Medical emergencies, illnesses, and accidents can lead to colossal medical bills. In light of the increasing costs for medical care, it’s not surprising that medical debt can sink you financially. According to Harvard Medical School, 62% of bankruptcies were caused by medical costs. If you’re looking to figure out the steps to settle medical debt, read further.
And medical debt is not just a problem for the uninsured. According to a Kaiser Family Foundation survey, 20% of insured Americans and 53% of uninsured individuals suffer serious financial difficulties because of medical debt.
Have you found yourself mired in medical debt? Don’t lose hope. Before you throw your hands up and declare bankruptcy, try these five steps to escape medical debt.
Steps to negotiate medical debt
Let’s look at the steps to negotiate and settle medical debts.
1. Review your bill.
In 2017, a Texas hospital charged a patient $108,951 for medical care following a heart attack — even after his insurance had paid them over $50,000. When he investigated their claims with the help of an NPR medical billing advocate, they waived the charges. In the end, he owed only $782.29.
Billing mistakes are common, and they’re rarely in your favor. Make sure you aren’t 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 could also get charged for a procedure that was planned, but not performed. Duplicate charges for procedures and medication are also common.
When charges seem too high, contact your medical service provider and ask for an explanation. If you have insurance, call them to ensure that all items were covered according to your policy. It may also save you money to hire a medical billing advocate.
2. Keep lines of communication open when you settle medical debt.
Ignoring a medical bill won’t make it go away. Medical providers are likelier to work with you on the debt — including discounting fees — if you reach out and communicate your willingness to settle. The sooner you contact them and explain that you’re going to have some difficulty paying, the better.
3. Negotiate a reduced bill.
Many medical providers will give you a discount if you show an intention to pay and explain that paying the entire amount would prove a hardship. This is especially effective if you offer to pay the balance immediately or offer to pay half upfront.
Borrowers who are willing to pay a lump sum can often negotiate a generous reduction of their medical debt. If you’re offered a 20-25% reduction on your bill, it may make sense to dip into savings to make the payment now. If you don’t have the cash, consider getting a personal loan. LightStream, for instance, offers medical loans at reduced rates.
Need help finding the right personal loan to cover your bill? SuperMoney can help.
4. Work out a payment plan to settle medical debt.
If it’s impossible for you to pay off the amount due immediately, explain your financial situation to the medical provider. Ask if you can 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. Just be sure to negotiate a plan you can realistically pay — they’ll likely only be flexible once.
5. Deal with a debt collector
If you’ve allowed your medical debt to linger, it may be sent to a collection agency. You should take this very seriously. Collection agencies report to credit reporting agencies, which can cause a drop of 50 to 100 points on your credit score. This stain can remain on your credit report for up to seven years. But if your debt has already been sent to a collector, don’t worry — there are still steps you can take.
First, find out if your bill is past the Statute of Limitations (SOL) — the period during which the lender can still take you to court to collect payments. This period usually spans three to six years, depending on your state, and starts when your account becomes delinquent. If you make a partial payment at any point, the countdown starts over.
Why is it important to know whether you’re within the SOL? Well, if you make a payment or agree to do so after the SOL has run out, you may still be held accountable for the entire amount owed. For that reason, you should confirm that you’re still within the SOL before you make any payments.
When settling debt with a collection agency, offer to pay 25% of the original bill. They are likely to accept your offer, because they are only accountable for a fraction of your original 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.
If a chunk of your debt is forgiven, the collection agency will have to file a 1099-C, a cancellation of debt form. Unfortunately, that amount will be considered income, which means you’ll pay taxes on it.
Medical debt can be frustrating. Knowing how to settle medical debt will help you take back control 0ver 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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Julie Bawden-Davis is a widely published journalist specializing in personal finance and small business. She has written 10 books and more than 2,500 articles for a wide variety of national and international publications, including Parade.com, where she has a weekly column. In addition to contributing to SuperMoney, her work has appeared in publications such as American Express OPEN Forum, The Hartford and Forbes.