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How to Handle Medical Debt While Unemployed

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Americans were already struggling with medical debt before the COVID-19 pandemic, and, largely because of record-setting unemployment in the last six months, the issue is expected to get worse.

About one million people a week lost their jobs from March through September and many of them lost their health insurance at the same time. An August study by consumer financial company Credit Karma found that nearly 20 million of its U.S. members had medical debt in collections. The total owed was an astounding $45 billion, or about $2,200 per member.

A Gallup poll, published Sept. 1, also found that 50% of all Americans fear that one major medical crisis can throw them into bankruptcy and for good reason. Of those polled, 37% used up all of their savings paying medical bills;  31% took on credit card debt; and 26% couldn’t pay basic home expenses, like food, rent and utilities.

The result is a lot of people with medical debt and seemingly few options, particularly for those unemployed.

Options When You Are Unemployed and in Medical Debt

Medical debt is a type of unsecured debt, meaning it’s not backed by any type of collateral. For that reason, bankruptcy is often one of the first options that come to mind, but there are other ways to handle medical debt before it gets to that point.

Medical Debt Can be Forgiven or Reduced

Medical debt can be forgiven, or more commonly reduced, for those who lose their jobs, have a big reduction in income or another hardship that makes it tough to pay the bills. Working out payment with the medical creditor before the bill goes to a medical debt collector can head off a lot of grief.

Before calling the medical billing office, look over the bill carefully and make sure there are no errors. Common mistakes on medical bills are double billing, services not rendered, and coding errors. Successfully disputing errors won’t make the bill go away, but it can reduce it.

If the bill is confusing, ask the billing office to go over it with you and explain the charges. Medical bills are complex, and the Consumer Financial Protection Bureau (CFPB) says confusion over them costs consumers money and even keeps them from paying the bill on time.

“Among consumers who have submitted complaints to the bureau about debt collection problems, medical collections complaints are much more likely to be about the existence, amount or information pertaining to the debt than non-medical collections complaints,” the CFPB said in a 2014 report about medical billing.

You can also enlist the help of a billing advocate. They can be found by contacting the National Association of Healthcare Advocacy Consultants or the Alliance of Claims Assistance Professionals. Some hospitals also have them on staff. They review and analyze medical bills and help with appeals.

They often charge a fee, but some nonprofit support organizations may provide financial help for medical debt for free.

Medical Bill Forgiveness

A medical provider may forgive the debt in cases of extreme hardship. Those petitioning for debt to be forgiven will have to provide tax returns and written documentation that proves there is no way to pay your medical bills. This is frequently a solution for those who become permanently disabled; a hospital may also consider unemployment as a hardship.

Nonprofit organizations like the PAN Foundation and CancerCare offer medical bill help, and with the continuation of the pandemic, other support organizations have sprung up. Most states have COVID-19 resource pages that have this kind of information. The page will also list federal and state programs that offer help, including Social Security, Medicare and Medicaid.

Medical providers rarely take those who owe them money to court or report it to credit agencies, They do send unpaid debt to collection agencies, anywhere from 60 to 180 days after the last payment.

Negotiate a Medical Debt with a Hospital

Nonprofit hospitals are required to provide financial assistance for low-income patients. About two-thirds of the hospitals in the U.S. are nonprofit, including those run by a state or municipal government. Check with the billing office about applying for assistance.

The hospital also may be willing to negotiate a lower bill. Collection agencies buy debt from hospitals for much less than what is owed, and the hospital would rather work with patients.

AARP suggests looking up the average cost for the procedure or treatment and using that as a negotiating point. Typical prices can be found by checking Healthcare Bluebook or FAIR Health Consumer.

If you lost your insurance when you lost your job, ask the hospital for the same rate insured patients pay, AARP says.

If you work out a payment plan with the medical provider, you’ll have to make monthly payments and you may be charged fees or interest.

You can also enlist the help of a professional at a debt settlement firm to help with negotiations. An experienced debt specialist can help you decide on a settlement offer, and they have experience negotiating with creditors.

Medical Debt in Collections

If a medical debt has gone to a collection agency, a lower payment or installment plan can sometimes be negotiated.

Some 50-58% of unpaid medical debt winds up in collections, according to several surveys. Credit bureaus also report that 52.1% of all debt collection is for medical bills.

Collection agencies are persistent, but they also have to follow rules set out in the Fair Debt Collection Practices Act. The Consumer Financial Protection Bureau has a page dedicated to how to negotiate with collection agencies and what the consumer’s rights are.

Filing for Bankruptcy to Pay Off Medical Debt

The Gallup poll cited at the beginning of this article shows 50% of those with unpaid medical debt fear they’ll have to file for bankruptcy. But the poll also shows that only 3% go that route.

Filing for bankruptcy is expensive, including the cost of retaining a bankruptcy attorney. The chance of success is greatly reduced without one, because the process is complicated. According to the National Bankruptcy Forum, the average cost of a Chapter 7 bankruptcy is $1,250.

Those who file Chapter 7 bankruptcy, the most common kind, have a good chance of success. Debts were discharged for 94.6% of those filing Chapter 7 in 2019.

