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 and frustration mounts. Though there are several avenues for medical debt consolidation, bankruptcy becomes a popular choice.
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. In fact, collection agencies report to Experian, Equifax and TransUnion right away and that can have a severe negative impact on your credit score.
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 that were never received, but the mistakes aren’t always caught or corrected.
If the hospital or doctor’s office doesn’t charge interest and is 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.
Doctors and hospitals inflate costs dramatically. 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 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 can have a negative impact on your credit score.
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.
You may be able to get either a personal loan or home equity loan at a reasonable interest rate to cover the amount owed.
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.
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.
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