How to Avoid Medical Debt Disaster

debt movement2-15-13Medical bills were number six on the list of Bankrate’s top ten causes of debt.

Debt caused by medical bills is often the unfortunate combination of not having health insurance or inadequate coverage and the rising cost of healthcare.

Out of our control, medical bills can be the undoing of an already rocky financial situation.

Understanding your health insurance, the impact medical bills can have on your credit, and your options for dealing with medical debt just might help you avoid a medical debt disaster.

If you are fortunate enough to have health insurance understanding how it works, and what benefits it provides are essential to keeping your healthcare costs down. Insurance companies can be difficult for both consumers and healthcare providers to deal with.

Covered procedures, co-pays, and out-of-network costs can be confusing. The key is to understand and follow through every step of the way so that things don’t fall through the cracks.

A Clean Bill of Health

Medical collections can appear on your credit report without warning, leaving you wondering where did this bill come from? Those collections, while not as damaging as missed mortgage payments or credit card bills can put a damper on your credit. Here are a few things you can do to protect yourself:

  • Don’t assume anything. Don’t just assume your insurance company has covered your child’s well visit, the blood work you had done, or that trip to the ER for your sliced finger. Call the provider to make sure the insurance has taken care of the bill. Review your EOB (Explanation of Benefits) from your insurance company, see what they paid, and when. If there are any discrepancies take care of them right away!
  • Get a credit report check-up. Don’t just assume because you pay your bills on time that you have an excellent credit rating; that may not be the case. Collections for unpaid medical bills you didn’t even know about can show up. You can and should check your credit annually with all three credit bureaus: www.experian.com www.equifax.com www.transunion.com
  • Make the debt collector talk. If you receive a call or a letter stating an account has been sent to collections, find out for what bill, what service, and what family member. You may find out it’s not even a service that you ever received. Don’t take the, “I can’t tell you that information response.” Legally they have to, it’s your right!

If You Have to Pay

A study conducted by Harvard University shows that medical bills are one of the leading causes of bankruptcy, representing 62% of all personal bankruptcies.

The good news is there are other options you can explore before resorting to bankruptcy.

  • Payment in full = discounts. Most providers will offer discounts to patients who have the ability to pay in full. The savings may be 20-30% or more off of the total bill. So if you can afford to pay the bill in full, it may save you money in the long-term.
  • Negotiate, negotiate, negotiate. You can negotiate with the healthcare providers by offering to make small payments on your bill each month. Even if you can only afford $10/ month they may be willing to work with you to avoid sending the account to an outside collection agency. If you don’t make any payments they are forced to turn the account over to a collection agency and end up losing money; sometimes as much as 60-80 cents on the dollar, so they want to work with you. Just be prepared to offer what you can afford and most importantly, get the agreement in writing.
  • Government programs for all. If you are without health insurance, Medicaid and Medicare can help you reduce medical bills or completely cover them. Children Health Insurance Plans or (CHIP) offers subsidized health insurance if you don’t qualify for Medicaid, your children may be covered with CHIP.
  • Contact the financial aid department. Most facilities have a financial aid or charity department required by law. Like with government programs, you need to meet certain requirements to qualify for financial help.
  • Consider seeking the help of a debt relief provider. A debt relief provider can help you to consolidate all of the medical bills into one payment with a Debt Management Plan. With a DMP you would be paying the creditors back in full. If you are unable to afford a DMP payment, a Debt Settlement Plan may be a viable option. With Debt Settlement, you make monthly deposits to a settlement deposit account in an amount you can afford. You do not make monthly payments to your creditors, and your provider works to negotiate with your creditors for a less-than-full repayment. When settlements are reached with creditors, settlement payments are paid from the settlement deposit account. There are definitely pros and cons to using Debt Settlement to pay off your debt.

Understanding how your health insurance works, having a grasp on medical bills and their effect on your credit and knowing your options may make all the difference in your financial situation.

If you have questions about your health insurance coverage, ask! If you don’t recall having the service provided, take the steps to have it removed from your credit report, and be sure to explore all of your options thoroughly and avoid jumping into any decisions without all the facts.

NewBrandCramer_About the author:

Suzanne is a Certified Personal Finance Counselor® and Social Media Specialist for CareOne Services, Inc. She supports the Ask the Expert forums as a coach and writes for A Straight Talk on Debt. Suzanne is a divorced, single mom living in Pennsylvania.