3 ways to avoid unexpected medical debt


Shannah Compton GameBlog author Shannah Compton GameShannah is a Certified Financial Planner Professional who is a millennial money financial strategist. You can find her online at http://www.yourmillennialmoney.com, listen to her podcast Millennial Money on iTunes and follow her on Twitter at shannahgame.

Published|8 min read

Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about our editorial standards and how we make money.

For the price of standard medical procedures these days – like a knee replacement surgery that costs $25,398 on average – you'd expect to be jetting off to somewhere tropical, basking in the sunshine and having the time of your life. Instead, you're stuck with medical debt that is promising to ruin your budget.

Sometimes that debt is so crippling that it's impossible to come up with the funds to pay off the monstrous bill. That’s why medical debt is responsible for 62% personal bankruptcies. I recently had a short stay in the hospital for a minor procedure and was astonished when I saw the bill total of $51,000.00 with absurd costs like $100.00 for a simple bandage. While the majority of this bill was covered by my health insurance plan (thankfully), it’s still shocking to see how much the hospital charges for a minor procedure.

The worst thing you can do when you have unexpected medical debt is avoid it. Medical bills can cause havoc for years if they’re left unpaid and are a leading factor in credit score decline. There are promises that a new credit score model, the FICO 9, will weigh medical debt less severely than other unpaid debt, but the impact of that is still yet to be known. There are other ways to rebuild your credit score if your medical debt goes to collections, but they all take time and effort.

With that said, there are three key areas to consider when you’re facing unexpected medical debt to help you avoid this debt from toppling your budget.

Understand your health insurance policy

Health insurance plans come in three different varieties and have some drastic differences.

  • A Health Maintenance Organization (HMO): This type of health insurance plan provides health care coverage limited to one network or a small handful of networks; you need a Primary Care Physician for your care. You have to go through your Primary Care Physician for a referral for any specialist care. HMO plans typically have lower monthly premiums and have lower out-of-pocket costs for medical services.

  • A Preferred Provider Organization (PPO): PPOs offer flexibility — you can choose virtually any doctor or hospital for your medical needs — but you’ll save if you stay within the network. Plus, you don’t need referrals from your Primary Care Physician. PPO plans typically cost more than HMO plans because you are paying for the flexibility to choose your doctor.

  • An Exclusive Provider Organization (EPO): This type of health insurance plan is a hybrid between the HMO and PPO plans. With an EPO, you have a network of providers, but you don’t need a referral to see a specialist for care. The cost of this plan is also typically middle of the road between the HMO and PPO.

When you chose your health insurance plan, you were probably looking at the bottom line monthly costs to make your decision. However, beyond your monthly premium costs, three factors come into play when you have unexpected medical debt: the deductible, the coinsurance percentage and the out-of-pocket maximum.

Let's say you have a $2,000 deductible, an 80/20 coinsurance percentage and a $6,000 out-of-pocket maximum on your current health insurance plan. Now, let's say you had an overnight stay in the hospital for a nasty kidney stone flare up. First, your deductible would come into play, and likely with an overnight hospital stay you'd blow through that pretty fast. Then, you would owe 20% of all costs up to your out-of-pocket max of $6,000; an overnight hospital stay could end up costing you $6,000 when all is said and done. While that’s pretty pricey, considering the cost for kidney stone removal can run anywhere from $10,000 to $20,000, you’ll be glad you had health insurance.

There’s not a lot that you can do about your deductible, coinsurance and out-of-pocket maximum with your health insurance policy until the next open enrollment period. However, if you have an emergency fund set up, now would be the perfect time to tap into that account to help pay the medical expenses. You can work on rebuilding your emergency fund back up to include three to six month's worth of expenses once you've paid off your medical debt.

Look for common billing errors

Now that you've got the lay of the land with your health insurance policy and what you'll be responsible for, the next plan of attack is to read through your bill with a fine tooth comb. It's unfortunate, but not uncommon, for billing errors to show up on medical bills. It's up to you to find the errors, if they exist, and then work diligently to get them removed. Better said, the hospital or medical office isn't going to spend time looking for ways that they overcharged you.

When you receive your bill, you should also receive what’s called an Explanation of Benefits (EOB). An EOB is a statement attached to your bill that provides a list of the services that you had, your doctor’s fee and any amount the insurance is covering along with the amount you are responsible for.

