Did you know that nearly one third of the American population currently struggles with medical debt? Although 13.5% of Americans—that’s over 44 million citizens—don’t have health insurance, even those with medical insurance (38 million) often end up paying out of pocket for significant medical expenses. In fact, almost half of all Americans faced financial hardship in 2019.
This savings drain has caused an estimated 530,000 families to turn to bankruptcy because of medical treatment and the ensuing bills. The number of medical-related bankruptcies has increased two points since 2016. A new study found that 67.5% of all bankruptcies were caused by high treatment costs and loss of earnings. The primary reason people would consider taking money out of their retirement accounts or file for bankruptcy is to pay off medical debt.
Solutions That Offer Relief
Before you consider making drastic changes to your existing healthcare plan, there are strategies you can employ to help minimize your financial outlay. After all, the last thing you need to worry about on top of staying or getting healthy is how you’re going to pay your physician or hospital bills.
These tactics can help you get medical debt under control:
1. Review bills for accuracy of services and billing codes
This step may seem tedious on top of everything else going on in your life, but it’s an important step. 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 credit card 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 inquire 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—generally, they do not offer this information.
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 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.
The Risks of Cutting Corners on Healthcare
Financial health is not the only thing to suffer as a result of the high cost of medical treatment in the US: A 2019 survey by Freedom Debt Relief cites a disturbing and dangerous trend: many Americans are economizing on treatment by delaying or doing without routine care and necessary procedures to avoid going into debt or tapping into savings.
Survey respondents reported doing the following 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. Not only do you risk damaging your health, but you could end up having to treat and pay for more bigger issues in the long run.
Healthcare Costs are Driving Other Debts
In the Freedom Debt Relief survey, 42% of respondents reported using a credit card to pay off medical debt in 2019. A further 19% 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.
Paying off medical bills with your credit card will cause an increase in 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 with payments, you’ll be charged late fees, which will add to your overall debt burden and negatively affect your credit report.
Making Healthcare More Affordable
Two valuable savings methods that can make your healthcare costs more manageable in the short-term are 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? 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 $3,500 for an individual and $7,000 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 deductible for an individual is $1,350 or more and for a family $2,700 or more.
If you’d like to explore debt settlement as a way to reduce and resolve your medical bills, feel free to call one of our friendly Certified Debt Consultants. They’ll be happy to walk you through your options and see if you could qualify for the Freedom Debt Relief program.