How to Pay Off Medical Debt

Medical debt is one cost over which we have little or no control. In fact, two-thirds of all bankruptcies are caused by medical bills. Here are a few more alarming facts:

• Americans spend an average of $5,000 a year on out-of-pocket healthcare costs.

• Almost 60% of US adults have had medical debt at some point in their life.

• 70% of Americans with medical bills had to cut their food expenses to avoid bankruptcy.

• 20% of medical bankruptcy filers are in the 55+ age group.

• Almost half of those who filed for medical bankruptcy cite hospital bills as their most considerable expense.

You can lessen the impact of unexpected medical debt by controlling costs where you can and negotiating solutions with your providers.

Healthcare Costs Drive Other Debts

Healthcare costs can add to other debt and damage your credit score. In a recent Freedom Debt Relief survey, 42 percent of respondents reported using a credit card to pay off medical debt in 2019. Another 19 percent have had to turn to family or friends to borrow money to cover medical bills.

Using a credit card to meet these types of expenses may seem like a good idea but should be avoided if possible. For one thing, it increases your credit utilization ratio (the amount you currently owe on your cards divided by your credit limit), which could affect your ability to qualify for certain types of loans like a mortgage or car loan. Moreover, if you get behind on payments, you’ll be charged late fees, which will add to your overall debt burden and negatively affect your credit report.

Healthcare: Don’t Cut Corners

Financial health is not the only thing that suffers thanks to the high cost of medical treatment. Our survey shows another dangerous trend: many Americans are delaying or avoiding routine care and necessary procedures to avoid going into debt or tapping into savings.

Survey respondents reported taking the following actions because of prohibitive costs:

• 41% skip going to the doctor

• 28% delay a medical procedure

• 28% don’t buy medicine

• 19% ration their medicine

While this type of behavior is understandable, it goes without saying that delaying certain treatments or rationing prescription drugs is not a smart or safe tactic. Neglecting routine healthcare or forgoing procedures can lead to bigger, more serious health problems and bills in the long run.

Solutions That Offer Medical Debt Relief

Before you consider making drastic changes to your existing healthcare plan, there are strategies you can employ to help minimize your financial outlay. These tactics can help you get medical debt under control and can give you a path forward if you’re wondering how to cut healthcare costs in the future:

1. Review bills for accuracy of services and billing codes

This step may seem tedious when added to everything else going on in your life, but it’s important to do. Don’t assume that your medical bills are always correct. Often, human error means that billing codes get entered incorrectly, or you’re charged for the same service twice. It’s a good idea to look closely at the itemized bill. Then, if you notice anything off, reach out to the medical facility.

2. Review the Explanation of Benefits (EOB)

The EOB is the statement you get from your insurance company summarizing the costs of the healthcare services you received. It details how much your provider is charging your insurance company and how much you may be responsible for paying. This is not a bill—if you owe money, you’ll receive a separate invoice from your provider.

3. Negotiate your bill to an affordable level

Medical bills aren’t set in stone like other bills. There’s a good chance you can reduce your financial burden if you ask. Speak with the billing manager at your doctor’s office or the hospital where you were treated and ask if there’s a possibility of settling the bill for a lower amount. Certain providers even offer charity-care programs where eligible patients get discounted services. But you need to ask.

4. Look into payment options

If you can’t immediately pay the total amount in full, inquire about payment plans. Many medical facilities will work with you to find a monthly amount you can afford to pay. Or you may be able to get a loan. Some healthcare providers offer low-interest payments, with better terms than credit cards or other types of loans.

5. Avoid using credit cards to pay medical bills

As mentioned previously, using credit cards to pay medical debt is not the best solution. The risk of falling behind with payments and damaging your credit is too great. Paid medical bills generally will not appear on your credit report and hospitals don’t report unpaid bills to the credit agencies. The medical establishment in question may eventually hand over an unpaid debt to collections, but this won’t affect your credit rating until they report it to one of the credit bureaus.

Setting Aside Funds for Healthcare

For those trying to figure out how to cut healthcare costs, there are also two valuable savings methods that can make your costs more manageable: Flexible Savings Accounts (FSAs) and Health Savings Accounts (HSAs). Both allow you to allocate pre-tax dollars to pay for medical expenses like co-pays, deductibles, and prescriptions giving you a substantial reduction in taxable income. However, you’re not usually able to carry both types of accounts at the same time.

Which is best for you? Each has merits and drawbacks. The most beneficial for your situation depends on multiple factors including the details of your healthcare plan and your comfort level with pre-tax paycheck deductions.

Flexible Savings Accounts

Pros: Currently, you can contribute $2,700 a year, which is an increase of $50. Depending on your tax bracket, this could save you at least $600 in taxes annually. Those age 55 or over can contribute an additional $1,000 per year, which is considered a “catch-up.”

Cons: The allocated funds expire on a yearly basis. So, it’s crucial that you estimate your healthcare expenses carefully to avoid losing unused funds at the end of the year. Also, FSAs belong to your employer, so are not transferable if you leave the company.

Health Savings Accounts

Pros: The higher contribution limits equal bigger tax savings. Currently, the maximum is $3,550 for an individual and $7,100 for a family. The funds don’t expire so you can roll them over from year to year. In fact, you’re encouraged to do so and invest any unused portion. Investment gains are also tax-free.

Cons: HSAs are available only with high-deductible health plans. Currently, this means that the minimum annual deductible for an individual is $1,400 or more and for a family $2,800 or more.

Treat Your Debt Headache for Good

Ongoing debt–whether it’s medical or another type–can be very stressful. If you’re struggling with debt, it might be time to take action. Freedom Debt Relief is here to help you understand your options for dealing with your debt, including our debt relief program. Our Certified Debt Consultants can help you find a solution that will put you on the path to a better financial future. Find out if you qualify right now.