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FDIC Consumer News
Some Tips for Managing the Pain of Medical Debts
With healthcare costs soaring and family budgets tightening, it's no wonder that medical debts are a major headache for many Americans. If you're facing the financial and emotional stress of medical bills and you're not sure how — or if — you can pay them, here are some suggestions from FDIC Consumer News.
Guard against billing and insurance errors. Get an itemized statement from each health care provider and make sure the services and costs listed are correct. Contact your provider if you find a mistake or you need clarification. Also, if you believe your health insurer denied or reduced a payment incorrectly, you may appeal that decision with your insurer. Check also with your state's department of insurance for any other rights you may have.
Contact the doctor's office or hospital immediately if you don't think you can pay a medical debt. Explain your situation and try to negotiate the bill or offer a reasonable payment plan before it is referred to a collection agency. "Medical debts that go unpaid can be reported to the credit bureaus and damage your credit record," said Bobbie Gray, an FDIC Community Affairs Specialist. "Not only will you still have debts, but you may end up paying more to borrow money in the future, if you're approved to borrow at all."
For big medical expenses that are not covered by insurance, think twice before charging them to a credit card or a loan with a high interest rate. If you expect to pay the bill back over a long time period — perhaps over several years — the interest costs can end up far exceeding the charges from your healthcare providers. Also, putting a medical bill on your credit card results in the expense no longer being considered a medical debt, and that may limit the ability of low-income patients to obtain financial assistance from Medicaid or other programs. Instead of turning to credit cards for medical bills you're sure you can't pay in full at the end of the month, talk to your healthcare providers about the possibility of extending payments for, say, a year or more.
But what if you decide to gradually pay your medical bills using credit? "Shop around for the lowest interest rate, perhaps a fixed rate that will stay in effect for as long as you expect to be making payments," added Gray. "Also be aware that many healthcare providers have arrangements with certain lenders to promote their loans and credit cards for medical debts, so do some research to find the card that's best for you. Don't turn to the provider's recommended form of credit just because it appears to be the easiest way to pay."
Only use your home to finance medical bills as a last resort. Home equity loans enable you to borrow money against your home's value to pay for major expenses, including medical debts, and perhaps qualify for a tax deduction on the interest payments. But remember that if you borrow using a home equity product, and you cannot make the loan payments, you could lose your home.
"Your house is a valuable asset," said Luke W. Reynolds, Chief of the FDIC's Community Outreach Section. "You should think very carefully before putting your home on the line to finance medical debts."
Be very careful before withdrawing money "early" from your retirement savings to pay for medical expenses. Taking funds from an Individual Retirement Account (IRA) before age 59½ sometimes can trigger sizeable tax penalties. Also, the more money you take out of IRAs, 401(k) accounts and other retirement plans before retirement, "the less you will have available for other needs during retirement, plus you will lose out on the ability of the funds to compound and grow," said Reynolds.
Before putting your financial future at risk by taking an early withdrawal from an IRA, ask your healthcare provider about a realistic repayment plan.
Don't be afraid to ask for additional help. Depending on your age or income level, you may qualify for aid in handling medical debts under the federal Medicaid program or state government initiatives. Many hospitals offer free or discounted care for patients who don't qualify for government programs and meet specific financial criteria. Most hospitals also have financial counselors who can help patients understand the various programs and help with applications.
In addition, a reputable credit counseling service may be able to help consumers get their medical debts under control. And, if you have medical bills that have been sent to collection, you may negotiate to reduce the bills and pay them through an installment plan.
For information about how to deal with debt problems in general, including how to avoid problems with debt collectors and find reliable credit counseling, visit the consumer facts Web page from the Federal Trade Commission at www.ftc.gov/bcp/menus/consumer/credit/debt.shtm.
Last Updated 2/19/2010