Medical Debt and Collections

Medical debt collection occurs when an overdue medical bill is sent to a debt collection agency. Though there are ways to deal with the situation, the stress caused by hearing from collections can be significant.

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Hefty medical bills can be a staggering burden for consumers. Only the best health insurance policies cover all costs, leaving those who need healthcare wondering where they will find the money to pay the remaining bills.

The Consumer Finance Protection Bureau reported in early 2022 that 20% of U.S. households have medical debt. That is 65.9 million of us. Of bills that are sent to collection agencies, 58% involve medical debt.

Specific numbers are even more scary. A Kaiser Family Foundation analysis published in2022 showed that about 23 million Americans have a medical debt of at least $250. At a minimum, those 23 million owe a total of $5.75 billion dollars (23 million x 250). Eleven million Americans owe more than $2,000 in medical costs, and three million owe more than $10,000.

Learning how the system works and seeking financial help for medical bills might save you from financial ruin. It’s important not to run away from a debt. Explain your situation to a hospital or health-care provider with the hopes of working out a settlement you can afford.

A phone call or letter notifying you that your bill has been sent to collections adds to real anxiety and pressure. A graduate study by Jessica Bielenberg for the University of Washington’s School of Public Health drew a direct link in the Seattle area between medical debt, housing instability, and homelessness – all exacerbated by the COVID-19 pandemic.

The sad reality is that neither the debt, nor the effort to collect it, goes away. It’s important not to panic. Hospitals or health-care providers will work with you. Even major medical bills can be negotiated, and the cost of chronic health problems can be managed through various assistance programs.

It’s important to take the situation seriously. Medical debt is the leading cause of bankruptcy in America, and legal complications from medical debt can severely impact you and your family’s financial well-being.

Bills Can Be Sent to Collections Even if You’re Paying

Many of us pay down our medical bills by making regular payments. This approach may be financially beneficial, but it does not guarantee you will avoid collections. Those who decide to pay only a portion of the bill could have the bill sent to collections if it’s not paid off in an acceptable time frame. Same with those who are not paying on time.

It’s important to talk with the provider or hospital when you can’t pay all of what is due. Providers typically will set up a payment plan, but be sure to get it in writing. Some hospitals – the Cleveland Clinic among them – have agreements with certain banks that will spread payments over two or three years at no interest, provided payments are made on time.

Communicating with the provider is key to making payments affordable and avoiding collection agencies.

Insurance Doesn’t Cover Everything

It is a major, major mistake to assume insurance will cover every penny of a major medical expense. With rare exceptions, it doesn’t.

Study and understand your coverage. Ask for an Explanation of Benefits (EOB). Make calls to your insurance company before the procedure to be sure you understand what they will pay and what you are expected to pay.

The Healthcare Bluebook is an online service that allows consumers to gauge a fair price on medical procedures where you live.

When speaking with a hospital, ask if you qualify for the “financial assistance policy,” also called “charity care.” If your income qualifies you for the program, bills could be reduced significantly – or forgiven completely. Nonprofit hospitals are required by law to have these programs in place. Even if you don’t qualify, you could try to negotiate the price down.

Using important terms can help your cause. You might ask if you were charged the “chargemaster rate” for a procedure. That is the full cost hospitals use with insurance companies, costs that are frequently reduced. Ask the hospital if you can pay the lower rate given to insurance companies or Medicare.

When it comes to medical bills and medical bill collections, knowledge is power.

Medical Bills without Health Insurance

If you have a long-standing relationship with your doctor, try to deal with him or her directly to reduce costs or work out a payment plan. When it comes to hospital costs, have all charges explained by the billing office. Auditing every detail is the best way to protect against honest mistakes or outright fraud. Don’t be afraid to challenge unexpected charges.

Medicaid is a federal/state program that helps low-income people and families. If you qualify, take advantage of it.

Finally, some states require hospitals to offer discounts to uninsured patients regardless of income. Some hospitals and medical groups have funds set aside for individuals who do not qualify for other types of assistance.

Medical Bills with Health Insurance

Carefully read and re-read your policy; it’s not easy for any of us, but the more you delve into it the more you’ll understand. If you think charges  that aren’t covered should be, contact your insurance agent. If you are certain you should be reimbursed, or that your doctor or hospital should be paid by your healthcare provider, file an appeal in a timely manner, as most insurers limit the time you have to question a benefit. It often is just 30 or 60 days.