What Happens If You Don’t Pay Medical Bills

Ignoring medical bills should never be a strategy, even for the unemployed. Creditors don’t ignore them, and if they’re not paid, a collection agency will handle them in as little as 60 days.

An unpaid medical bill stays on a credit report for seven years and can drop a credit score by as much as 100 points. Further financial damage, including being taken to court and even wage garnishing, can result from unpaid medical bills.

How Medical Debt Affects Your Credit Score

Unpaid medical debt will damage a credit score, lowering it by as much as 100 points.

The good news is that medical debt is treated differently in credit reports than other types of debt. Once a medical bill is paid, it immediately comes off a credit report, unlike other collections. Resolving it can mean a quick increase to a credit score if it’s the only blemish.

Laws governing medical debt recognize it’s not necessarily an indicator of credit risk the way, say, unpaid credit card bills are. Because of that:

  • Credit bureaus must wait 180 days to list medical debt reported to them on a credit report, which gives the consumer time to resolve disputes that may be holding up payment with the medical provider or insurance company.
  • Unpaid medical debt is removed from a credit report once its repaid, unlike other delinquent debt, which stays on your report for seven years, repaid or not.

The most recent FICO scoring method also minimizes the impact of medical debt on a credit score, and it doesn’t count as much as traditional debt does.

Can I Lose My House Because of Unpaid Medical Bills?

A creditor can’t seize someone’s house because of unpaid medical debt, but that doesn’t mean your house isn’t in jeopardy if the debt is large enough. If the debt ends up in court, a judge may place a lien on your house, which has to be paid before a homeowner can refinance or sell the home.

Can the Hospital Refuse to Treat Me Because of Unpaid Medical Bills?

If it’s not an emergency, a hospital can refuse to perform a procedure or treat you, if you owe them money.  However, federal law prohibits hospitals from refusing emergency treatment to someone who owes them money. The Emergency Medical Treatment and Active Labor Act defines a medical emergency as a condition with severe symptoms, including severe pain, so acute that the “absence of immediate medical attention could reasonably be expected to result in placing the individual’s health [or the health of an unborn child] in serious jeopardy, serious impairment to bodily functions, or serious dysfunction of bodily organs.”

Does Federal COVID-19 Relief Include Medical Bill Help?

Congress has come up with proposals for help for medical debt relief during the COVID-19 pandemic, but with aid packages stalled, it hasn’t become a reality.

There are bills in both the U.S. House and Senate that would give consumers a temporary break from dealing with medical bill debt collection. Experts say the longer it takes for Congress to act on a second relief package, the less likely it is either of these bills will pass. But some elements may be included if an aid package is successful.

The Senate “COVID-19 Medical Debt Relief Act” would suspend extraordinary collection actions by health care providers (wage garnishment, bank account seizure) until either the coronavirus public health emergency is lifted, or 18 months after the bill is enacted. It would also suspend medical debt payment plans, ensure forbearance and repayment options, put a hold on interest and fees, and also have a variety of protections for medical bills rising from COVID-19 testing and treatment.

The House “Relief for Consumers During COVID-19 Act” includes a debt collection moratorium until 120 days after the public health emergency is declared over. It also calls for “sustainable repayment plans” when payments resume and would provide creditors access to low-interest, long-term loans from the Federal Reserve to tide them over until people can start making payments.

Should You Use Credit Cards to Pay Medical Bills?

Using a credit cards to pay medical debt or consolidate medical debt, even cards with an introductory low or zero interest rate, can end up making debt issues worse unless the debt can be paid off quickly.

Credit cards, unlike medical bills, have compounding interest. If the amount of the medical debt is low and can be paid back quickly, the harm isn’t too great. But bills that aren’t paid back fast compile interest, and the card-holder ends up owing more money.

Medical credit cards aren’t any different, except that they are designed exclusively for medical expenses. Even if the medical card advertises no interest on balances, that grace period usual ends in several months and the interest rate charged after that is often high.

Before using a credit card to cover medical debt, know what the APR is, when the grace period ends and figure out whether you can make payments quickly and pay it off. Since delinquent credit card debt stays on a credit report for seven years, and medical debt doesn’t once it’s paid off, not paying the card will have a bigger negative long-term effect that the original debt.

Consider a Professional Debt Relief Solution

It’s easy to feel overwhelmed by medical bills, particularly if you’re unemployed. It may be time to consider professional debt relief. The National Foundation for Credit Counseling lists agencies that can help consumers with debt.

Nonprofit debt management helps you set affordable monthly debt payment goals based on your current income and expenses. Counselors will work with you to create a monthly budget that includes the debt management payment. If the counselors negotiate with your creditors for a monthly payment, this comes with a small monthly fee.

About The Author

Maureen Milliken

Maureen Milliken has been writing about finance, banking, investment, entrepreneurship, real estate and other related topics for more than 30 years. She started as the “Business Beat” columnist for the now-defunct Haverhill (Mass.) Gazette and currently is one of the hosts of the Mainebiz business-focused podcast, “The Day that Changed Everything” in addition to her daily writing. She also is is the author of three mystery novels and two nonfiction books.


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