Debt Settlement

How to Settle Medical Debt (Updated 2021)

Medical emergencies, illnesses, and even relatively small accidents can lead to colossal medical bills. A recent study by the Kaiser Family Foundation revealed that half of U.S. families skipped some sort of medical treatment because they couldn´t afford it.

Despite that, the United States is the developed country that spends the most per capita on healthcare costs (around $11,600 a year) according to a report by Johns Hopkins University. Therefore, it isn’t surprising that medical debt can sink you financially. According to Harvard Medical School, six out of 10 bankruptcies were caused by medical costs.

Are you struggling with medical collections? 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.

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.

To illustrate the importance of checking your medical bills for accuracy, consider this example. 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.

2. Keep lines of communication open when you settle a 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 create a financial 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. Need help finding the right personal loan to cover your bill? SuperMoney’s loan offer engine allows you to get prequalified loan offers with personalized rates without hurting your credit.

4. Work out a payment plan to settle the 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. There is a good chance the doctor’s office or hospital will be willing to work with you.

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 will be less likely to give you a break the second time.

5. How to deal with a debt collector

If you don’t pay your medical bills, they will 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. Negative items like this can remain on your credit report for up to seven years. But if your debt has already been sent to a collector, don’t panic — there are still steps you can take.

  1. First, find out if your bill has passed 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.
  2. Ask the debt collector to provide you information on your debt. By law, the collector should provide you with this information within five days of contacting you. Ask for :
    1. The name of the creditor
    2. How much you owe
    3. The address and name of the original creditor if different from the current creditor.
  3. Make a realistic repayment proposal. Be realistic about how much you can pay each month. You don’t want to fall behind on other bills in your efforts to repay a medical bill in collections.
  4. Offer a lump-sum settlement. Debt collectors are usually willing to accept a fraction of total debt to settle the entire debt. Start with a low offer. A lump-sum for 25% of the original bill is often reasonable. Note that when you settle, the item will still appear on your credit report as settled for less than the full amount for up but will come off in seven years.
  5. Record your agreement. Whether it is a repayment plan or a lump-sum settlement make sure you get the agreement in writing before you start making payments.

Why is it important to know whether you’re within the statute of limitations?

If you make a partial payment at any point, the countdown for the statute of limitations starts over. Therefore, 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 statute of limitations before you make any payments.

Medical debt settlements and taxes

Something to consider when negotiating a medical debt settlement is that the IRS considers forgiven debts as income. If a chunk of your debt is forgiven, the collection agency will have to file a 1099-C, cancellation of debt form. That amount will be considered income, which means you may have to pay taxes on it.

If a creditor files a Form 1099-C, you should get a copy. But don’t assume a creditor hasn’t just because you didn’t receive one. If you don’t list the income on your tax return and the creditor reports it, you could get a tax bill or an audit notice.

The good news is the IRS may waive the taxes on the forgiven debt if you were insolvent when the debt was forgiven. Insolvency means having more debts than assets. So if you received a debt settlement and you figure you had more debts than the value of your assets, include a completed IRS Form 982 with your tax return.


  • You may be able to negotiate a discount if you are ready to pay in full.
  • Medical bills are usually not final. Hospitals are often willing to negotiate your medical bills if you don’t have insurance or are facing financial hardship.
  • Debt settlement firms can help you negotiate with creditors.
  • There are government, state, and private financial assistance programs for people who can’t afford their medical bills.

Commonly asked questions about medical debt relief

What happens if you don’t pay medical bills?

If you don’t pay your medical bills, they will go to a collections agency. This will show up on your credit report and will tank your credit.

What is the minimum monthly payment on medical bills?

There isn’t a minimum payment for medical bill repayment plans. Unlike other types of debt, there can be a lot of room for negotiation when it comes to medical bills. As long as you agree to pay something and you can prove real financial hardship you can often get away with small amounts.

What happens when a medical bill goes to collections?

A lot depends on the creditor, the debt amount, and your credit history. Policies can vary considerably by the lender, but many send unpaid accounts to collections after six months of nonpayment. At this stage, either the creditor or the collection agency will report the change in status to the credit bureaus.

Can medical bills affect your credit?

If a medical bill is unpaid and goes to collections, it will hurt your credit. How much it damages your credit score will depend on several factors. For instance, the higher your credit score when an account goes to collections, the more points you can lose. How much you owe is another important factor. For example, if the original debt was less than $100, it may not damage your credit that much or even show in your credit report.

How to negotiate medical bills?

First, make sure you understand and are in agreement with the bill. Create a realistic repayment plan, and if the creditor agrees to it, make sure the arrangement is in writing. Sometimes you can settle the debt for a smaller amount in exchange for a lump-sum payment. The guide above provides more details on how to do this.

How to get out of paying medical bills?

You may be able to get your medical bills reduced or even forgiven entirely if you qualify for financial assistance. Some hospitals, particularly nonprofits, have financial assistance programs that can reduce or even wipe out your debt. Of course, this will only work if you can prove you are a low-income patient and that you cannot afford to repay your medical debt.

What if I can’t pay my hospital bill?

There are several options available. You can negotiate a lower amount from your medical provider; request an interest-free repayment plan, or even get a loan a payment plan. The best option for you will depend on your financial circumstances. The guide above provides a step-by-step guide on how to settle medical debts.

What are the medical bill collections laws?

Medical bill collections are regulated by the Fair Debt Collection Practices Act (FDCPA). According to FDCPA, debt collectors cannot use abusive, unfair, or deceptive practices when they collect debts. This means, for instance, that they cannot contact you at inconvenient times (before 8 a.m. or after 9 p.m., unless you agree to it). Debt collectors can’t discuss your debt with anyone else, except your spouse. Medical debt collectors must also provide a written validation notice with information on who your creditor is, how much you owe, and what to do if you don’t think the debt is yours.

How to pay hospital bills without insurance?

Hospitals will typically accept most payment types, such as check, credit card, check, and wire transfers. If you can’t afford to pay your medical bills, follow the steps detailed above.

How to get medical bills forgiven?

You can apply for financial assistance in most hospitals. Some may require you to apply for Medicaid first, but if you can prove you cannot afford to repay your debt hospitals are usually willing to work with you. If you have a very low income and few assets, they may forgive your medical bills altogether.

Do hospital bills go on your credit?

Yes, as with most unpaid bills medical bills will appear on your credit report if you don’t pay them. This is particularly likely if they go to collections.

Are medical bills sent to collections without notice?

It varies. Some medical providers will send you a notice. Similarly, debt collectors may alert you when they buy your debt off your medical provider. However, there is no guarantee you will receive a notice before your medical bills are sent to collections.

Will my insurance cover an old medical bill?

It depends. Medicaid will sometimes cover medical expenses retroactively. However, the vast majority will not cover costs that occurred before you started paying premiums.

Bottom Line

Medical debt can be frustrating. Knowing how to settle medical debt will help you take back control over 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 — you may benefit from hiring a professional company to deal with your debt settlement.

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