverage and performed procedures. Those with insurance can expect to pay $50 to $150 while those without insurance typically pay up to $3,000. However, the costs can be much higher for the severely injured.
Planned procedures are not immune from high price tags. Even a common surgery like a tonsillectomy, removal of tonsils, comes with an average total cost of $3,585. Parenthood also comes with a financial toll. Maternity care varies greatly based on location; however, the average cost is $8,775, which may be fully or partially covered by insurance. Having a baby is not a one-time cost; families must also pay for ongoing medical care. Regular check ups and immunizations will add up if they are not fully covered by insurance.
Furthermore, few Americans can afford to pay medical bills outright. A GoBankingRates survey found that 57 percent of Americans have less than $1,000 in savings, with 39 percent have no savings at all. If you are carrying medical debt, you are not alone. It is important to understand how this type of debt impacts your credit and finances. There are also several strategies you can use to cure medical debt.
How Medical Debt Affects Your Credit
After a medical emergency, your credit score may be the furthest thing from your thoughts. However, delinquent medical debt can negatively impact your credit score. A 2014 study by the Consumer Financial Protection Bureau found that 52 percent of debt found on credit reports is due to medical expenses. Moreover, for 7 percent of consumers, this was the only type of debt in collections.
Luckily, a new policy put into effect on September 15, 2017, provides some leniency for medical debt. Experian, Equifax, and TransUnion, the three major credit bureaus, will wait 180 days before including past due medical debts on credit reports. This grace period allows more time for consumers to pay medical bills before they negatively impact their credit. Additionally, once an insurance company pays the debt, it will be removed from the consumer's credit report.
The two major credit score models, VantageScore and FICO, distinguish between medical and other forms of debt. The newer versions of these models penalize medical debts less severely than other types of debt. This change is reflected in the FICO9 scoring model; those with only past-due medical debt may see a 25 point increase in their scores.
These positive changes provide great advantages to consumers. Try to pay off your debt during this 180 grace period. If you are unable to complete payments in this time frame, continue to work towards paying off your debt obligations. Monitor your credit score throughout the process. Also, make sure that all debts are accurately documented on your credit report, especially once they are paid in full. Be sure to dispute any errors you find.
How to Deal with Medical Debt
There are several approaches to dealing with medical debt. In a perfect world, you would be able to pay the debt in one lump sum as soon as you receive your bill. However, this is an option for only a select few Americans, especially when serious, expensive medical procedures are required. Consider using the following solutions to address your medical debt:
Create a Payment Plan: If you are unable to pay your bill upfront, you can often work out a payment plan with the hospital. Set yourself up for success from the beginning by making sure this is something you can afford and keep up with. Discuss interest rates, and see if you can arrange for a no-interest plan.
Negotiate: You can negotiate medical bills, yet people often fail to ask. Talk to the hospital's billing department, be persistent, and don't let an initial "no" dissuade you. You should also take time to do research. The more knowledge you have, the greater your negotiating power. Websites such as Healthcare Bluebook can help you find fair prices for medical procedures. If you are able to pay most of the bill immediately, the provider may be willing to settle for a portion of the total cost.
Debt Settlement: Medical debt is unsecured, not tied to your assets, and often qualifies for debt settlement. This is best for people with a large amount of debt who are unable to make their monthly payments. During this process, you typically deposit money into a designated savings account until you accrue a sufficient sum. Then the debt settlement company negotiates with your creditors, settling your bill for the accrued lump sum rather than the full amount. In the end, you could end up paying a portion of your medical debt. Many companies offer this service.
Bankruptcy: If you are unable to make your payments and are drowning in debt, bankruptcy may be a viable option. However, it will severely impact your credit score and report. The two most common types of personal bankruptcy are Chapter 7 and Chapter 13. During Chapter 7, your assets are liquidated, with a few exceptions, and the money is used to pay off your bills. Any remaining qualified debts are dismissed. During Chapter 13 bankruptcy, the court creates a repayment, lasting approximately three to five years. After the plan is complete, all included debts are discharged.
Debt Consolidation: If you have other types of consumer debt, you may consider consolidating your debts. Credit counseling agencies can help you form a debt management plan and lower your monthly payments. They often negotiate with your creditors on your behalf. This option is best if you have multiple creditors, including medical providers and credit card companies.
If you have medical debt, you are not alone. These tactics can help you eliminate medical debt and find financial freedom. Figure out which option best fits your circumstance and take control of your debt today.