Medical bills? Put away the credit card

Charging medical expenses to a credit card is a path to bankruptcy. Instead, negotiate the price and pay installments to hospital. Dreamstime/TNS

We all want to pay our bills and, faced with an unexpected medical expense — $8,000, say, for tests to determine whether one has a life-threatening condition — many households turn to the only source of cash they have: a credit card, likely charging 16% interest.

Once you swipe, you’ve made two big mistakes. One, you paid full price when very likely you could have negotiated the medical expense down by as much as half, given a difficult financial situation. And two, you’ve agreed to pay a high interest rate to a lender disinclined to cut you any slack.

Here’s how that plays out:

— Medical debt remains the primary reason households file for bankruptcy, a recent analysis of household bankruptcies found, despite more people having health insurance than a decade ago.

— Between 2013 and 2016, medical expenses played a role in two-thirds of bankruptcies, researchers found.

— One in three households with credit card debt said the cause was medical bills, a 2019 study found.

So, put aside your urge to quickly settle up with the hospital or clinic, and put away your credit cards.

Negotiate. If you can’t pay the entire bill, being able to offer up a lump sum of cash in return for a reduction in the amount due may appeal to your medical provider more than turning over your bill to a medical debt collector. Remember, the healthcare industry is accustomed to negotiating — they do it with insurers all the time — and to accepting a steep discount from the list price. Be polite but aggressive in your offer; it will potentially rescue your personal finances.

Ask for an installment plan. Even a reduced bill can still be way too big to cover with one payment. Ask if you can repay the bill with monthly payments over a year (or more). This is increasingly common. Getting regular payments from you— an ongoing patient of the healthcare institution— is probably more attractive than selling your debt to a loan collector at a steep discount.

Nonprofit patient debt advocates can help, too.

If you’re among the fortunate many with health insurance — no matter how chintzy — and in good health currently, practice two kinds of prevention:

Take advantage of preventive care. Chances are your insurance includes a list of health screenings, tests and vaccines that you can get without owing a penny. Yet the vast majority of insured Americans don’t take full advantage of preventive care. To the extent you can avoid illness (ex: a flu shot) or catch an issue sooner than later (blood pressure and cholesterol screening and various cancer screenings are often standard), that not only improves your quality of life, but may require less treatment than if you waited to seek care.

Build an out-of-pocket (OOP) savings fund. A stress-reducing goal would be to know you have enough cash parked in a bank savings account or money market fund that will cover at least one year’s maximum out-of-pocket cost. (Keep in mind that if you get a serious diagnosis in the fall of any year, you likely may hit your OOP max in that calendar year, and then a few months later, in the next calendar year, hit the max OOP all over again.)

Saving up $6,000 or $8,000 or more might take time. Understood. That in itself should be motivation to start saving ASAP. But keep in mind that whatever cash you have on hand is going to be a big help if you end up needing extensive care. Keep reading.

While millions more Americans have basic healthcare insurance since the Affordable Care Act was passed, the cost to actually seek care covered by insurance is an increasingly large financial burden. According to the Kaiser Family Foundation’s annual survey of employer-provided health insurance, the average deductible for single coverage has increased 111% since 2010, and the employee share of the monthly premium has increased about 40%. That’s a whole lot more than the 20% rise in inflation over that stretch.

In 2010 the typical premium and deductible costs exceeded 10% of median income in just 10 states. In 2019, the Commonwealth Fund report says premiums and deductibles ate up more than 10% of median income in 37 states.

An analysis by the Urban Institute found that in 2018 the average maximum out-of-pocket expense for an individual was $4,416. For workers with family coverage, the average OOP maximum was $8,375.

To be clear, the OOP maximum is in addition to premiums paid. And OOP limits only apply to in-network care.

So, given many households don’t have even $1,000 set aside to cover unplanned expenses, getting sick or injured is often a financial gut punch.

If you’ve exhausted your negotiating leverage and borrowing efforts with the hospital or clinic, and must borrow elsewhere to pay a medical bill, and if you have a solid credit score and are facing ongoing care needs, consider applying for a new credit card that charges no interest for an introductory period.

Those offers aren’t as easy to get today, but with a strong credit score and steady income, you may be able to get a card that doesn’t charge interest on new purchases for 15 to 18 months. That at least gives you a chunk of time to get it paid without mounting interest charges. (Search online for “zero rate introductory period credit card.”)

Another option is to check out a personal loan. Banks, credit unions and online-fintech lending companies have been pushing personal loans the past few years. These unsecured loans can be a decent option. You may be able to lock in a three- to five-year payback period, with a fixed interest rate.

If you have a solid credit score of at least 720 to 750 you might be able to qualify for a personal loan with a fixed rate of 10% or so. That’s a lot better than 16% or more on a credit card.

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