Law #20: Learn how to navigate medical debt
The Law
According to this source, medical debt is one of many Americans' most significant sources of financial stress. Understanding how to navigate medical debt can help protect your credit score and report, reduce tension and anxiety, and improve your quality of life.
Your Keys to Power
Current medical debt. This is the sweet spot for medical debt. You want to pay your bill or make payment arrangements while it is current, not past due. You'll likely be able to make the friendliest arrangement if you need one, so while your bill is current, explore ways to reduce your out-of-pocket expenses, like debt assistance programs offered by the medical institution. You’ll find better luck with these assistance programs from larger institutions like nonprofit hospitals and imaging centers attached to nonprofit hospitals, as they are required by law to offer such programs.
Past due medical debt under 365 days. At this stage, things are about to get real. You definitely want to clear up medical debt before it reaches 365 days past due. Before that point, medical institutions cannot have unpaid debt listed on reports with the credit bureaus, so it won’t impact your credit score yet. While medical institutions will start to get a little frustrated, you should still be able to negotiate a reasonable payment plan if you need to.
Past due medical debt after 365 days. Once you’ve crossed 365 days, things can start to snowball. Your debt may be listed on your credit report, and you run the risk of your debt being sold to a collections agency and listed as a charge-off (which means that the original creditor declares the debt a loss and writes it off as uncollectible). This adverse credit reporting will strike a damaging blow to your credit report and score that can last as long as seven years.
Medical debt in collections. Once your account is in debt collections, know that it can pass through several collections agencies rapidly, even multiple times in just a couple of months. If your debt is with a collections agency contracted to collect on behalf of a medical office, it is likely still owned by the medical facility that treated you, which means you may still be able to work with the original creditor directly. When your debt is in this stage, typically earlier in the past due phase, you may be able to convince the original creditor to remove the debt from collections and pull it back so that you can settle up with them directly. If you can navigate this with the original creditor, you can get the account removed from your credit report even while you’re still paying. But suppose you’re dealing with a collections agency that has purchased a debt from a medical provider. In that case, you’ll be dealing with an entity that profits from buying unpaid debt for pennies on the dollar and then collecting on that debt. The collections agency often employs several tactics to get you to acknowledge and pay the debt, either with payments, a settlement for a discounted amount, or the entire sum. The agency may take more aggressive actions depending on the debt amount and how old it is. If your goal is to negotiate a reduced payment amount, you’ll likely have the best of luck with such an agency. The older your debt, the better your chances are of getting it settled for less than what you owe. In either case, as of July 1, 2022, once you’ve paid off a medical debt on your credit report, credit bureaus will delete the account, and by 2023, credit bureaus will no longer report medical debts under $500. You should file a dispute if your medical debts fall under these categories and still appear on your credit reports.
Practical Application
Don’t procrastinate—negotiate a payment plan with your medical provider before they send you to collections. Medical providers must wait 365 days before requesting negative payment history to be listed on your credit report. Ensure you connect with billing departments immediately to set up a payment plan. The sooner you communicate, the better. Often, you can set up low or even zero-interest payment plans that allow you to chip away at the debt consistently each month.
Consider payment assistance programs. Most hospitals and large medical providers have access to payment assistance programs that may reduce your bill or discharge it entirely, depending on your financial situation. Nonprofit hospitals are required to offer such financial assistance programs. Always check into these programs. Sometimes, you’ll be surprised at how generous they are. You may find that you qualify even if you have a job, savings, and disposable income. Even if you don’t qualify, it never hurts to inquire.
Plan for non-emergency medical expenses. If you’re not dealing with a medical emergency, be strategic about when you see a medical provider. Depending on your health insurance, there are certain limits to how much you’ll pay out-of-pocket depending on your insurance plan. Review your insurance plan to understand your deductible and out-of-pocket maximum. Once you have met your deductible, your health insurance pays more for your medical expenses, leaving you with a lower patient responsibility each visit. Once you have reached your out-of-pocket maximum, your health insurance will kick in to cover the total cost of all covered medical expenses. Once you have reached that out-of-pocket maximum, it behooves you to get in all of your covered medical treatments before that year ends, before your deductible and out-of-pocket maximum reset.
