How to Settle Medical Debt

Bankruptcies in US caused by medical costs (Source)

Medical emergencies, illnesses, and accidents can all lead to unexpected medical bills. In light of the ever increasing costs of receiving medical care, it’s not surprising that medical debt can become overwhelming and threaten to sink you financially. According to Harvard Medical School study, 62% of bankruptcies were caused by medical costs.

Medical debt is not just a problem for the uninsured. According to a survey by the Kaiser Family Foundation/New York Times, 20% of insured working-age Americans and 53% of uninsured individuals experience serious financial difficulties as a result of medical debt.

When you’re hit with medical expenses, it pays to know how to settle medical debt as quickly as possible. Getting to know your rights and the various ways you can get your medical bills under control helps you make the best decisions for your financial situation.

Medical Debt

Infographic Courtesy – National Debt Relief

Steps to Negotiate Medical Debt

Let’s look at the steps to negotiate and settle medical debts.

1. Review your bill.

Billing mistakes are common, and they’re usually not in your favor. Make sure you aren’t being billed for services you didn’t receive. This can include incorrect coding for services that could be more expensive than the actual service you received. You may also get charged for a procedure that was planned but not performed. Duplicate charges for procedures and medication are also common.

When charges aren’t clear, contact the medical service provider and ask for an explanation. If you have insurance, call them to make sure that all items were correctly paid for according to your policy. It may also save you money to hire a medical billing advocate.

2. Keep the lines of communication open.

Ignoring a medical bill won’t make it go away. Medical providers will be much more willing to work with you on the debt, including discounting fees, if you contact them and make your willingness to settle the debt known. The sooner you contact them and make it clear you’re going to have some difficulty paying, the better.

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3. Negotiate a reduced bill.

Many medical providers will consider giving a discount if you show an intention to pay and explain that paying the entire amount would prove a hardship. This is especially the case if you offer to pay the balance immediately.

If you owe a lot of money and get a 20-25% reduction in the bill, it may make sense to dip into savings or take out a personal loan to make the payment. You could also offer to pay for half upfront and then the rest a month or two later.

4. Work out a payment plan.

If it’s impossible for you to pay off the amount due immediately, explain your financial situation to the medical provider. Ask to stretch out payments over the next six months to a year. The doctor’s office or hospital is likely to accept the offer since there’s a good chance you’ll do your best to make the payments.

Be sure to pay as agreed. If you find that you can’t make a payment, call to inform the medical provider and renegotiate your payment plan, if possible.

5. Dealing with a debt collector

If you’ve allowed your medical debt to linger or were never informed about it, it may get sent to a collection agency. Take this seriously, as they can report the debt to credit reporting agencies, which can cause a drop of 50 to 100 points on your score and remain on your credit report for up to seven years.

  • Before dealing with a collection agency, find out if the bill has passed the Statute of Limitations (SOL). When the SOL is reached, debtors are no longer able to take you to court to collect payments. The SOL is between three to six years, depending on the state in which you live. This period starts when the account becomes delinquent, not the date of service.
  • It’s important to understand that if you make a partial payment, the counting down period starts again. If you make a payment or agree to do so after the SOL has run out, you may be accountable for the entire amount owed. For that reason, it’s critical that you get a final agreement from the collection agency before making any payments.
  • When settling the debt with a collection agency, offer to pay 25 percent of the original medical bill. They are likely to accept your offer because they have paid the hospital or doctor mere pennies on the dollar for the debt. When you do settle, it will appear on your credit report as settled for less than the full amount but will come off in seven years.
  • The collection agency is required by law to file with the IRS a 1099-C, which is a cancellation of debt form that states you’ve reached a settlement on the amount owed or the debtor has forgiven the entire amount. The amount included on the form is considered income, which means you must pay taxes on that amount.
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Consider a Medical Loan

Borrowers who are willing to pay a lump sum can often negotiate a generous reduction of their medical debt. If you haven’t got the cash, consider getting a personal loan. LightStream, for instance, offers medical loans with interest rates as low as 5.99%.

LenderMinimum FICO scoreEstimated APR 
LightStream6805.99% – 14.49%Apply
Citi Simplicity Master Card6900% APR if you pay within the first 21 months (13.24% to 23.24% after the intro rate period)Apply
LendingClub6605.99% – 35.89%Apply
Avant Credit5809.95% – 35.99%Apply

Bottom Line

Medical debt can be unsettling and frustrating. Knowing how to settle medical debt will help relieve anxiety and take control of your finances. The steps mentioned above provide a useful road map to a debt-free future. However, if you have substantial debt  — as in more than $10,000 — consider hiring a professional company to deal with your debt settlement.

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