How to keep medical debt from bankrupting you



Myles Ma

Myles Ma

Senior Reporter

Myles Ma is a senior reporter at Policygenius, where he covers personal finance and insurance and writes the Easy Money newsletter. His expertise has been featured in The Washington Post, PBS, CNBC, CBS News, USA Today, HuffPost, Salon, Inc. Magazine, MarketWatch, and elsewhere.

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Medical debt has become one of the most common causes of financial stress in America. More than half of Americans have been surprised by a medical bill they thought insurance would cover, according to NORC at the University of Chicago, a research organization.

It can often be difficult to pay off these unexpected expenses, which can lead to growing debt and for some, bankruptcy. Here's how to keep medical debt from ruining your finances.

Avoid surprise bills

Even with health insurance, you can still get a large bill. Health insurance companies charge less when you receive services from a select group of providers that are "in-network." The carriers negotiate with this network to get lower prices for services. Seeing a provider who isn't in-network can cost a lot of extra money, so you should stay in-network when possible.

Every health insurance plan puts at least some of the financial burden of medical expenses on patients through a combination of deductibles, copayments and coinsurance. Make sure to read your policy to know what it covers and your financial risk if you face a medical emergency, said Monica Dwyer, a certified financial planner for Harvest Financial Advisors. One important number to know is your out-of-pocket maximum, which represents the most you can expect to pay on your own during the year.

"When you're being treated for things, it's important to ask questions," Dwyer said.

It can be hard to keep all these details in mind when you're ill or facing a medical emergency, but you can still try to reduce expenses while you're going through treatment, Dwyer said. Find out if you're facing any avoidable costs. For example, some hospitals charge you more if you have a television in your room, she said.

Keep medical debt from growing

Medical bills are sometimes unavoidable. You can't prevent accidents and illnesses from happening. But there are ways to keep a medical bill from growing into an unpaid debt that drags down your credit score. (Get to know the charity forgiving millions in medical debt.)

If you receive a bill you can't pay right away, don't assume it's set in stone. Hospitals are often willing to set up installment plans for patients, Dwyer said. They may even forgive part or all of the bill depending on your circumstances, so don't rule out asking for help.

"It's something that you shouldn't be ashamed of," Dwyer said. "These kinds of things can be really catastrophic."

Dwyer volunteers with Family Reach, a nonprofit that provides financial assistance to families affected by cancer. She worked with a couple whose baby was born with brain cancer and ended up with $10,000 in medical debt. Dwyer coached the mother to call the creditors and explain their situation, which led to the debt being written off.

If you go long enough without paying your debt, health providers may sell it to a collection agency. This can tank your credit — medical debt can stay on your credit report for seven years — and lead to annoying calls from debt collectors. But like hospitals, debt collectors are open to negotiation, especially since they buy the debt for pennies on the dollar. They'd rather get some money back than see you go bankrupt and get none.

Hospital stays can have a long-term impact on your finances, which can also put patients at risk of accumulating medical debt. Research shows hospital admissions are linked to declines in earnings and a lower probability of employment. Disability insurance can help protect against a drop in income, but public insurance can be difficult to get and private options are hard to find and expensive. However, there are ways to find an affordable policy.

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Image: Carles Rodrigo Monzo

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