Beef up your savings when you aren’t paying a debt. If you don’t currently have medical debt, direct some of your income towards emergency savings for future medical expenses. Having savings will allow you to tackle medical debt before it becomes burdensome, either as payment in full upfront or as an account from which to make payments on a medical bill. Sometimes, it makes sense to pay in smaller monthly payments than to pay upfront even if you have the cash, notably if you can negotiate an interest-free payment plan.
Know these three dates.
The date of first delinquency. This was the date when your debt became delinquent. In simplest terms, it is when you last failed to pay your bill. So if you received a medical debt on November 1 and never paid it, that’s about the date your account became delinquent. If you received a bill on November 1, made a payment, and then received another bill on January 1, but didn’t pay that one, that’s about when your account became delinquent. The date of first delinquency (or delinquency date) starts the clock on how long a debt can negatively impact your credit report.
The date the statute of limitations expires. Upon the statute of limitations passing, you can no longer be pursued legally for the debt. You'll still owe the debt, and while a creditor or debt collector can still demand payment from you, they cannot pursue legal avenues like suing you in court to force you to pay. The statute of limitations for collecting debt varies by state, and here is a guide to help you figure out what regulations apply to your state. Always double-check with your relevant state statutes, as information can change rapidly.
The date a medical debt will fall off your credit report. Unpaid medical debt typically stays on your credit report for up to seven years. After seven years, credit bureaus must remove most accounts with adverse payment history from your credit report. Also, as of July 1, 2022, credit bureaus will remove paid medical debt accounts from credit reports and medical debt accounts under $500 starting in 2023.
Understand how to navigate debt collectors. If you have reached a point where your medical debt lands with a medical debt collections agency, understand your rights. The Consumer Financial Protection Bureau explains those rights here. But remember that negotiating with debt collectors goes beyond understanding your federal rights. You also need to understand what motivates them. Particularly if your debt is with a collections agency that buys medical debts, you’ll have the most negotiating power the older it is. Debt collectors know they have less leverage as debt ages and moves beyond the statute of limitations in which they can sue you and closer to the point when it will fall off your credit report. At that point, you can typically negotiate more aggressively.
Authority
“I know that some things are beyond our control, some illnesses are beyond our control, we get sick, we don't know why. But let's pledge to do whatever we can to avoid those high medical bills.” - Don Lemon
“The No. 1 cause of bankruptcies is medical bills.” - Michael Moore
“You got to pick one - pay your medical bills or pay the mortgage. Most people can't do both, and I'm no different.” - Levon Helm
“There are lots of families who - who make irresponsible purchases. There are also a lot of families who have debt on credit cards because they use those credit cards to pay for medical bills.” “Nobody's safe. Health insurance? That didn't protect 1 million Americans who were financially ruined by illness or medical bills last year.” - Elizabeth Warren
“One way to make health care more affordable is a Flexible Savings Account that allows families to save tax free money to pay for medical bills.” - Marco Rubio
“I am very abnormal... But it wasn't very long ago that I wasn't so abnormal. I was very normal and headed for a lifetime of paying medical bills as proof of my normalcy.” - Dirk Benedict
“My parents had three kids right after the Second World War, and we were all sort of sickly. Then I had a fourth sibling, with very serious asthma. The medical bills... So my parents always struggled.” - Patti Smith
“Out of one pocket we pay billions of our tax dollars to support the production of expensive, disease-causing foods. Out of the other pocket, we pay medical bills that are too high because our overweight population consumes too much of these rich, disease-causing foods.” - Joel Fuhrman
Experience is a good teacher, but she sends in terrific bills. - Minna Antrim
Our Vote
We always recommend paying bills that are justly due. If an entity provides you with a service, it is your duty to make payment. And if you fall on hard times, we advocate for taking advantage of every single assistance program available to you. Often, medical facilities are funded in a way that they can work with patients to pay medical bills over time, even over as many as three years. Figure out the maximum you can pay each month, get on the phone with the billing department, and offer to pay a fraction of the maximum you can afford. Offering to pay a fraction, say half, of what you can pay will give you some negotiating room if the creditor asks you to pay more per month, and always strive for an interest-free payment plan. If you end up in an unfortunate situation where you can’t make payment, and your account ends up in medical debt collection, we advocate for you to know your rights so that you can negotiate the best terms possible to remove the item from your report as swiftly as possible.
Reversal
There’s no reversal to this law. As long as there is medical debt, there will be issues surrounding paying medical debt. Learn how to navigate payments with creditors, preferably before you end up in collections, to protect your financial future.