How to handle medical debt in 9 steps

Surprise medical debt affects 68% of Americans with private health insurance, according to a survey by The Harris Poll in 2020. Of those, one-third weren’t able to immediately pay said surprise bill. And it’s easy to see why these numbers are so high — the coronavirus pandemic continues to cause unforeseen hospitalizations while also eating away at Americans’ savings and jobs.

But there is some good news — medical debt can be easier to deal with than other types of debt. In fact, you can lower your bill before it even shows up on your credit report. And if you reach out to your healthcare provider within a few months of getting a bill you can’t afford, you might even be able to get it dismissed entirely.

After it goes to collections, it’ll be harder to handle. Your credit will be damaged, and you’ll have to deal with a collections agency instead of the hospital or clinic that you were treated at. But it’s still possible to negotiate down the bill or come up with a more affordable payment plan.

How to handle medical debt

Getting out of medical debt looks different for everyone, but follows the same basic steps. Which step you start with will depend on how far along you are.

1. Make sure your bills are accurate
2. Contact your insurance company
3. Negotiate down the costs with your provider
4. Ask for a payment plan
5. Consolidate your debt
6. Apply for financial assistance
7. Sign up for Medicaid
8. Use a medical bill advocate
9. File for bankruptcy

Step 1: Make sure your bills are accurate

To start dealing with your debt, review any letters you received. Make sure what you have is actually a medical bill, not an explanation of benefits. You may get a letter from your insurance company explaining potential charges — ones that you may be able to negotiate immediately if something doesn’t look right.

Once you’re sure what you have is truly a bill, go over it to make sure the charges match up with the care you received. In some cases, you might have to request an itemized receipt to go over the costs with a fine-toothed comb.

If you see any line items that look out of place, call your provider and ask for clarification. This alone can make your medical bills more affordable. And doing so early on can make it easier to avoid it going to collections and damaging your credit.

Step 2: Contact your insurance company

Now that you confirmed your bill is correct, it’s time to make sure your insurance company is covering everything it’s supposed to. Ask them to rerun your bill to make sure that it didn’t accidentally leave out any costs that are covered. This step is especially important to take if there were any errors on your original medical bill.

It can be tempting to skip this step and put the bill on your credit card if you have enough room on it, but resist that urge. High interest rates can mean you end up paying much more than the original cost of the treatment if you can’t pay it off right away.

Step 3: Negotiate down the costs with your provider

Negotiating down the cost might be easier than you think. Many providers automatically charge a “chargemaster rate,” which is the price it charges insurance companies. In some cases, they may have a range of prices for one procedure.

Call your provider and be upfront: Tell them you can’t afford the bill and ask what they charge different insurance companies, Medicare, Medicaid and uninsured individuals. Then ask for the lowest price. You can also use the healthcare bluebook to compare what other providers are charging for similar procedures and bring it up if your provider’s prices appear to be higher than average.

Also ask about discounts for different payment methods. You might be able to get a discount for paying your bills within a certain period of time. And some hospitals might waive some of the cost if you pay in cash.

Step 4: Ask for an interest-free payment plan

If there’s no way you’re going to be able to cover the bill all at once, ask for a payment plan. Many providers are willing to break up your bill into installments, usually without interest. This is more common with hospitals than with private practices — and sometimes you’ll even find information about your payment plan at the bottom of your bill.

In some cases, these will be based on a loan term. And if your salary is low enough, you might be able to qualify for an income-driven hardship plan.

Step 5: Consolidate your debt

When your healthcare provider doesn’t offer a free repayment plan, a consolidation can be your next best option. You have two main options: A debt consolidation loan or a balance transfer credit card.

• Debt consolidation loans. These are personal loans that you can use to break up your debt into installments and avoid going into collections. Typically you’ll have between three to five years to pay it off with a rate of 4% to 36% APR.
• Balance transfer credit cards. These credit cards come with a 0% promotional APR for around 12 to 18 months. It’s a better deal than a loan if you can pay off your debt during that time. But after the promotional period, these are usually more expensive than loans.