The EOB is essential in finding common billing errors and will serve as your proof when you make a request to have the errors removed from your bill. It's important to review your EOB within the first 30 days, so you don't risk your bill being sent to collections if you neglect to pay it. If for some reason you never received an EOB, request a detailed bill from your hospital or doctor ASAP.

When you first review your bill, you should make sure the type of service you received, date of service, the amount billed to your insurance company and the total amount not paid by your medical insurance are indeed correct. Once you review those items, then scan for other common billing errors that aren't quite as obvious to the naked eye.

Some of the most common billing errors that are tough to spot include duplicate charges for the same procedure, having your service billed as out-of-network when you received care in-network, and misspelling of your name and having an incorrect International Statistical Classification of Diseases (ICD) code. The ICD has a list of over 14,000 codes that doctors and hospitals use to classify your diagnosis (you can look up diagnosis codes (ICD) for virtually every type of procedure).Other common billing errors for you to look for are:

  • Charged for a test or procedure you never received.

  • Charged for a higher level of emergency room service than you received (emergency rooms typically range from Level 1 for small problems to Level 5 for severe issues).

  • Charged for an incorrect quantity or double billed for medications.

  • Charged for more anesthesia in the operating room than you received.

If you notice a common billing error, it's time to call the hospital or medical facility directly. You'll need your EOB as proof of the error, so keep it handy. When you make the call, make sure you keep good notes of the date, time and the name of the person you spoke with. Often you will need to call a few times to make sure the error was taken care of. Always ask for written documentation to reflect the correction in your bill as well.

Work out a payment plan

If your EOB checks out, but the medical bill is still more than your budget can handle, it’s time to work out a payment plan. Directly calling the hospital or medical office is your best plan of attack in this situation. Don’t be timid in asking for a payment plan. The billing departments are there to help you.

Hospitals and medical offices are relatively lenient when it comes to payment plans. In fact, many hospitals and medical officers will offer you interest-free payment plans if you request one, but this all depends on the hospital and their billing practices. You should always ask up front for an interest-free payment plan first and be willing to negotiate with whomever you speak with if you can’t receive an interest-free loan. Also, if you can pay in cash, many billing departments will offer you a discount to avoid the hassle of credit card fees.

I called three hospitals in my local area to inquire about their billing practices. Each hospital told me the same story in different words. "We have the power to decide if we offer an interest-free loan or not and it usually depends on how much is owed to us and if it can reasonably be paid off in a short period of time." When questioned, their idea of a short period of time is six months or less.

One source did tell me that she expects that the client will negotiate for an interest-free loan and for the payment plan details such as how much they can afford to pay each month. Be sure to talk to your hospital and work out a plan for your specific situation.

Alternate funding options

If a payment plan is still too steep for your wallet, there are other options. Non-profit hospitals have what’s called a charity care department with financial counselors and patient advocates there to assist you in finding the best way to take care of your bill. Charity care programs offer free or discounted care provided to low to moderate income level individuals. The trick is that you must ask if this is available to you when you contact the billing department. If your hospital is for-profit, be sure and ask the billing department for any financial assistance programs that you might qualify for.

Crowdfunding is another way that people have recently used to pay for unexpected medical bills. Sites like YouCaring and GoFundMe are leading the way in medical crowdfunding. In 2014, GoFundMe reported raising $147 million in their Medical, Illness and Healing sections alone. Although this financial solution has increased in popularity over the last few years, you’re at the mercy of others’ generosity, so it’s not a recommended or surefire way to pay off medical debt.

With YouCaring, you can set up your page and share your story with your friends and family. Donors make donations right on your page, and the only fee you have to pay is 2.9% plus $.30 per transaction if you use WePay. Whatever amount of money you raise is yours to keep and put towards knocking down your medical bill.

Unexpected medical debt happens to all of us at some point in our life. However, with all of these options available to you, there are countless ways you can manage your medical debt with ease. If you’re proactive about analyzing your bill and connecting with the billing department early on, you can certainly come up with a payment option that will work with your budget.

Ready to shop for life insurance?


No corrections since publication.


Blog author Shannah Compton Game

Shannah is a Certified Financial Planner Professional who is a millennial money financial strategist. You can find her online at http://www.yourmillennialmoney.com, listen to her podcast Millennial Money on iTunes and follow her on Twitter at shannahgame.

Questions about this page? Email us at .