A Gallup poll shows that 21% of Americans have trouble paying for medical care and prescriptions. Just how difficult is it for Americans to cover medical expenses? A Harvard University study conducted in 2005 revealed that half of all bankruptcies were due to illness-related loss of work or healthcare costs. In 2007, a follow-up study showed a 50% increase in bankruptcies filed as a result of medical bills.
Are these bankruptcy filings being made by low-income, marginally employed and irresponsible people? No—according to the Harvard study, most of those filing for bankruptcy citing medical bills as a reason were educated homeowners with solid middle-class jobs. The question that needs to be answered is, how can consumers dig themselves out of medical bill debt without resorting to bankruptcy?
Paying Medical Bills with Credit Cards Isn’t the Answer
Using your credit card to finance medical bills is a strategic mistake. Most healthcare providers have payment plans, and larger clinics and hospitals have accounting departments that often are willing to work out a payment schedule with you. There is typically no need for credit cards, yet. 29% of low- to middle-income healthcare consumers use them to pay their medical bills.
While using a credit card may solve the problem of paying off the medical bill, it can cause multiple other problems. First, credit cards are high-interest loans, while payment arrangements made directly with the provider are usually on a low-interest payment schedule. Secondly, using credit cards to pay off medical bills can significantly throw off your utilization rate, negatively affecting your credit, even if you pay on time each month.
Steps to Take Leading Up to Debt Settlement
Like any other creditor, your healthcare provider wants to be paid the full amount. An important thing to know, especially if you are uninsured, is that the full amount is not the same for everyone. When dealing with insurance companies, the healthcare provider typically has a fee schedule worked out with the insurer that discounts their “off-the-shelf” rate. If you do not have medical insurance, you often are charged a higher amount.
If you are uninsured and facing mounting medical bills or financial difficulty, it is a reasonable request to ask your healthcare provider to give you the same rate they offer patients covered by an insurance plan. They are under no obligation to accommodate your request, but you may get at least some discount. While asking for a reduced rate is not by definition debt settlement, it is essentially lowering your principal, and it affords an increment of financial relief.
It’s also important to carefully look over each and every medical bill to make sure you aren’t being charged for mistakes made by the billing department. According to Medical Billing Advocates of America 8 out of 10 medical bills have errors. Look out for duplicate charges, charges for services that were never preformed, and over-charging. Question anything that you’re unsure of or looks suspect. You can also get professional help from a medical billing advocate who is trained to find medical billing errors.
If your medical bills start to accumulate and debt collectors start to call, debt settlement becomes a solution to consider. Ideally, the best time to broach the subject of debt settlement with a healthcare provider is before the bill has moved to a debt collection agency. Healthcare providers will tend to be a little more forgiving and a little more willing to make a settlement deal if they can work with you one-on-one instead of through a commission-based debt collection agent.
However, if working directly with the healthcare provider is not an option, you have multiple past due medical bills, or the debt is large and unmanageable, your best option may be to consult a professional debt settlement company.
Medical Bill Debt Settlement & Your Credit Score
Keep in mind that debt settlement can have a negative impact on your credit, though it does not necessarily have to. How it affects your credit depends on how the healthcare provider reports it to the credit reporting agency. Be sure to ask your healthcare provider how they report settlement agreements so you have a better understanding of what to expect.
If you are able to successfully negotiate a favorable payment plan or discount from the healthcare provider from the beginning, and then make timely payments to ensure that your credit will not be negatively impacted. Remember, regardless of any deals, late payments will count as a strike against your credit score.
Medical bills don’t have to be as painful as the medical condition that required treatment. Address the issue without delay, work directly with the healthcare provider at the earliest opportunity, and be sure to ask the provider’s billing office whether they have payment or reduced-fee programs available.
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