Generally, you’ll need to have a good credit score of at least 670, a steady job and few other debts to qualify for a competitive deal. It’s also best for debts that are worth less than half your annual income — otherwise it’s likely you won’t qualify.

Usually personal loans don’t go any higher than $100,000, which may not cover everything. If you can’t roll up all of your debt, consider a repayment strategy like the snowball or avalanche method to prioritize which bills to focus on first to get out of debt without getting overwhelmed.

Step 6: Apply for financial assistance

When a payment plan just won’t cut it, look into your financial assistance options.

Charity care

Also known as a financial assistance policy, charity care programs offer reduced rates for low-income patients, especially at hospitals. It can halve your bill or even eliminate it completely. Requirements vary depending on where you live and your provider. But typically they’re less strict than Medicaid.

Nonprofit assistance

There are many charities and nonprofits dedicated to helping families in need — especially those with children — handle medical debt. Some good places to start include CancerCare Copayment Assistance Foundation, the Patient Access Network Foundation and the HealthWell Foundation.

Step 7: Check if you’re eligible for Medicaid

If you’ve been eligible for Medicaid for the past three months, you may be able to use it to cover your bills retroactively — as long as your bills are from that period. While it varies depending on your state, you can often qualify as a single person making around $15,000 a year — sometimes more.

Enrolling in Medicaid can also help you avoid expensive medical bills that you can’t afford in the future.

Step 8: Use a medical bill advocate

A medical bill advocate is a professional who will negotiate your medical bills down on your behalf — for a fee. They can be a great last resort before your bills go into collections, but they can also be costly. You can start your search for a legitimate advocate with the Medical Billing Advocates of America.

If you do end up getting a portion of your debt forgiven, make sure you look into potential tax implications. Amounts over $600 that are forgiven by a creditor may count as taxable income. If it is, you’ll be issued a 1099-C at the end of the year.

Step 9: File for bankruptcy

As a last resort, you can get out of collections by filing for bankruptcy. You wouldn’t be alone, either; a 2019 study by the American Journal of Public Health reports that medical debt contributed to bankruptcies in almost 68% of cases.

If your income and financial situation qualify for Chapter 11 bankruptcy, your medical debts will be dissolved. And if you file for Chapter 13 bankruptcy — which is more common — your medical bills are lumped in with your other unsecured debt as part of your repayment plan.

How to deal with medical debt collectors

Typically it takes around 90 days before your healthcare provider sends your debts to collections — though it could be as fast as 60 days or as long as 180 days. Once your debts are in collections, you’ll have fewer options than before — but there are still steps you can take to manage the debt.

Know your rights

If your bill has gone to collections, you still have rights. Read up on the Fair Debt Collection Act, which outlines what is and isn’t allowed during the debt collection process.

What is the statute of limitations on medical debt?

A statute of limitations (SOL) is the period where legal action can be pursued. For medical debt, this is the time frame a collection agency has to sue for money you owe on an outstanding bill.

The SOL begins on the date of your last payment, and there are certain actions you can take that resets the clock. Making a payment or even acknowledging that you owe money may restart your debt’s SOL, so consult an attorney to discuss your specific situation.

Find out the statute of limitations on debt in your state

Hire a professional to negotiate on your behalf

If talks aren’t going anywhere with your debt collector, you might want to consider signing up for debt settlement. With debt settlement, you hire a professional to negotiate down your bills, usually in exchange for paying a reduced fee all at once.

Typically you owe a percentage of your savings after your debt has been settled — and it can be costly. If you decide to go with this option, make sure you’re going with a legitimate company.

How does medical debt affect my credit score?

If you have unpaid medical debt that’s been sent to collections, it can harm your credit score — but not as much as other types of debt. And until it reaches collections, it won’t have much of an impact at all.

In fact, medical providers usually can’t move your bills into collections until 60 to 180 days after nonpayment. To learn more, read our guide to how medical debt impacts credit.

Bottom line

The first step to conquering medical debt is organizing your bills and figuring out exactly how much you owe. From there, you can start negotiating with your creditors, look into nonprofit assistance programs or refinance your debt with a lower interest rate or better terms.

To compare your options, check out our guide to medical loans or explore more debt relief services.

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