Medical Debt Consolidation
Jerry Landon is a healthy 23-year-old who came down with chest pains and a terrible cough last Thanksgiving, but he thought he was successfully treated with a visit to a walk-in clinic.
The doctor there took a chest x-ray, handed him a prescription and told him to go home and rest. When Landon woke up the next day, the cough was gone and so was the pain in his chest. In fact, other than the $500 bill from the walk-in clinic, he said he felt fine.
Then the phone rang. His walk-in clinic doctor had showed Landon’s x-ray to another doctor, who thought he spotted serious problems with Landon’s lungs.
“He told me to go straight to the emergency room,” Landon said. “What was I supposed to do?”
Landon headed to the emergency room. He quickly was checked in and spent two nights in the hospital, getting poked, prodded and examined before a pulmonologist came in, looked at the chart and told him to go home, everything was fine.
Well, not everything. Landon’s bill for two nights at the hospital, with x-rays, MRIs and what have yous added on, was $23,963.
Landon, who works at a restaurant and has no insurance benefits, was devastated. He has monthly payments due on an auto loan, a student loan and the apartment he shares with a friend. There isn’t $24 to spare in his budget, let alone $24,000. When his hospital debts were turned over to a collection agency eight months later, Landon waved the white flag and declared bankruptcy.
“What other choice did I have?” he asked.
That is a common question from many people when medical bills put them in a financial emergency. It is especially difficult to handle when the bills come from several doctors and hospitals. Though there are several avenues for medical debt consolidation, bankruptcy becomes a popular choice.
Medical Debt: Leading Cause of Personal Bankruptcy
A 2007 study by Elizabeth Warren, Harvard law professor and current U.S. Senator from Massachusetts, determined that 62% of the 822,590 personal bankruptcies filed that year were caused by medical debt. That figure has been disputed over the years, but most experts agree that medical debt is still the No. 1 cause for personal bankruptcy.
The reasons people find themselves drowning in medical debt usually are not as dramatic as Landon’s, but it can happen just as quickly. The Consumer Financial Protection Bureau reported in 2015 that medical debts account for 52% of bills at collection agencies. The same report said that 19.5% of credit reports contain one or more medical expenses.
While most hospitals and doctor’s offices don’t report missed or late payments to the national bureaus, debt collection agencies do. The good news is that starting September 15, 2017, Experian, Equifax and TransUnion must wait 180 days before including medical debt in credit reports. It’s meant to give a patient time to resolve disputes with insurers and figure out a payment schedule. If the bills become debt and end up on your credit report, they have a negative impact on your credit score.
Always Review Medical Invoices for Accuracy
Falling behind usually happens when people don’t recognize the gaps in their insurance coverage (thought they were covered for some procedure, but weren’t) or fail to check invoices for accuracy. Hospitals are notorious for over-charging patients for services and medications, but the mistakes aren’t always caught or corrected.
There Is No Interest on Medical Debt
Hospitals and doctor’s offices don’t charge interest on medical bills. They should be willing to work up a payment plan that suits your budget. That is the most effective way to deal with medical debt.
But what happens when medical bills overwhelm you? Here are some of the better solutions.
Negotiate Your Medical Debt
The first option is to negotiate directly with the doctor or hospital. Doctors and hospitals inflate costs dramatically, and there is a lot of room between what it actually cost and what your bill says. Tell them what you can afford to pay every month and work out a realistic payment plan. They’ll end up with a lot more money than they would turning it over to a collection agency.
Alternatively, you can offer to pay a lump sum in advance and settle the rest. Make sure to get an agreement in writing before paying the lump sum. Settling your medical debt for less than you owe, can have a negative impact on your credit score.
There are professionals who specialize in medical debt negotiation. They look for errors in your bills and try to negotiate additional discounts on your behalf. These are things you could do on your own time, but it might help to hand your case off to a professional – for a cost, of course. Medical debt negotiation companies take a percentage of the money they save you.
Ask Family and Friends for Financial Help
Ask around. Friends and family can pitch in with whatever they can afford to get you over the hump. It can be humbling to ask people you know, but it’s even more humbling if you don’t ask and end up declaring bankruptcy. Consider starting a Gofundme campaign (or asking a friend to do so on your behalf). Get your request circulated to your family, friends and church community.
Consolidate Your Medical Bills
Hospitals don’t charge interest on medical bills, and they should be willing to work with patients on payment plans. So, consolidating medical bills won’t save you any money, since interest-rate reduction is the primary benefit of debt consolidation.
The only situations where it could be beneficial, is if you paid the medical bills with credit cards. At that point, the matter becomes identical to credit card consolidation. Or, if the hospital sent your bills to collections, and the collection agency is unwilling to set up a payment plan and threatens a judgement against you.
In either case, you may be able to get either a personal loan or home equity loan at a reasonable interest rate to cover the amount owed.
The way it works is that you take out a loan and use the money to pay off all of your medial debts. Then you have one creditor and one monthly payment to worry about.
A personal loan is an unsecured loan from the bank. There’s no collateral which means the bank will charge a higher interest than what you might get with a home equity loan. Home equity loans are backed by your home. You are putting an asset (your home!) at risk, but the interest rate will be lower and the interest you pay can be deducted from your taxes.
One of the more popular choices, unfortunately, might be using a credit card. That could quickly become a financial disaster. Your credit utilization ratio would soar, along the amount owed. If you can’t pay it off at the end of the month, your credit score would take a hit and potentially, so would the interest rate you pay on the card.
If, for example, you put a $5,000 hospital charge on a credit card with 20% interest and don’t pay it off at the end of the month, another $274 in interest would be added to your next bill.
If you do find yourself with high credit card bills and medical debt, you can consolidate your credit card debt and your medical debt into one payment through a debt management program. Call a nonprofit credit counseling agency and seek help. The credit counselor will get you on a budget and determine how much you can afford to throw at your medical bills, while still leading a normal life.
Medical Debt Consolidation Program Benefits
- One monthly debt payment, combining credit card debts with medical debts, helps you streamline your bill paying process, stay organized and save money.
- Including medical debt on a debt management program may help you pay it off more consistently and faster than you would on your own.
- Making consistent, on-time payments, as is required while on a debt management program, can help you improve your credit score.
In fact, if you already are in a DMP, it’s possible you could roll the medical bills into the program. That won’t make much difference in terms of what you owe, but it may be more convenient than writing checks to a variety of doctors and hospitals.
At any rate, there are options, other than bankruptcy, if medical bills weigh you down. Bankruptcy is considered a “nuclear option,” meaning the one you go to if all other choices won’t do the job.
Keep an open mind, ask a nonprofit credit counseling agency to help with options and determine the best course to eliminate your debt.
See If You Qualify for Medicaid
If you’ve suffered a job loss, have seen your income decline and low to no assets, you may qualify for your state’s Medicaid program. Learn more about Medicaid, how to qualify and enroll.
Warren, E., Himmelstein, D., Thorne, D., Woolhandler, S. Medical Bankruptcy in the United States. Retrieved from http://cohealthinitiative.org/sites/cohealthinitiative.org/files/attachments/warren.pdf
NA, (2014, December) Consumer credit reports: A study of medical and non-medical collections. Retrieved from http://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf
NA, (2008, April 16) U.S. bankruptcies soared 38 percent in 2007 – govt. Retrieved from http://www.reuters.com/article/sppage014-n1557570-oistl-idUSN155757020080416