Be prepared for denials and delays and be careful to keep records of all phone calls and correspondence. That way, if you eventually must file a formal complaint with your state’s insurance commission or contact a consumer law attorney, you have accurate records.

Be aware: In the end, you may still have to pay the bill.

Medical Debt and Your Credit Score

There is good news on this front. Equifax, Experian and TransUnion – the three main credit reporting companies – said in 2022 that they would eliminate negative credit marks created by certain medical debts.

The changes include removing negatives for those who settled a debt after it went to collections. Up to 70% of medical debt on credit reports is eliminated by this decision.

That is a very good thing, because a single medical debt in collections can harm your credit score by as much as 100 points. That negative mark stays on reports for up to seven years.

Medical debt under $500 will be excluded from credit reports, and unpaid medical debts will only appear after a year of being in collections, not six months. That gives consumers more time to address the debt. The changes come in addition to efforts by Congress to lessen the impact of medical debt on credit reports (more on that to come).

The changes, though, may not be a great help to those with large, unpaid medical debt.

To avoid the issue affecting your credit score, take care of medical debt as soon as you receive the bill. Contact your service provider or a debt specialist with any questions and resolve the matter as quickly as possible.

In 2020, NPR ran a monthly series on surprise and expensive medical bills, and what it took to lower them. Its story told of a Colorado man who needed an appendectomy, then had a follow-up surgery for a blood clot. His initial hospital bill was $80,232 – and he did not have health insurance. After a protracted period that included filing a grievance and months of phone calls, the hospital reduced the bill to $22,304.

If you take no action to resolve your medical debt, the bill likely will be sent to collections.

If you are worried that medical debt is hurting your credit, check your credit report. The law guarantees that you can get one credit report a year from each of the three major credit bureaus.

2021 Medical Debt Forgiveness Act

In February of 2021, Jeff Merkley of Oregon introduced the Medical Debt Relief Act of 2021 (S.214) in the Senate. The House version (H.R.773) was sponsored by Katie Porter of California.

The proposed bill would institute a one-year waiting period before medical debt could be reported on a credit report. The debt also could not be added to a credit report if the debt was fully paid or settled. The bill also removes those debts already on credit reports.

“There is nothing more outrageous than the fact that after a family has paid their medical debt, their credit is still destroyed as if that debt remains unpaid,” Merkley said.

In addition, the law would require the debt collector to notify the consumer in writing before reporting medical debt to a consumer reporting agency.

The bill is being considered by House and Senate committees.

Sen. Chris Van Hollen of Maryland, also has introduced the Medical Debt Collection Relief Act of 2021, which would restrict certain debt collection activities until the COVID-19 pandemic is deemed over, or for 18 months after the bill is passed. Actions that would be prohibited would include reporting negative information about the individual to consumer credit agencies.

“We should never allow medical debts to ruin livelihoods,” Van Hollen said in a statement when the bill was proposed.

How to Pay off Medical Debt

Treat medical bills like any other debt: Honestly and responsibly. Experts advise to pay the  mortgage and credit card bills first, but do not ignore the medical bills.

Decide on a plan, talk to your doctor or hospital and then make the agreed-upon payments on time. Almost every hospital will work with an honest consumer.

If the bill becomes onerous or burdensome, do not be afraid to speak up and advocate for yourself. One approach you should avoid, or use only as an extreme last resort: Putting medical bills on a credit card. That could lead to a debt spiral fueled by high credit card interest rates.

Jinnifer Ortquist, who works in Money Management Education for the Michigan State University Extension, emphasizes the importance of verifying bills and date of service.

“For complicated services, request an itemized bill from your provider to see how much you were charged for each service,” she writes online about dealing with medical debt. “Also, make sure that your medical services were submitted to your insurance company.”

Ortquist emphasizes keeping extensive documentation, to send a written notice to the provider with a copy of all relevant records (including credit card statements and insurance EOBs) and to send the dispute via certified mail with return receipt to ensure you have proof the letter was received.

She advises responding quickly to bills, and to pay what you can and what you owe as promptly as you can.

