Medical debt: why it happens and how to tackle it

Sometimes, life really should be “all about you.”

Just work on feeling better when there’s a medical problem, and don’t worry about financial fallout. There will be solutions when you need them. 

For now, focus on your health—everything else can and should go on the back burner. 

What causes medical debt? 

Medical expenses are different from everything else we buy:

• They are often emergencies. We don’t have time to plan for them.

• They aren’t generally optional. Putting off medical care can be life-threatening.

• It’s not easy to shop for the most affordable option when you’re sick.

• It can be difficult to compare costs among providers.

• You often don’t know what the final cost is until the bill comes.

• You don’t always know how much your insurer will cover.

Medical debt is on the rise, according to the American Hospital Association. The industry group blames three main causes: 

• Even though the Affordable Care Act expanded Medicaid coverage, some states opted out, leaving more Americans uncovered. 

• Many people opt for discounted plans with higher deductibles.

• Others choose cheaper limited-care plans and health sharing ministries (faith-based healthcare cost sharing organizations), which don’t cover many conditions and offer little or no consumer protections (like coverage for pre-existing conditions). You may get sick and have to cover the entire cost.

Medical debt doesn't discriminate. Anyone can acquire medical debt if they get sick or injured when they can’t afford it.

How to know if you have medical debt

According to the Consumer Financial Protection Bureau (CFPB), one in five Americans have past-due medical bills. Often, that’s because we don’t know how much our care will cost, and how much will be paid by insurance, until we get a final bill from the provider or an explanation of benefits from our insurer. And that could be months after treatment. 

You may be able to get a jump on your medical bills by contacting your provider or your insurer. If your account goes unpaid, your provider’s billing agency will probably get in touch. And if you ignore them, your balance may go to collections. 

Steps to manage medical debt

You might feel overwhelmed when medical bills start coming, but you don’t need to. If you receive a large medical bill that you can’t afford, go through these next steps to quickly take control.  

1. Know your rights

In 2017, the CFPB introduced a rule that gives you 180 days to pay your medical bills without any penalties. That may be enough time for the provider and insurer to process the balance correctly and for you to figure out how to pay. You may use that time to complain if you think the bill is incorrect or to seek help before your credit takes a hit.

In addition, some states have passed legislation that prohibits “surprise billing,” for instance when an in-network hospital uses an out-of-network lab. Others outlaw “balance billing” when a provider charges you extra to make up the difference between their charges and the amount your insurer approves.

Finally, The Affordable Care Act (ACA) requires hospitals to have a written Financial Assistance Policy (FAP) and a written Emergency Medical Care policy. You may be eligible for discounted or even free medical care. 

2. Review your bills carefully

Billing errors that increase your costs and coding mistakes that cause claim denial are common. You may be able to reduce what you owe with a phone call to the provider’s billing department or to your medical insurer.

3. Negotiate the charges

You can and should negotiate the price of care when insurance doesn’t cover an expense. Many hospitals and medical care providers offer discounts for a variety of reasons. Be prepared to document your income or demonstrate financial hardship. 

4. Ask an advocate

Many healthcare providers have advocates to help you make sense of your bill, support you when disputing charges, find financial assistance (aka, “charity care”), or set you up with a payment plan. They may also be able to help with your eligibility for Medicaid, Medicare, or other state-sponsored programs.

5. Skip the credit cards

Don’t automatically reach for your credit cards for medical debt. If you can put your care on a rewards card and then pay it off right away, go for it. Otherwise, you’re better off with a hospital payment plan, which typically charges little to no interest. Another possible option is a medical debt consolidation loan.

Where can I find help if I'm overwhelmed by medical debt?

Your first stop is probably the hospital that provided your care. Your provider should supply its Financial Assistance Policy (FAP) and Emergency Medical Care policies when you leave the hospital, and that information may also be on your billing statement. Or you can call and ask for it. Look for information about eligibility, available discounts, and how to apply. 

Nonprofit hospitals, in exchange for favorable tax treatment, must follow IRS requirements for helping people who need it. If you suspect the hospital isn’t following these requirements, contact the IRS. 

Some states also have charity care laws that require hospitals to provide free or discounted care to patients meeting eligibility standards, typically based on income. 

• California, Connecticut, Illinois, Maine, Maryland, Nevada, New Jersey, New York, Rhode Island, and Washington have protections that apply to all hospitals. 

• Louisiana, Oregon, and Texas have protections that apply only to nonprofit or state hospitals. 

• Colorado, Massachusetts, and South Carolina have state-run financial assistance programs.

Notify anyone trying to collect on medical costs that you’re seeking financial assistance for the bills. Ask them to suspend collections while your application is pending.

How does medical debt affect my credit score?

Credit reporting agencies know that no one asks for medical debt, and having unpaid medical bills doesn’t automatically mean that you’re a bad credit risk. For this reason, they treat medical bills differently.

• You can't be reported “late” for at least 180 days from your date of service. 

• Medical debt isn't typically reported to credit bureaus unless it goes to a collection agency or a debt buyer. 

• Unpaid medical collections under $500 aren't counted in your credit score.

• Credit bureaus have a 365-day waiting period before unpaid medical collections appear on your credit report.

• Once paid, medical collections are removed from your credit report and don’t impact your score. 

Larger unpaid balances that go to collection agencies or debt buyers may eventually be reported to credit bureaus. They may then appear on your credit report and impact your credit score. These are considered “serious derogatory items” and can cause your score to drop significantly.

Strategies to avoid medical debt

The best way to avoid medical debt is to take care of yourself, maintain healthy habits, and purchase good insurance coverage. However, that’s not possible for everyone, and good health always involves some amount of luck. 

There’s more you can do to avoid medical debt, even if your luck runs out.

• Before undergoing a procedure or test, ask your insurer what’s covered and how much it will cost you. If something isn't covered, ask if there are other options. 

• Compare the cost of care among different providers. 

• Ask for a written estimate up front.

• Keep records of all your medical bills and explanations of benefits (EOBs) that you receive from your insurance company. 

• If you need to argue or question a bill, write a letter to the healthcare provider and include copies of important documents like records from doctor's visits or credit card statements. 

• Check your statements carefully. If you don't recognize the name of the healthcare provider, look at the date of service to see if you had any medical treatment on that day. Sometimes, providers who send you bills directly may be connected to the hospital where you received treatment, so you might not realize you were getting services from them.

• For more complex procedures, ask the provider for an itemized bill. If something seems really expensive, like $1,000 for aspirin, ask questions. 

• Negotiate your bill before or after treatment. Ask for a discount if you pay the whole amount up front. If uninsured, request the same rate that insured patients get. Other assistance can include an interest-free payment plan, a balance reduction (prepare to demonstrate need), or a referral for charity care. 

• Don’t ignore your medical debt. Acting quickly to dispute or negotiate your bills can help you resolve them with little or no damage to your credit score. 

Finally, medical debt may be negotiated with help from a professional debt resolution company or discharged in bankruptcy. 

What’s next

Your highest priority is getting the care you need—your health is the most important thing. You can deal with the bills later, and assistance can come from many channels. Before your procedure, if possible, compare the cost among providers, verify your coverage, and secure necessary preapprovals. For emergency care, though, just worry about getting help—and getting better. Then tackle the steps laid out above.