How to tackle medical debt before it becomes a long-lasting financial problem

Anyone who has felt overwhelmed by medical debt may know that first bout of panic when a big bill arrives.

What can be worse, however, is what can happen to your long-term financial situation if you ignore it. Generally speaking, this debt can end up haunting you.

“What I’ve seen repeatedly is that a person gets a bill…and they ignore it for six months,” said Jeff Smedsrud, co-founder of HealthCare.com. “Then they get a collection notice, and only then do they deal with it.”

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According to a Consumer Financial Protection Bureau report, approximately two-thirds (58%) of bills that are collected and appear on credit reports are medical bills. And about 43 million credit reports show medical debt recoveries, according to the research.

All of this can impact your credit score: For example, 52% of millennials and 48% of Gen Xers say medical debt has hurt their credit, according to a Healthcare.com survey.

And, of course, the lower your credit score, the harder it is to get loans or other credit, or get great interest rates if you’re approved. Although some scores don’t treat medical debt as harshly as others, lenders tend to use one that treats all collection debts the same if they appear on your credit report. And that low credit number can stay on your report for up to seven years, even if you pay it off.

There are things you can do to try to avoid this cascade of problems, starting with settling the debt as soon as the bill (or bills) arrives.

“When you receive an invoice, assume [the total is] wrong,” said Caitlin Donovan, spokesperson for the National Patient Advocate Foundation, a nonprofit that helps patients access and pay for health care.

“We estimate that half of medical errors on bills are due to the patient being billed directly instead of [the charges] be subject to insurance,” Donovan said.

This means that if you receive an oversized bill, your first step should be to call the care provider – the doctor, hospital, etc. – and to ensure that it has been submitted to your insurance.

If so, you should also receive an Explanation of Benefits, or EOB as it is known, from your insurer. As the name suggests, it explains what your insurance plan covers for the care you received.

“It’s a good tool,” Donovan said. “Once you receive [the EOB] which tells you that the provider has correctly submitted to your insurer. It also tells you how much you are expected to pay.

If your share is unmanageable, it’s worth seeing if you can reduce it. For example, hospitals often offer financial assistance to those who meet certain eligibility requirements, which may differ by facility and state. Even if you don’t qualify, it’s worth trying to negotiate a lower amount or work out a reasonable payment plan deal.

“But you have to know what you can afford per month,” Donovan said. “You don’t want to end up with a $500-a-month payment plan that you can’t afford.”

You should also avoid paying the debt using a credit card. With the average interest rate on cards at 16.17%, that can mean shelling out a lot more than the original bill if you pay it off slowly.

“You could turn $10,000 into $15,000,” said Smedsrud of HealthCare.com.

There are also bill negotiation services that can advocate on your behalf for a lower bill.

“They have expertise and could see that if [the medical service] had been coded in a slightly different way, it would have resulted in less cost,” Smedsrud said.

Or they may explain to a billing office that “you’re either going to get zero or accept a lower amount,” he said.

These services take some of the savings they generate as fees, but you should never be asked to pay upfront, Smedsrud said.

If you have medical debt and are in conversation with a collection agency, it’s worth asking how much the debt costs, he added. Collection agencies often resell the debt to other companies if they are unable to collect it initially, and each time it is sold, its value may fall.

“It’s the consumer’s responsibility to ask the agency how much they paid for your debt,” Smedsrud said. “It could have started at $10,000 and then been sold and resold and not worth it anymore.”

In the meantime, for medical services that you know are coming, ask in advance what your share of the cost will be. If this is prohibitive for you, you can request a discount.

“Don’t underestimate the willingness of providers to negotiate and provide discounts on the cost of procedures, especially those that are smaller and not part of a larger system,” Smedsrud said.

You can also inquire about the cash price for the service or procedure – it may be much more affordable – or if a payment plan is available.

Historically, one of the biggest causes of large and unexpected medical bills was that out-of-network providers got involved in your care without you realizing it. Then the bill would come and you’d find out that your insurance didn’t fully cover those charges, if at all.

A new federal law — the No Surprises Act — aims to minimize what happens, though consumers should always be on the lookout for such charges due to billing errors.

Another new federal law could also be helpful to consumers trying to control their health care costs. Basically, this requires hospitals’ standard fees – including the rates they negotiate with various insurance companies and their discounted cash price – to be publicly available for free (i.e. on their website) . This means, in theory, that you can search for the best price on a service you need.

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