The level of medical debt in America is shockingly high.
According to Debt.org, America’s debt-help organization, the average cost to an individual to stay in a hospital is $3,949 per day. And the average health care consumer pays more than $10,000 per year. As a nation, we spent $3.5 trillion in 2017 for health care.
The numbers paint a bleak picture. Americans pay more for health care than anyone in the world, and the impact of facing extreme medical debt can be financially devastating for individuals and families.
Yet despite what the numbers say, there are ways to lessen the financial burden of individual or family health care. Find out how in this guide to managing medical debt.
How are medical costs determined?
Hospitals bill their patients using price lists called charge description masters (CDMs). CDMs typically include facility expenses like room charges and lab tests, equipment fees, procedures and supplies.
While you’re in the hospital, if a physician or surgeon sees you, you’ll also receive a separate bill with their professional fees on it. These charges add up quickly, and suddenly you could be on the hook for tens of thousands of dollars.
If you have health insurance, your insurance provider will negotiate a discount, which you would see on your bill as an “adjustment.” This is the amount the health care provider has agreed not to charge for.
If you have a phenomenal plan, you may end up paying only a fraction of the total bill after adjustments and your insurance’s contribution to your bill.
How do you negotiate medical bills?
You can negotiate the costs of your medical bills before you have to worry about paying them. We’ve compiled some detailed tips to help you negotiate your next expensive medical bill here.
But, in short, before you negotiate, look for mistakes on your bill, and then write a letter of dispute to your health care provider outlining why you’re disputing your bill and what you’re disputing.
Make sure to identify the bill as well as the dates and times of the treatments or services you received and which health care practitioners administered them.
How to negotiate medical debt in collections
You can even negotiate your medical bill if it gets sent to collections. Here are a few quick tips:
Demonstrate financial hardship
You must demonstrate financial hardship to get creditors to understand why you’re negotiating with them. You can write a hardship letter to creditors to help start your negotiation.
Offer a reduced lump sum
Creditors may offer to forgive part of your medical debt if you offer them a large, yet reduced, portion of the debt up front.
Negotiate a payment plan
Some creditors will negotiate a monthly payment plan with you, but they have to accept the terms. If you can negotiate a payment plan, make sure it’s in writing, and have your health care provider sign it.
Planning for medical expenses
Managing medical debt starts with prevention. To plan for medical expenses, first research the financial products available to you designed specifically to help you pay medical expenses.
There are costs to using financial products for medical expenses, so you’ll need to look at your budget to find out what products you can afford.
How do you save for long-term care? If eligible, you can open a health savings account (HSA) or a flexible spending account (FSA) to protect yourself from future high medical costs.
The easiest way to save for long-term care — though perhaps not the best — is to establish a simple emergency fund. Just open a basic savings account, preferably a high-yield savings account, and set up automatic monthly contributions to it. Check out this article to learn more about emergency funds for planning medical expenses.
How do you find the right health insurance plan?
Health insurance plans are the most fundamental and widely available financial products designed for managing medical expenses. In 2017, the United States Census Bureau reported that 91.2 percent of the nation had health insurance coverage.
For a more detailed look at public and private health insurance and why you should consider coverage, visit our helpful guide.
Why should you get health insurance?
If you have a quality health insurance plan, your provider will first negotiate a discount on your medical bill and then pay all or a portion of the medical expenses listed on your bill that your insurance policy covers (after your meet your deductible).
Is it better to get health insurance through your employer?
If you want private health insurance, getting it through your employer might save you an arm and a leg. According to PeopleKeep, employers pay on average 82 percent of health insurance for individual coverage and 71 percent for family coverage. Since employers are paying most of the health insurance costs for their employees, more and more are looking at medical reimbursement as a cost-effective option.
How do you claim medical reimbursement?
Medical reimbursement, offered through IRS-approved medical-expense reimbursement plans (MERPs), is becoming a popular choice among employers for providing health care coverage to their employees. For employers, MERPs are 100 percent tax deductible, and for employees, reimbursements are 100 percent tax exempt.
To claim medical reimbursement, employees must keep their medical-expense receipts to give to their employers. Employers set reimbursement allowances, so if an employee’s medical expense exceeds the allowance, they will have to pay out of pocket to cover any amounts left over on the bill after reimbursement.
Wondering what medical reimbursement plans are available? Check out our guide on medical reimbursement.
How do you find the best health savings account?
Health savings accounts (HSAs) offer tax-free savings in combination with high-deductible health plans (HDHPs).
Like a tax-free savings account, with an HSA, you can grow a pool of savings to help you cover high medical bills whenever they come up. Contributions are 100 percent tax deductible, withdrawals are tax-free, and interest is tax deferred.
In addition, your money will continue to earn interest and grow, even if you don’t use it. In other words, unused savings don’t disappear at year’s end. Head over to this article to learn more about HSAs and how to choose one.
Note: To get an HSA, you must already have high-deductible health insurance. If you do, you can open an HSA through your insurance provider, bank or credit union. If you have high-deductible health insurance through your employer, they may be able to help you get set up with an HSA.
What are unsecured medical loans?
If you don’t have a financial safety net to help you tackle high medical debt, you can get an unsecured medical loan. However, these are used primarily as a last-ditch effort to pay expensive medical bills quickly to avoid collections.
Pro tip! An “unsecured loan” means creditors won’t come after your property if you fail to pay your loan.
Click here to learn more about unsecured medical loans.
What should you know before getting a medical loan?
Medical loans are still a type of debt. In other words, when you’re financing a medical bill with a loan, you’re not getting out of debt — you’re just changing whom you owe money to. Before applying, make sure you don’t have a better option available, as it’s easy to fall deeper into debt if you struggle to pay back your loan.
Consider this: Many hospitals run medical debt forgiveness programs for people living on low incomes. Before getting a loan, ask your hospital’s billing office to see whether they run medical debt forgiveness programs. If they do, they’ll need to see financial documents such as pay stubs and tax returns before considering you for their programs.
Do lenders look at medical collections?
Yes — if you’ve had to settle medical debt in collections in the past, you’ll have a harder time convincing lenders to give you a medical loan for a new medical expense. First, settling debt in collections will show up on your consumer report, hurting your credit score. Most lenders won’t give loans to individuals with credit scores of 620 or lower. Second, settling debt in collections tips your debt-to-income ratio off balance, which may show lenders you won’t be able to afford the payments.
The bottom line
Thankfully, you have a little time before you have to pay off your medical debt. The Medical Debt Relief Act offers individuals struggling to pay their medical bills a grace period of 180 days before their medical debt shows up on their credit reports.