“If you have confirmed that you owe the bill, verify what portion your insurance is paying (if any) and try to pay your portion right away,” Ortquist writes. “Remember, if you don’t pay it on time and it gets turned over to collections, it can negatively impact your credit score. In the event you choose to dispute a bill, be sure to do so right away.”

Settling Medical Debt

The possibility of settling medical debt for less than what is owed is there for the taking. It takes work, but a nonprofit credit counselor, an experienced debt specialist or a professional debt settlement firm can help.

Settling a medical debt is done in similar ways to settling any other debt. You or someone working on your behalf, contact the doctor, hospital or collection agency to negotiate an agreed on amount for both parties. Experts advise starting this settlement process as soon as possible, preferably before the debt is turned over to a collection company.

Don’t be scared dealing with collection agencies. An honest and confident approach can lead to a negotiated agreement that works for everyone.

Medical Bill Forgiveness

If you have a verifiable hardship, like a disability that prevents you from working, you may be able to seek medical bill forgiveness. In this case, you petition the provider to forgive the debt entirely.

Your provider will want to see proof in the form of tax returns and written documentation that you have no means to pay your medical bills. You can also apply to nonprofit organizations like the PAN Foundation and CancerCare for help with your medical bills.

Using Credit Cards to Pay Debt

A medical credit card may be worth looking into. These are credit cards that can be used to pay medical bills, including dentists and eye doctors.

The advantage: A medical credit card often will defer interest. Meaning if you pay the debt in an agreed-on timeframe, no interest will be charged. Typically, that timeframe could be from 12–24 months. The catch: If you don’t make the payments on time, you’d have to pay the interest retroactive to when you first made a payment.

A medical credit card is a good idea if you can get deferred interest AND you can you make the payments in the time allotted. If not, the medical credit card can be a problem, just like other credit cards.

Using a credit card for medical debt is the last resort of last resorts.

Credit cards charge high interest rates. Medical debts rarely charge any interest. Also, once the debt is transferred from medical to credit card, the protections afforded consumers for medical debts are wiped out. The debt becomes solely credit card debt. Medical debt transferred to a credit card looks like “regular” debt to creditors. Try to work out a payment plan with the creditor instead of using a credit card.

Only use credit cards to consolidate medical debt if you can’ pay the credit card bills promptly. If you can’t, first discuss whether the medical provider might offer an interest-free payment plan, which would be more manageable than a credit card debt that accrues interest.

Personal Loans

One option to consider when others have been exhausted is a personal loan that could be used to pay medical debt. Personal loans could consolidate medical expenses into one loan, which eases payments and could lower interest rates.

These loans could be helpful for large amounts of debt. A nonprofit credit counselor can help find the right approach that fits your personal situation.

0% Interest Credit Card

Some credit card companies will offer a special 0% interest rate to those who have great credit, and/or are new to the credit card company.

Typically, 0% interest has the same major catch as the medical credit cards: The interest remains zero provided you pay off all the debt in a certain timeframe, be it 12 or 24 months. If you don’t, the interest not only is added to the payment, it is added (accelerated) to all previous payments. Not paying the entire amount on time becomes punitive.

If you do sign up for zero interest, be sure to understand the terms and be aware of the timeframe for paying the debt.

Using a Medical Bill Advocate

Medical bill or patient advocates are people who understand the medical delivery system, explain it to you and negotiate for you. If you are overwhelmed with the complexity of the system or simply don’t have time to unpack your medical bills or proposed charges, advocates can save time and probably money.

Patient advocates often focus on procedures you are contemplating or currently undergoing, while billing advocates can help you review, analyze and appeal bills.

You might have a relative with knowledge of healthcare who can help, but often advocates charge a fee. Some churches and nonprofit organizations also provide advocacy assistance.

If you have already received a medical bill and need help with unmanageable costs, you might want to hire a billing advocate. If you received treatment at a hospital, ask if the institution has advocates on staff. If not, consider hiring one that you know will put your interests first.

Advocates can save you hundreds, or even thousands, of dollars. Some work for an hourly fee, others charge a percentage of the money they save you – usually 25% to 35%. Some charge less. You can find one by contacting the National Association of Healthcare Advocacy Consultants or the Alliance of Claims Assistance Professionals.

About The Author

Bill Fay

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].


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