Major Life Challenges Blog Series

We are taking a closer look at some of the big issues we all can face in our lifetime. Each topic will be featured as a blog series.

7 Things to Know about Paying Off Medical Debt

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7 Things to Know about Paying Off Medical Debt Medical debt strikes millions of Americans each year leaving many with the idea that bankruptcy is their only option. According to an article by CNN Health.com, "More than 60 percent of people who go bankrupt are actually capsized by medical bills," so overspending and poor financial choices are not the leading cause of most bankruptcies, medical debt is.  

Oftentimes when a family is faced with medical debt the added expense pushes them over the edge financially. Many of us are over-leveraged financially and not in a position to fall back on emergency savings or even credit cards to pay the bills incurred from a medical emergency. 

The good news is there are other options you can explore before resorting to bankruptcy. Here are seven options to consider when faced with medical debt. 

1. Payment in full = discounts.  Most providers will offer discounts to patients who have the ability to pay in full. The savings may be 20-30% or more off of the total bill. So if you can afford to pay the bill in full, it may save you money in the long-term. 

2. Negotiate, negotiate, negotiate.  Go into battle with your provider just like you would when purchasing a car-know what you are up against.  You can negotiate with the providers by offering to make small payments on your bill each month. Even if you can only afford $10/ month they may be willing to work with you to avoid sending the account to an outside collection agency. If you don't make any payments they are forced to turn the account over to a collection agency and end up losing money; sometimes as much as 60-80 cents on the dollar, so they want to work with you. Just be prepared to offer what you can afford and get the agreement in writing. 

3. Check out government programs.  If you are without health insurance, Medicaid and Medicare can help you reduce medical bills or completely cover them. The catch 22 is qualifying for it. 

  • Medicaid. Medicaid varies by state and generally provides coverage for low-income families, but other factors are considered; including your age, pregnancy status, disability status, income, and assets.
  • Medicare. Medicareis for individuals above 65 or for young individuals who are disabled. Again, certain requirements must be met for this coverage.
  • Children Health Insurance Plans. Children Health Insurance Plans or (CHIP) offers subsidized health insurance for your children so if you don't qualify for Medicaid, your children may be covered with CHIP.  

4. Contact the financial aid department.  Most facilities have a financial aid or charity department required by law. Like with government programs, you need to meet certain requirements to qualify for financial help. 

  • Who qualifies? To qualify for 100% elimination of your medical bills, most hospitals require that your annual income does not exceed 200% of the federal poverty level. If your income exceeds these limits, you can usually qualify for reduced financial aid. If a medical emergency creates bills that exceed a certain percentage of your income, and you don't meet the federal poverty guidelines you may still qualify for assistance. In most cases the medical debt-to-income ratio is 30%. If your medical bills exceed your income by 30%, you may qualify for assistance over that amount.
  • How to apply. The first step is to inquire if the facility has a financial aid department most hospitals do, but there are some exceptions. Next you need to call or stop by the office to inquire about receiving aid for your bills. You will most likely be asked to submit proof of income for the preceding 12 months, as well as a listing of all of your assets. So be prepared to submit this information in order to review eligibility requirements.
  • The catch. You will be required to utilize all other resources before applying for the aid. For example you must use your insurance first if you have coverage, and apply for public medical benefits before your request will be considered.

5. Consider a Debt Management Plan (DMP). Debt Management Plans, which are often called DMPs, are plans that allow debt relief providers to work directly with creditors to secure benefits. These benefits, which vary by creditor, typically include reduced interest rates, lower monthly payments, and waived fees such as late fees. If you have several medical bills from various providers as well as other unsecured debt consolidating all of the payments under a DMP may be a viable option. It is important to understand with a DMP you will be paying the bill back in full with a payment plan in place. The benefit to you is one consolidated and payment and avoiding the hassle of dealing with various creditors. 

6. Consider a Debt Settlement Plan (DSP).  Debt Settlement is an attractive alternative to bankruptcy for those who want to pay back at least a portion of their debt, but cannot afford the Debt Management Plan payment, and have stopped paying their unsecured debts such as medical bills. With Debt Settlement, you make monthly deposits to a settlement deposit account in an amount you can afford. You do not make monthly payments to your creditors, and your provider works to negotiate with your creditors for a less-than-full repayment. When settlements are reached with creditors, settlement payments are paid from the settlement deposit account. There are definitely pros and cons to using Debt Settlement to pay off your debt. 

7. Apply for a home-equity loan or refinance. It is important to keep in mind this option is only possible if you have equity in your home and can make the payments on the loan. Failure to pay may result in losing your home. The interest rate may be lower than that of the payment plan the provider is offering but the risk is greater as your home is now collateral.   

Knowing your options when it comes to medical debt may make all the difference in your financial situation. Be sure to explore all of your options thoroughly and avoid jumping into any decision without all the facts. If you choose to seek the help of a debt relief provider check out this post to help you ask the right questions and get the answers you need to make the best choice for you.

More Posts From our Series; 'Medical Debt, Expecting the Unexpected':

My Medical Debt Story

Suzanne CramerSuzanne Cramer

Suzanne is a certified credit counselor and a Social Media Specialist for CareOne Debt Relief Services. Suzanne writes for Divorce, Debt and Finances and A Straight Talk on Debt. Follow Suzanne on Twitter @ADivorcedMom  and @AskCareOne where she shares her insights on divorce and managing your finances.

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