Consolidating Medical Bills
Medical bill consolidation are a practical solution for consumers overwhelmed the amount of money they owe from their medical situation.
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Millions of Americans fall victim to medical debt every year. For some, especially those with solid health insurance coverage, bills are manageable through belt-tightening.
But for those with no insurance, or policies with high deductibles, medical debt can be crippling.
A Kaiser Family Foundation found that in 2016 more than a quarter of U.S. adults say they, or someone in their household had a problem paying a medical debt in the past year. Most of the troubled households said a single medical problem, rather than a chronic illness, caused the problem. For people already struggling financially, that one, unexpected medical expense can pull them completely under.
If that happens, medical debt consolidation is one way to cope with healthcare expenses that rise beyond your ability to pay.
Before committing to a consolidation plan, it’s important to weigh the options and ask yourself questions.
- Does it make financial sense?
- Will such a plan actually eliminate my debt or only extend the financial suffering until I need to file for bankruptcy?
- Can I accept the terms of the plan and what assets would I consider using as collateral?
- Do I need help and if I do, what will it cost?
Should I Consolidate Medical Debt?
Before contemplating a consolidation plan, you should focus on a key fact: Medical debt doesn’t accrue interest. Though a hospital or medical practice eventually will hand your unpaid bills to a collection agency, the debt is interest-free.
Why is that important?
If you decide to wipe out medical debt with money from a home equity line of credit (HELOC), a credit card or a personal loan, you will pay interest on the new debt. You might not owe the hospital anymore, but you will owe the source of you new credit, with interest that accrues every month that you maintain a balance.
It’s generally not a good idea to transfer or consolidate medical debt unless you owe money to other creditors. If you have a medical debt and unpaid balances on your credit cards that you also can’t afford to pay, you might to well to meet with a nonprofit credit counselor to discuss how to consolidate all your debts into a payment you can afford.
What to Do Before Counseling?
If you decide there’s no way you can pay a medical debt in full, contact the hospital or doctor who billed you to discuss the problem. In many cases, medical bills issued to those without health insurance or with sub-par policies are inflated. Medical providers call those amounts the retail cost of service, but few people with insurance pay the full cost.
If you politely explain your situation to the healthcare provider, it’s likely you can negotiate a reduction. Hospitals and doctors often prefer a reduced payment to no payment. Tell them how much you can afford and try to negotiate a plan. You can also offer to pay a lump sum with the provider writing off the balance. If you do this, it could have a negative impact on your credit score, but at least the bill is settled.
It’s wise to review your bill before contacting the medical provider. Sometimes you will find errors and you might notice charges that far exceed the cost of the service provided. For instance, a hospital might charge several dollars for an aspirin, a tactic often used to recoup uncompensated treatment for other patients. You should discuss any excessive charges on your bill. You should also look for charges for treatment you might not have received.
You should study the explanation of benefits report you receive from your health insurance provider. Sometimes they don’t reimburse charges that should be covered. Do this quickly, since your policy might only allow you a month or two to report an error.
The health care system is very complex.
Following these steps might limit what you must pay. If you still don’t have the money, consider asking friends and family for help, and research medical financial assistance. It’s better swallow you pride than to not pay your bills and face a default that might lead to a bankruptcy filing.
How to Use Debt Consolidation for Medical Bills
Although medical debts don’t accrue interest, some people opt to pay their debts with credit cards even when they know they will have a hard time paying their card bills. This is a mistake, since credit cards charge interest and once you put your medical debt on a card, it becomes an interest-baring debt.
You should never a use credit card to pay a medical debt unless you’re certain you can pay off your card balance at the end of the billing cycle, but people make that mistake. Others fail to notify their medical provider that they expect a problem paying. That’s also a mistake. If you fail to pay your medical bills, the provider is likely to turn them over to a collection agency, which might be unwilling to negotiate a lower payment and will seek a judgment if you don’t make payments.
It’s wise to review your bill before contacting the medical provider.
Faced with credit card default or demands for a collection agency, some debtors choose to use a HELOC or a personal loan from a bank to pay off debts. This strategy buys time and can have other consequences. If you couldn’t pay you credit card, you might not be able to make required payments on a HELOC, which could lead to foreclosure. A bank loan could easily come with a higher interest payment than your credit card debt, making it a poor alternative.
