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 bills from medical care are 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.

About 137 million Americans have a medical debt; 28% of those owe $10,000 or more. The phone call or letter notifying you that your bill has been sent to collections only adds to the  anxiety and pressure. The Consumer Finance Protection Bureau reported in March of 2020 that 52% of all debts in collection are medical bills.

The trauma because of medical debt is significant. 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. Just don’t 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.

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.

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.

Insurance Doesn’t Cover Everything

The biggest mistake any of us can make when it comes to medical bills Is assuming 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 insurance 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 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 re-read your policy; contact your insurance agent if you think charges on a bill should be covered. 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 that in the end, you may still have to pay the bill.

Medical Debt and Your Credit Score

A single medical debt in collections can harm your credit score by as much as 100 points. Once the debt appears as unpaid on your credit report, it takes up to seven years to disappear.

The “good” news: The credit reporting bureaus (Experian, TransUnion and Equifax) decided in 2017 that once you pay the medical bill, it will come off your credit report. And they decided to set a 180-day waiting period before including medical debt on a credit report.

But even with otherwise pristine credit, the unpaid medical debt can stop you from receiving the best options on new loans, costing you extra money in interest.

Avoid negative consequences to your credit by taking 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 in August 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 will go into collections. Medical debt collections are incredibly common.

If you are worried that medical debt is hurting your credit, check your credit score. The law guarantees that can get one credit report a year from each of the three major credit bureaus. However, during the COVID pandemic, consumers can check weekly through the end of April, 2021.

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

Making payments on a large medical bill does not guarantee you will avoid collections. Those who decide on their own to pay only a portion of the bill could have the bill sent to collections. 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 play, 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 collections.

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-on 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 to avoid, or use only as an extreme last resort: Putting medical bills on a credit card. That could lead to a 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, which may not be as motivated to settle as a doctor or hospital.

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 which 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 a Debt

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.

Some patients opt to use medical credit cards, which are like conventional cards but are designed exclusively for medical expenses. Application forms are sometimes available in doctors’ offices.

Before applying for a medical card, especially one that advertises no interest on balances, carefully review the terms. You probably will discover that the no-interest grace period ends in several months and the interest rate charged after that is quite high.

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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