If you’re uninsured and have medical debt, chances are about one in three that you are using a credit card or small loan to pay it off.
Even if you have insurance, these odds are high, according to a March 2012 report by the Centers for Disease Control and Prevention. Among those with private insurance, 27 percent said they were paying off medical debt over time (with a credit card, loan or other payment program). For those with public insurance, such as Medicaid and the Children’s Health Insurance Program (CHIP), the number was 28 percent.
There’s no doubt that unexpected medical expenses can upend your finances. But is a credit card the best way to handle the debt?
The perks of paying with plastic
If a medical bill is more than you can pay immediately, there are advantages to using a credit card. The biggest is that you may be able to get quite a discount, says Nancy Guernon, director of operations for CareCounsel, a health care services assistance company in San Rafael, Calif.
If doctors and hospitals know they will get paid right away with a credit card as opposed to waiting for monthly payments, they might be willing to shrink your bill.
“We are seeing them reduce the charges as much as 30 to 40 percent,” Guernon says.
But there’s also a disadvantage. If you’re spreading the payments out, you’re paying credit card interest on top of already hefty payments.
Ways to cut the bill
If you are putting your medical bills on a credit card and making the commitment to pay it off over time, it’s in your best interest to whittle down the cost as much as possible.
Here are some tips for not paying any more than you have to.
Check bills for any errors. There may be multiple providers if you have had lab work or X-rays, for instance. So, if you are insured, make sure that each bill has made its way to your insurer and that your insurer has paid the portion it is supposed to pay.
If something isn’t covered that you feel should be, you may appeal. If you can’t pay the bill during the appeal, let your care provider know what’s happening.
It’s also important to make sure you’re not paying someone else’s bills. Criminals have various ways of getting your insurance information and running up charges under your name – if you’re getting a lot of care, those fraudulent charges might get lost in the shuffle. Be sure to verify that all charges correspond to care you actually received, says Dorothy Barrick, group manager and financial counselor for GreenPath Debt Solutions in Troy, Mich.
Plead your case: Once you’ve verified that your bill is correct, it might still be higher than you hoped. You’re not alone. As of 2010, 73 million people reported problems paying their medical bills or were paying off medical debt, up from 58 million in 2005, according to The Commonwealth Fund’s latest biennial report.
Hospitals and doctors are well aware of the burden of medical debt on families. Be honest with them. If you can’t put the entire bill on a credit card, tell them you are concerned about our ability to pay, and that you are committed to paying a certain amount per month.
Also ask the billing department about whether charity funds are available. Hospitals use some of their donations to help forgive debt, particularly for those who are uninsured or who have high deductibles, Barrick says.
Be prepared to negotiate: “Not a lot of people are comfortable doing this,” Guernon says. “But, really, providers are becoming more accustomed to expecting a request for negotiation.”
If you’re not insured, ask the provider to at least give you the rate given to insured people. Because insurance companies work with mass numbers, they can negotiate lower rates.
“Typically [the cost is] much higher if you’re not insured. It seems backwards, but that’s how it is,” says Becky House, education director for American Financial Solutions, a nonprofit debt counseling agency in Seattle.
Doctors in smaller offices may tell you they don’t have the resources to let you carry over debt — and that they eventually will have to turn the debt over to a collector.
Debt collectors buy debt from people like health care providers at a discount and then try to collect it at full price from the consumers. Knowing this can give you an edge – you can offer to settle the debt at a discount, just as the collector would.
“Oftentimes [the provider] will settle the debt with the customer for that same amount of money,” Barrick says.
Once you’ve convinced the doctor to let you settle your debt at a discount, it might make sense to put the amount on your credit card and pay it off over time. Even though you might pay interest charges, avoiding collections keeps it off your credit report.
See if you can pay the provider in installments without credit: “It’s always best to contact the hospital or doctor to see if they’ll accept monthly payment arrangements,” Barrick says.
First, ask the provider two important questions: Will they be charging interest, and will they report this as a bad debt? The answer to both is usually “no,” Barrick says.
If the provider lets you pay over time without interest, this is the best solution, she says –but don’t expect this to go on indefinitely. And make sure to honor the agreement with regular, on-time payments. Also, be sure to get formal documentation of your agreed-upon payment plan.
Should I get a medical credit card?
Some companies offer credit cards specifically for health care costs. Examples include Chase Health Advance, Citi Health Card and GE Capital’s CareCredit.
House says she doesn’t encourage clients to go that route. She says she sees fewer companies offering medical credit cards – and that rates are about the same as they would be for a regular credit card, once you get past the introductory rates.
If you can get a good introductory rate and can pay the balance off during the introductory period, a medical credit card may make financial sense, House says.
Yet watch out for traps. For example, if you don’t pay the balance in the allotted time, you may be charged retroactive interest on the entire original balance. Then there are the potential effects on your credit standing. Opening up a new line of credit can ding your score. Moreover, high medical bills that are close to the credit limit will make
it look like you are close to maxing out your credit line – another credit no-no, whether you’re using a medical card or a regular one.
How to avoid medical debt in the first place
Keeping the amount you have to put on a credit card as low as possible will help you avoid credit dings – and make repayment manageable. The best way to do that is to work predictable medical expenses into your budget. You know what prescriptions will cost, and you can probably figure the cost for your regular checkups and dental visits.
But the biggest expenses are often the unpredictable ones — a cancer diagnosis, a car accident or emergency surgery.
If you find yourself in over your head and determine that the best solution is to put the bill on a credit card, let your issuer know that the big jump in your balance is because of medical debt. That way, your issuer can update your file and keep your circumstances in mind if your debt becomes a problem.
“I think people underestimate the value of talking to your creditors,” House says. “I do know that very often creditors will put those notes on your file when you’re calling in.”