Debt in any form is bad. If I were to rank the top 3 worse types of debt to carry I would rank them as follows: 1. Payday Advance Debt 2. Credit Card Debt 3. Medical Debt.
Both payday loans and credit card debt are bad given the high-interest rates and predatory practices. You can avoid payday loans and credit card debt by changing your habits. However, medical debt is something most people will encounter in their lifetime and has such snowballing consequences that it is the leading cause of bankruptcies in the U.S.
It is hard to prevent medical debt. Medical debt is usually built up out of absolute necessity and you have no control over how much money you will be charged by the hospital or physician.
You also likely need time to recover from your procedure that caused your medical debt which means you are unable to get paid. Unpaid medical debt builds interests, negatively affects your credit score, and eventually leads to jail time.
Here are 6 things you should do if you get into medical debt to prevent your situation from ever getting to the point of impacting your credit score.
Before we begin, because health insurance is a complex topic to understand, here are some terms you have to understand:
Premium: what you have to pay each month
Out of pocket costs: Any additional costs you have to pay in addition to your premium
Deductible: a type of out of pocket cost that you must pay before your insurance starts paying
Coverage: What your insurance covers. This can speak to the type of procedures and/or how much you pay for your insurance.
1. Call the billing department right away
I cannot stress this point enough, you need to call right away to show you are proactive. This isn’t like your elementary school report cards where if you wait long enough, no one will remember them.
If you believe you are unable to pay the debt, you can negotiate the billing department to decrease your monthly payments. The absolute worse possible action you could take is not taking any action on paying your debt. Not taking action will cause your debt will to go to a collection agency.
You want to avoid a collection agency from controlling your debt at all costs.
Once it goes to a collection agency, you will have a much harder time negotiating for a lower rate. Additionally, you are only increasing your chances of hurting your credit score and possibly going to jail.
2. Negotiate for the Medicare rate
Here’s a secret most people don’t know – Medicare pays close to the break-even rate to healthcare organizations for procedures.
Medicare is health insurance for 65+ American citizens and pays doctors much lower than typical health insurers. As an example, if the cost of doing a procedure (including the staff’s salaries and equipment) is $300, Medicare will pay $303. However, your non-Medicare health insurance you get from your employer pays that same procedure $500.
Your health insurance pays significantly more because each health insurance companies have more money and smaller negotiation power with hospitals. This situation allows hospitals to charge a higher rate for non-Medicare insurers (except for Medicaid). Unfortunately, if you have poor coverage or high deductibles, you are stuck paying the health insurance company’s poorly negotiated rate.
If your procedure is not covered or you have not met your deductible, negotiate for the Medicare rate. Doctors and hospitals much rather make some money than no money.
should negotiate for the Medicare rate
Ask to speak to the billing department
Explain your situation that you are unable to pay for your deductible
Explain that you understand their need for profits, but you do not have enough money currently to pay.
As a compromise you will try to pay the Medicare rate
Note: This is harder if you have current medical debt.
3. Ask for a payment plan that doesn’t include interest
Interest is interest and you want to avoid paying for interest. Most medical debt has very low-interest rates that rarely pass 5%.
Most healthcare organizations are willing to work with you to not give you interest as long as you are willing to have a payment plan. This is because someone calling for a payment plan shows a willingness to pay back their debt. Here’s another secret – most people don’t pay their medical debt, so a healthcare organization is willing to get their money late rather than never.
If you find yourself calling to a person in billing that isn’t willing to work with you, call back again. You will eventually find someone that is willing to work with you unless you are speaking to a small office. In that situation, you will have to work with the parameters the office has set down.
4. Show income statements for an income-driven hardship plan
In the scenario that you are unable to make the payment plan or the billing department isn’t willing to give you any leniency, you will need push the angle of your lack of available money.
Put together a folder of the following items: 1. Your pay stubs 2. Bank account statements 3. Medical bill 4. Credit card statements and any other loan documents.
Call the billing department and ask to speak to the manager. Ask to meet the person and/or email the manager. Once you have the email or meet with the manager, show the proof of why you are unable to pay.
More often than not, you will have part of your medical debt forgiven and given a very flexible payment plan. I have never had anyone who truly cannot pay, get rejected using this tactic. Healthcare facilities are willing to get some money back rather than no money.
5. Do not consolidate into credit card debt or consolidation loans
Repeat after me, “Under no circumstances will I transfer medical loan debt into credit card debt or any other types of easily accessible loans (medical, consolidation, personal, etc.).”
Medical debt is given certain protections that other loans are not given. Interest rates from medical debt are likely lower if you have followed the above steps than anything that banks can offer.
6. The Emergency Button – Declare bankruptcy
You should speak to a bankruptcy lawyer before considering this option.
Assuming you have called and tried to negotiate, but still are incapable of paying off your debt you are left with few options. In this case, you should consider the option of declaring bankruptcy.
This should only be done as a very last option because you will be starting your entire financial life fresh again. What this entails is you will lose most everything that you own. Once again, this should be seen as a very last option and consult a lawyer before going through this option.
Bonus: Change your health insurance/check your health insurance opportunities
Look, I get it health insurance is complex and hard to understand. So let Uncle Matt help you.
You’re likely in medical debt because your health insurance’s deductible is too high or you did not have something covered.
Regardless of what the outcome of your medical debt that you have gained, you must make sure not to gain more debt in the future. To avoid this, you should look insurance with lower deductibles and better coverage – or read this article. Additionally, you should strongly consider applying for supplemental health insurance as well which you can read here. In addition, it would be helpful to check if you qualify for Medicaid in your state. Medicaid is geared toward people with lower incomes and gives them state-assisted health insurance.
What’s your experience with medical debt? Comment below and don’t forget to subscribe!
The material and information contained on this website is for general information purposes only. You should not rely upon the material or information as a basis for making any business, legal, or any other decision. While we endeavor to keep the information up to date and correct, Bunny Hops To Wealth makes no representations or warranties of any kind, expressed or implied about the completeness, accuracy, reliability, suitability, or availability with respect to the website or the information in the above post. Any reliance you place on such material is therefore strictly at your own risk. Prior to making any health insurance decision, make sure you consult a health insurance expert before making any changes.
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