You’ve tried everything. You’ve negotiated with your doctor or hospital. You’ve checked and double-checked your paperwork to correct any billing errors. You’ve jumped through hoops to file appeals with your insurance company. And still, you’re looking at a huge medical bill that needs to be paid.
You’re not alone. A poll by Gallup and West Health, a nonprofit focused on lowering health care costs and improving care for seniors, found that Americans borrowed an estimated $88 billion to cover health care costs in 2018.
It’s important to understand that medical debt is different from regular debt. Government and credit-reporting rules regarding medical debt may affect the way you handle repayment, and there are some tools specially tailored to help with health care bills. Here are some tips, and the pros and cons, for several approaches to retiring medical debt.
Most hospitals allow patients to apply for in-house financial assistance, sometimes called charity care, so ask what kind of help is available. Nonprofit hospitals are required by law to have written financial assistance policies and to inform patients that help may be available. Some for-profit hospitals have charity care programs that mirror those at nonprofits.
Discounts are typically based on income. For example, MedStar Health, a nonprofit system that operates 10 hospitals in Maryland and Washington, D.C., offers free, medically necessary care for uninsured patients with incomes up to twice the federal poverty level and discounted treatment for uninsured patients who earn two to four times the poverty level.
Don’t give up if you don’t meet the written income or insurance guidelines. Hospitals have considerable leeway to determine who gets charity care, says Jennifer Bosco, a staff attorney for the National Consumer Law Center. Some will reduce your debt if you can demonstrate financial hardship — for example, if your medical debt exceeds a quarter of your household income.
An important plus: You can apply for financial assistance long after you are billed (the federal rules governing nonprofit hospitals allow up to eight months). Even if a bill has gone to collections, you can still apply for charity care.
Benefit and aid programs
Many low-income people facing medical debt may be eligible for Medicaid and not realize it, Bosco says. “It’s worth looking into because in some states you can apply for Medicaid and get retroactive coverage for some treatments, which may help lessen your current debt,” she says.
You may also be able to get help from nonprofit groups that serve particular communities or people with diagnosed conditions such as cancer or diabetes. You can use the Patient Advocate Foundation’s National Financial Resource Directory to find organizations in your state that may help you pay bills or manage your medical finances.
Medical payment plans
Many hospitals and doctors will set up monthly payment plans for patients with outstanding bills, usually with no or very low interest. Call your hospital’s or provider’s billing department to find out about available plans.
Negotiating a payment plan with providers takes some preparation. Determine what you can afford to pay each month and how long it will take to retire the debt, and gather documentation of your income and assets to illustrate your financial situation. You want to work out a payment plan that is realistic and fits your needs.
Medical credit cards
Designed to pay for qualifying health care expenses, medical credit cards might be offered by a hospital, doctor or other provider as a way of breaking down your bills into monthly payments. You can often get a promotional offer of zero percent interest for the first six months to two years, or no interest on large expenditures (say, over $200), if you pay them in full over a set period.
For patients facing medical debt for elective surgeries or hit with bills that, while unexpected, are within their means, using a medical credit card can be a solid strategy, says Diane Pearson, a wealth adviser in Pittsburgh. “Rather than take a big chunk out of your savings or investment account, you can pay over time out of monthly income without paying interest, leaving your nest egg intact to continue to grow,” she says.
Still, there are reasons to be wary:
- Be sure you can pay off the balance during the prescribed no-interest period. Most medical credit cards have what’s known as deferred interest: If you don’t pay off the original balance in time, you are charged retroactive interest on that full amount, often at higher-than-usual interest rates.
- Be sure you can make the regular payments on time. Late fees are stiff, and you might lose the zero percent interest rate.
- Medical credit card debt is still credit card debt. If you put your bill on a medical credit card, you will no longer qualify for tools available for medical debt, like hospital financial assistance. Medical debt is also treated less severely than credit card debt in credit scoring.
For years now, fundraising websites have been a go-to for people facing big medical bills. GoFundMe hosts more than 250,000 medical campaigns a year. A NerdWallet survey of four other crowdfunding sites (FundRazr, GiveForward, Plumfund and Red Basket) found that 41 percent of their campaigns were related to health care costs.
But success can be elusive. In the NerdWallet study, only one in nine medical campaigns met their dollar goal. On GoFundMe, the average medical fundraiser brings in 40 percent of the requested funds, according to a University of Washington study. (Beneficiaries get to keep what they raise, even if it falls short of the goal.)
The best way to meet a medical crowdfunding goal may be having a close relative or friend sponsor the fundraising for you. “Those campaigns are often the most successful,” Plumfund cofounder Sara Margulis says.
Also, be specific about what the money is being used for, and be open about other ways you’ve tried to deal with the debt and why they didn’t work. “When you tell people that you’ve tried everything and now you’re appealing to them, that can really motivate people to help,” says Margulis.
It can be tempting to tap your home equity or retirement accounts to pay off heavy medical debt, but there are serious pitfalls. As with medical credit cards, you are giving up the protections that come with debt classified as medical. In addition, these forms of borrowing can be expensive and risky.
A home equity line of credit (HELOC) used to be considered a viable way to consolidate and pay other debt because the interest paid on a HELOC was tax deductible. That changed in 2018 as the new federal tax law took effect; now HELOC interest is deductible only if the loan is used for home improvements. And, of course, you could face foreclosure if you default.
There are two ways to take money out of a retirement fund early (that is, before age 59½): a withdrawal or a loan. If you make an early withdrawal from a 401(k) or traditional IRA, you’ll generally pay a 10 percent penalty on the amount you take out, plus income taxes. You can seek a hardship waiver of the penalty — unreimbursed medical expenses are one of the allowed criteria — but it will apply only to a portion of what you take out.
Some 401(k) plans allow you to borrow from the account (IRAs do not); you’ll typically have up to five years to pay your account back, with interest. If you miss the deadline, the withdrawal penalty kicks in.
Bosco recommends that anyone contemplating a second mortgage or IRA withdrawal to pay medical debt first talk to an attorney “about whether bankruptcy is the right option for them. Obviously it’s not something to rush into, but in some instances it may be the best option.”
In the Gallup/West Health poll, 45 percent of respondents said they feared having to file for bankruptcy if a major health event were to strike. That’s “a big step to take,” acknowledges Cara O’Neill, a California bankruptcy lawyer and an editor at Nolo, a publisher of legal-advice books and software. “But it can help if you’re looking at medical debt ruining any financial stability you may have.”
There are two types of bankruptcy available to consumers, Chapter 7 and Chapter 13. For people who don’t earn much money and have few assets, Chapter 7 will wipe out qualifying debts such as medical bills. You don’t need to pay into a repayment plan, and the process takes about four months to complete, O’Neill says. Chapter 13 is designed for people with enough income to repay a portion of the debt, usually with a five-year repayment plan. It protects assets such as a house that filers could lose under Chapter 7, she says.
Bear in mind that while it can help clear your debts, bankruptcy has a significant impact on your credit. Your credit score will drop immediately — more so if your credit was previously highly rated. And a Chapter 7 or 13 filing can remain on your credit report for up to 10 years, longer than individual debts (seven years).
But declaring bankruptcy can help avert debt lawsuits, and O’Neill says most filers can rebuild poor credit more quickly than those “trying to pay off the debt, including medical debt, over a long period.”