Your physical well-being isnâ€™t the only thing at stake when you go to the hospital. So, too, is your financial health.
According to the Consumer Financial Protection Bureau, more than half of all collection notices on consumer credit reports stem from outstanding medical debt, and roughly 43 million consumers â€“ nearly 20% of all those in the nationwide credit reporting system â€“ have at least one medical collection on their credit report.
Now, you might be inclined to think that, because youâ€™re young or have both a job and health insurance, medical debt poses you no risk. Think again. According to a report from the Kaiser Family Foundation, roughly one-third of non-elderly adults report difficulty paying medical bills. Moreover, roughly 70% of people with medical debt are insured, mostly through employer-sponsored plans.
Not concerned yet? Consider that a medical collection notice on your credit report, even for a small bill, can lower your credit score 100 points or more. You canâ€™t pay your way out of the mess after the fact, either. Medical debt notifications stay on your credit report for seven years after youâ€™ve paid off the bill.
The good news is that you can often prevent medical debt from ruining your credit simply by being attentive and proactive. Hereâ€™s how.
Certainly, a considerable portion of unpaid medical debt exists on account of bills so large and overwhelming that patients donâ€™t have the ability to cover them. But many unpaid medical debts catch patients completely by surprise, according to Deanna Hathaway, a consumer and small business bankruptcy lawyer in Richmond, Va.
â€śMost people donâ€™t routinely check their credit reports, assume everything is fine, and then a mark on their credit shows up when they go to buy a car or home,â€ť Hathaway said.
The confusion often traces back to one of two common occurrences, according to Ron Sykstus, a consumer bankruptcy attorney in Birmingham, Ala.
â€śPeople usually get caught off guard either because they thought their insurance was supposed to pick something up and it didnâ€™t, or because they paid the bill but it got miscoded and applied to the wrong account,â€ť Sykstus said. â€śItâ€™s a hassle, but track your payments and make sure they get where they are supposed to get.â€ť
One of the major ways insured patients wind up with unmanageable medical bills is through services rendered â€“ often not known to the patient â€“ by out-of-network providers, according to Kevin Haney, president of A.S.K. Benefit Solutions.
â€śYou check into an in-network hospital and think youâ€™re covered, but while youâ€™re there, youâ€™re treated by an out-of-network specialist such as an anesthesiologist, and then your coverage isnâ€™t nearly as good,â€ť Haney said. â€śThe medical industry does a poor job of explaining this, and itâ€™s where many people get hurt.â€ť
According to Haney, if you were unknowingly treated by an out-of-network provider, itâ€™s would not be unreasonable for you to contact the provider and ask them to bill you at their in-network rate.
â€śYou can push back on lack of disclosure and negotiate,â€ť Haney said. â€śTheyâ€™re accepting much lower amounts for the same service with their in-network patients.â€ť
Even if youâ€™re insured and are diligent about staying in-network, medical bills can still become untenable. Whether on account of a high deductible or an even higher out-of-pocket maximum, patients both insured and uninsured encounter medical bills they simply canâ€™t afford to pay.
If you find yourself in this situation, itâ€™s critical to understand that most health care providers turn unpaid debt over to a collection agency, and itâ€™s the agency that in turn reports the debt to the credit bureaus should it remain unpaid.
The key then is to be proactive about working out an arrangement with your health care provider before the debt is ever sent to a collection agency. And make no mistake â€“ most providers are more than happy to work with you, according to Howard Dvorkin, CPA and chairman of Debt.com.
â€śThe health care providers you owe know very well how crushing medical debt is,â€ť he said. â€śThey want to work with you, but they also need to get paid.â€ť
If you receive a bill you canâ€™t afford to pay in its entirety, you should immediately call your provider and negotiate.
â€śMost providers, if the bill is large, will recognize thereâ€™s a good chance you donâ€™t have the money to pay it off all at once, and most of the time, theyâ€™ll work with you,â€ť Dvorkin said. â€śBut you have to be proactive about it. Donâ€™t just hope it will go away. Call them immediately, explain your situation and ask for a payment plan.â€ť
If the bill youâ€™re struggling with is from a hospital, you may also have the option to apply for financial aid, according to Thomas Nitzsche, a financial educator with Clearpoint Credit Counseling Solutions, a personal finance counseling firm.
â€śMost hospitals are required to offer financial aid,â€ť Nitzsche said. â€śTheyâ€™ll look at your financials to determine your need, and even if youâ€™re denied, just the act of applying usually extends the window within which you have to pay that bill.â€ť
In the event that your debt is passed along to a collection agency, all is not immediately lost, Sykstus said.
â€śYou can usually negotiate with the collection agency the same as you would with the provider,â€ť he said. â€śTell them youâ€™ll work out a payment plan and that, in return, youâ€™re asking them to not report it.â€ť
Most collection agencies, according to Haney, actually have little interest in reporting debt to the credit bureaus.
â€śThe best leverage they have to get you to pay is to threaten to report the bill to the credit agencies,â€ť he said. â€śThat means as soon as they report it, theyâ€™ve lost their leverage. So, theyâ€™re going to want to talk to you long before they ever report it to the bureau.
â€śDonâ€™t duck their calls,â€ť he added. â€śTalk to them and offer to work something out.â€ť
Refinancing your medical debt into a personal loan is another potential move you can make, particularly if you can get a lower interest rate than you could with a credit card, and you arenâ€™t able to secure a 0% credit card deal. Peer-to-peer lenders LendingClub and Prosper both start with APRs as low as 6.95%, and LendingClubâ€™s origination fee starts as low as 1%.
Even better, SoFi offers personal loans at a rate as low as 5.99% and has no origination fee (although you do need a relatively high minimum credit score, at 680).
MagnifyMoneyâ€™s parent company, LendingTree, features a handy personal loan tool where you can shop for the best loan for you.