If you paid your medical bills with a credit card or you simply can’t pay your bills and your debt went into collection, it’s probably time to consider a debt consolidation plan. Only consider nonprofit debt counselors or debt consolidators and use public records to check the companies’ backgrounds.
Some people with retirement savings borrow from an employer-sponsored 401(k) plans to pay a medical debt. If you are younger than 59 ½ you need to fill out an application to borrow the money from the account or face an early withdrawal penalty. You must pay back the money to the account with interest or face stiff penalties. You might face additional problems if you leave your company before the loan is repaid.
A debt consolidation plan seeks to combine all you non-collateralized debt into a single payment. The debt counsellor or debt manager will review your income and budget and negotiate an affordable payment plan with your creditors. After they all agree to a settlement, you will make the one monthly payment through the debt management program.
What to Expect in Debt Consolidation?
If you or a debt settlement service negotiate a debt reduction package that includes consolidation, it will appear on your credit report and could lower your credit score. Yet the drop in your score that results from debt settlement will almost certainly be less than if you allow you debts to go into default, which could result in a bankruptcy filing.
Many nonprofit credit counselors don’t routinely negotiate settlements with medical providers. In many cases they will contact the providers with a proposal after they negotiate a settlement with credit card issuers, proposing a payment that would be included in your debt management plan. Medical providers might not respond to their request or refuse to be a part of the payment agreement. Typically, the nonprofit debt settlor will charge you a monthly management fee, often $50 a month or less, during the repayment period.
Debt management plans normally last three to five years.
If your medical debts are part of your plan, they will be combined into a monthly payment that you’ll make to the credit counseling/debt management service. Before you enter a debt management plan, make sure you will be able to make the monthly payment that the debt counselor negotiates with your creditors.
Debt management plans normally last three to five years. They lower your monthly payments and can work to improve your credit score if you make the negotiated payments on time. Once the medical provider accepts a lower payment under a management plan, the nation’s credit-rating services will update your credit report, recharacterizing the debt from unpaid to paid-settled.
Medical Debt Collections
The health care system is very complex. Even if you, like most people, have medical insurance, your policy might not cover all medical services and might limit you to a select list of providers. Before you visit a doctor or go to a hospital for a non-emergency, contact your insurance company to learn what your policy covers and which providers are available under your plan.
Even if you follow the rules, you can still run into trouble. Sometimes insurance companies are slow to process claims, resulting in healthcare providers sending you bills for services that insurance should cover. If you receive a bill for covered procedures, contact the provider and the insurance company to make sure the claim is being processed.
You should discuss charges with medical providers before undergoing treatment. Though this probably isn’t possible in an emergency, it is if you have an elective procedure. Know what the provider will charge and how much your insurance company will pay.
Though these are prudent steps, they don’t always prevent a medical bill you can’t afford. If you can’t pay even after insurance, talk to the provider and try to negotiate. Do this right away. You don’t want your unpaid bill sent to a collection agency, which is far less likely to want to negotiate than the original provider.
Collection agencies must follow state and federal laws that protect consumers from unfair collection practices. If a debt collector is pursuing you, research your legal protections and how to file a complaint. But they can do damage to your credit report and pursue legal avenues to force you to pay.
You should also ask the collection to specify the amount of debt and contact the original medical provider to verify the amount. Nearly two-thirds of people who complained to federal regulators about medical debt collection issues complained that they were pursued for money they didn’t owe.
Medical bills have shelf lives. If a medical debt is more than seven years old, it falls under a statute of limitation and will no longer be a factor in your credit report. For that reason, it’s best to tackle your most recent bills, since they will remain on your credit report the longest.
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- Hamel, L., et al (2016, January 5) The Burden of Medical Debt: Results from the Kaiser Family Foundation/New York Times Medical Bills Survey. Retrieved from: https://www.kff.org/report-section/the-burden-of-medical-debt-section-3-consequences-of-medical-bill-problems/
- NA, ND. Coping with Debt. Retrieved from: https://www.consumer.ftc.gov/articles/0150-coping-debt
- Carnes, A. (2017, March 10) What to Do if You Have Medical Debt. Retrieved from: https://www.nytimes.com/2017/03/10/your-money/medical-debt-advice.html
- Carnes, A. (2017, April 12) Medical Debt: You May Not Owe It. Retrieved from: https://www.nytimes.com/2017/04/12/your-money/12money-adviser-medical-debt-collections.html