Health care doesn’t come cheap these days and a stack of medical bills can spell financial disaster if you’re not prepared to deal with them. While outstanding medical debt doesn’t carry the same weight on your credit report as other types of debt, it’s still not something you want to let linger.
Settling up with your health care providers is a must but you shouldn’t start writing checks without having a plan in place. Certain payoff strategies are better than others and we’ve got the scoop on the best and worst things you can do when dealing with medical bills.
1. Haggle Your Way to Savings
When you’re facing a huge doctor bill the very worst thing you can do is just accept it at face value. If you automatically agree to pay exactly what the bill says you owe, you could be doing yourself a major disservice.
The first thing you need to do is to review it carefully for errors. It’s not at all uncommon for hospitals or doctors’ offices to make mistakes and overcharge you for something. If you see a duplicate item on your bill or a charge that seems unusually high, you shouldn’t waste any time in calling your health care provider up to investigate further.
While you’ve got them on the line, you can hone your negotiation skills by asking them to remove certain charges or reduce the overall balance. If you’ve got some cash saved up, for instance, your doctor may be willing to let you settle the bill for less if you agree to pay the remaining balance off in one go.
2. Use Tax-Advantaged Accounts Wisely
If you’ve been saving money in a Flexible Spending Account (FSA) or Health Savings Account (HSA), this should be the first place you should look for extra cash.
Generally, you can use money in a Flexible Spending Account for any necessary medical expense with the exception of things like elective cosmetic surgery or spa treatments. The same is true with an HSA and in both instances, your distributions are always tax-free as long as the money is used for a qualifying medical expense.
One mistake you don’t want to make with medical debt is drawing from your retirement accounts to pay off the bills. While contributing to a 401k or IRA can benefit you at tax time in the form of a saver’s credit or deduction, you’ll pay the price if you pull the money out early.
Withdrawals from either type of account made before age 59 1/2 will trigger a 10 percent penalty. Unless you’re taking out your original contributions to a Roth IRA, an early withdrawal is also subject to regular income tax and the penalty.
3. Ask About a Payment Plan for Medical Bills
If you’ve gotten your bill as low as possible and used up all of the money in your FSA or HSA, the next step is to ask your health care provider about paying in installments. It’s not unusual for doctors and hospitals to allow patients to break their bill up as long as they have decent credit and are making their payments on time.
When you’re looking at making payments on a medical bill, you might be wondering whether you should use a rewards credit card to cover it instead. After all, you might be able to get a nice bump in miles, points or cash back so why not pull the trigger?
There are a couple of reasons why you should keep your plastic in your wallet when you owe medical bills. First off, the interest rate the credit card company’s going to charge you is likely to be much higher than what the doctor might ask you to pay. Even if you nab a zero interest balance transfer deal, you could still pay extra in interest if you don’t get it paid off before the promotional period ends.
The other thing you need to think about is what would happen if you fall behind on the payments. Your payment history accounts for 35 percent of your FICO score and even one late payment can knock points off. If you miss a payment on the doctor’s plan, they may be more forgiving in terms of reporting you to the credit bureau if you’re able to get caught up.
4. Check into Assistance Programs
If you’re behind on medical bills because you have absolutely no extra cash to put towards them, you may qualify for help with the expense.
At the state level, you can apply for Medicaid, which provides free and low-cost care to people who are at the lower end of the income spectrum. Each state has different rules concerning eligibility but usually, it’s based on how many people are in your family and what you earn.
When Medicaid’s not an option, you can still look into financial aid programs through the hospital. Many hospitals offer charity care programs, which also provide care for free or at a reduced price to qualifying individuals and families. Your income is still a factor in determining whether you can receive charity care but you may be granted a little more leeway compared to Medicaid.
Don’t Ignore Medical Bills
Medical debts don’t just go away all on their own and if an unpaid bill ends up getting sent to a collection agency, it can have damaging financial repercussions. The collection agency can report it on your credit, which will tank your score and make it harder to get approved for new loans or lines of credit in the future.
There’s also the possibility that you could be sued for the balance, along with any fees or interest the debt collector decides to tack on. Taking action as quickly as possible to cope with medical debt is the best way to head off potentially costly complications.
