The rising burden of medical debt

It’s sad but true—one of the leading causes of personal bankruptcy in the United States is medical debt. In fact, a study by Harvard University showed that over half of personal bankruptcy filings occurred due to overwhelming medical expenses. Three quarters of those filings were by people who had health insurance.

Even if you have health insurance, a medical emergency, chronic illness, or traumatic injury can put you into insurmountable debt. Hospital bills for surgery, expensive medications, or long-term care can mount up into the tens or even hundreds of thousands of dollars.

The damage medical debt can do

The effects of medical debt can damage other aspects of your financial well-being, as well.

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Bankruptcy. If you are forced to file for bankruptcy, this can destroy your credit ratings. Bankruptcy will stay on your credit record for as long as seven to ten years, making acquiring additional credit extremely difficult, if not impossible.

Damage to your credit. Even if you’re not forced into bankruptcy, medical debt can have a detrimental effect on your credit. If you’ve put medical expenses on a credit card, this will work against you if you apply for other loans or additional credit cards. In some cases, medical debt only makes its way onto your credit report after it’s been passed along to an outside collection agency, but this varies.

Higher insurance premiums. Medical debt can also affect your ability to get additional health insurance or could drive up your premiums. Health insurance companies will look at your credit rating as a factor in deciding whether to insure you. Poor credit signals them that you might have difficulty paying your regular premiums, thus making you at risk.

Reluctance to see the doctor. If you have a great deal of medical debt, you might be reluctant to see the doctor even when it’s important that you do so. Mounting medical debt then becomes detrimental not only to your credit and your bank account, but to your health.

Difficulty receiving medical care. While this hasn’t come to pass yet, there has been discussion of creating a credit score specifically related to your past performance in paying medical bills. This score could affect your ability to receive emergency medical care, or force you to pay for that care in a way that caregivers feel is more secure. A relatively new concept, this idea seems to be moving forward in spite of some challenges.

How to settle medical debt

Obviously, there are many good reasons to settle your outstanding medical debt. There are also several options to pursue to accomplish this. These might include negotiating your debt on your own, using a debt settlement program, or even seeking out government assistance.

Negotiating directly with the hospital or doctor can help a great deal. Many doctors or hospitals offer payment plans, which could help you restructure your medical debt so that it’s more manageable, or you might be able to negotiate an individual payment plan. Be sure to write down everything discussed, though, to avoid misunderstandings down the road. Also beware of high interest rates offered through this kind of payment plan.

If you’re not comfortable negotiating your own debt, you can hire someone to do it for you. Hiring someone to set up a debt settlement program will cost some money, but because you’ve hired an expert who’s negotiated with creditors many times, you might be able to not only negotiate reasonable payments, but possibly even reduce the full amount of your bill.

One thing to avoid with medical debt is taking out a home equity loan or a second mortgage to cover the bills. Medical debt is considered unsecured debt. If you take out a second mortgage, it becomes secured debt, which means you could lose your home or other assets if you’re still not able to pay the bills. Consulting with a debt counselor can help you work out a plan that won’t put your home at risk.

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Under certain circumstances, you can even get government assistance to pay off your medical debt. Your local state human services agency can help you find out what assistance might be available to you. The Centers for Medicare and Medicaid Services (CMS) can also provide information on low-cost health insurance and health care assistance.

Another place to look for help is the hospital’s financial aid department. If you qualify, the hospital might reduce your bill(s) or even eliminate it altogether.

If your income is less than twice the federal poverty level, you might qualify to have your bills completely covered. If you make more money than that, and your bills exceed your income by at least thirty percent, you will likely qualify for some kind of financial assistance from the hospital.

In general, hospitals won’t offer financial assistance until you’ve used every other available resource, including insurance and any available public medical benefits. But if you’re in an untenable situation with your medical debt, don’t forget to ask about this option. It could mean the difference between paying off your debts and having to resort to bankruptcy.