How to Get Rid of Medical Debt?
One of the growing problems in the United States is medical debt. A recent New York Times and Kaiser Family Foundation survey pointed out that one in four Americans have trouble paying off a medical bill. On average, almost $3.5 trillion is spent on healthcare every year.
The Kaiser Family Foundation also reports that more than 22% of the total debts were medical debts. This number increases to 34% in the case of borrowers without medical insurance.
Unlike credit cards and outstanding loans, medical debts are mostly unexpected. Other than the legal problems, pending medical loans can leave an irreparable dent on your credit score.
There are quite a few ways to try and reduce medical debt. In this article, we explore all of the possible ways to avoid default and bankruptcy.
What are the Options?
Pending medical bills aren’t something that you should take lightly or ignore. If you have one outstanding, we recommend that you take measures to address medical debt right away.
Check All the Charges
The first step to sorting your medical loans is understanding the charges that have been added. Read through the documents to understand the bills.
In most cases, the service provider will provide detailed insights on what has been paid off on your behalf. Ask for a copy of the Explanation of Benefits (EOB), if not already received. Make sure you understand what you owe.
In cases where you are approached by a debt collector, asking for copies of all relevant documentation and any additional fees/charges is a good idea to gain clarity for the next logical step.
See Which Ones You Can Afford
If you have piled up significant medical debt, the best way to address it is to speak with the insurance company or the hospital. In the majority of the cases, the service provider will help you schedule a repayment plan.
Negotiate for better rates and a more realistic amount that you can afford to settle the debt for good.
You can choose from various options depending on the provider – settlement, repayment, monthly installments, or other available options. Calculate your liabilities, and agree to a payment plan that you can afford.
Also, make sure to double-check if there are any additional charges or fees associated with the payment that might be erroneous or not make sense.
Medical Credit Cards
Paying off medical debts with a normal credit card isn’t the right idea because this will further lead to a never-ending cycle of debts with high-interest rates.
In cases where your service provider doesn’t agree to payment plans, ask them if they accept medical credit cards. Unlike credit cards, most medical credit cards offer interest-free repayment terms of 6 to 12 months.
These cards are designed to cater to medical costs and many providers have a straightforward application process for issuing one. However, if you are not able to pay your regular installments on time, you will be charged deferred interest.
Income-Driven Hardship Plan
Income-driven hardship plans will repay some of your medical debt and split the remaining amount into monthly installments so that the debt is affordable relative to your income.
Note that this isn’t available to cover all medical debts, but specifically for patients with low-income only.
You will need to provide substantial income proofs (pay stubs), liabilities (outstanding loans, installments, and other debts), and income-expense statements. In exceptional cases, the provider might also lower the total amount of debt outstanding. We recommend that you speak with your service provider and get a better understanding of the qualifying parameters.
If you don’t want to hire a medical bill advocate, the best alternative is to negotiate terms on your own. When your debt is in default, and it is outsourced to loan collection agencies, you might have the upper hand to negotiate. Begin by demanding validation of the pending medical loan.
Once you receive the validation, start looking for discrepancies, if any. Cross-check every bill that accumulates to the total outstanding. Then, negotiate a middle ground between what you can afford to pay and what is being asked of you.
If you do it right, you might be able to get rid of the medical debt by paying off a lump sum or agree to a cost-effective monthly repayment plan.
Check if You Are Eligible for Medicaid
Medicaid is a state and federal-run program that helps patients with limited income to address and reduce medical debts. Three broad categories are eligible for Medicaid – individuals with disabilities, low-income households, and elderly individuals.
Since it is jointly funded by the state and federal governments, it guarantees extensive financial protection and comprehensive medical coverage.
The eligibility criteria vary by state. For an idea, if your monthly income is lower than the Federal Poverty Level (FPL), and if you’re a parent/caretaker, disabled, pregnant, or elderly, there might be a Medicaid option available for you.
File for Bankruptcy
If you are out of all available options, the final option to try is bankruptcy. There is a special bankruptcy court through which you will need to apply.
Medical debt can be forgiven entirely if you are eligible for Chapter 7 bankruptcy, or you can settle it over three to five years through a Chapter 13 repayment plan.
Bankruptcy should ultimately be the last resort option on your list. While there are obvious drawbacks of declaring bankruptcy, it is still better to maintain your liabilities while paying enough to get rid of the medical debt.
No matter which type of repayment strategy you choose, it is important to consider the affordability. At times, you may be tempted to avoid the pending medical bills, but it will just add more interest to the total amount outstanding. Besides these ramifications, your credit scores will also be harmed significantly.
If you ignore medical debt for a longer time, you will start receiving calls and emails from collection agencies. In extreme cases, these agencies will even sue you for the money. Hence, the best way is to address medical debt as early as possible. Talk to the provider, understand what you owe, negotiate for better alternatives, or hire a medical debt counselor – whichever best suits your situation.
Burying your head in the sand won’t get rid of the medical debt. Instead, assess what you can pay and start repaying at your earliest convenience to avoid an even bigger debt down the road.