Everything You Need to Know About Medical Debt

Nurse speaking to a patient.

The following is presented for informational purposes only.

Suffering a major physical injury, accident, or onset of sudden illness can send one spiraling into medical debt. According to a CNBC report, two-thirds of Americans say that medical issues are the leading reason why they filed for bankruptcy. These financial issues were the result of staggeringly high medical bills or income lost due to time out of work.

What’s more, one in five Americans report that medical bills have caused severe financial issues in the past year, according to a survey by the Kaiser Family Foundation and the New York Times.

So what should one know about medical debt? We’ll lay out all the key facts about medical debt, from how it’s different than other types of debt, to what can happen if you don’t pay it, and how it affects your credit.

How is Medical Debt Different from Other Forms of Debt?

Medical debt is different than other debt because it’s debt for a service or treatments that you needed to undergo out of necessity, explains Leslie Tayne, Esq., founder of the Leslie Tayne Law Group, P.C.

“It's generally owed to a medical service provider, rather than a lender of some kind, such as a bank,” says Tayne. “In many cases, medical debt can come as the result of an unexpected circumstance, rather than a purposeful decision to use a credit card or take out a loan.”

Paying Off Medical Debt

On the totem pole of debt, medical debt is considered low priority. That’s partly because medical debt typically carries low to no interest charges. You’ll want to prioritize all your other types of debt first, such as your car loan, personal loans, credit card bills, or your mortgage.

Also, even if you haven’t paid off your existing medical debt, you should still be able to receive medical treatment at a hospital. If you are turned away, you can try seeking treatment at another medical facility. Whether you have medical debt or not, under the Emergency Medical Treatment and Active Labor Act (EMTALA), federal law assures that you’ll be able to be seen for emergency room treatment.

It might be a different story for a private health provider, such as a private dentist, explains Tayne. “They might deny you treatment if you haven't paid, whereas a hospital typically won't deny you treatment based on unpaid debt.”

How to Deal with Medical Debt Collectors

Hospitals and private health care providers might pass your medical debt on to third-party debt collection agencies, which will work hard to get you to pay. If this is the case, you can expect to be contacted frequently as they attempt to collect your debt.

The debt collection agency may suggest that you pay your medical debt with a credit card or by taking out a personal loan. It’s best not to use a credit card to pay off debt unless you can pay off your balance in full at the end of your pay cycle. Taking on another type of debt to pay off your medical debt usually isn’t a good idea. That’s because a personal loan or a payday loan, which is considered a predatory type of financing, will bear interest fees, and bump up the total cost of your debt.

How Medical Debt Affects Your Credit

Medical debt can certainly cause your credit score to take a dip. If you're not paying off your medical debt, depending on the laws in your state, you may not be hit with a late fee for not paying your bill, explains Tayne. However, even if you don’t get dinged with a late fee, medical providers can still send your debt to collections.

“Like with all debt, medical debt collectors have to follow certain laws when it comes to contacting you about your unpaid debts,” says Tayne. “If you continue to leave your medical debt unpaid, the provider could take legal action against you.”

Tayne further explains: If the debt is sent to collections, it can end up on your credit and will negatively impact your credit score. The provider also has the right to potentially sue you, and the court can authorize wage garnishment or liens.

The good news is that National Consumer Assistance Plan (NCAP) prohibits the addition of medical debt to a credit report until after 180 days from the time the account was reported to the credit bureau. Also, medical-related collections that were previously reported to any of the three major consumer credit bureaus — Transunion, Experian, and Equifax — that were paid off or will be paid by your health insurance need to be removed from one’s credit report.

Financial Assistance for Medical Bills May Be Available

Under federal law, nonprofit hospitals are required to create policies that offer financial assistance to qualifying patients. This financial assistance, often called charity care, might include free or discounted medical services. The process of how to qualify needs to be posted online.

While there’s no federal law on the standards for financial assistance, about half of the states in the U.S. have medical debtor protection laws that lay out income requirements to qualify for financial assistance. These laws also provide details on what type of financial assistance a nonprofit hospital needs to offer.

Ask Your Healthcare Provider for a Repayment Plan

When you receive a medical bill, make sure the charges and services you’re being billed for are correct. Inaccurate info can cost you time and money.

If you aren’t able to pay the bill in full, contact the hospital or health care provider to explain your situation. See if the other party is willing to negotiate down your medical debt. Or perhaps they’re open to working with you on a repayment plan. You’ll then be able to make your payments in monthly installments, and repay your medical debt within a reasonable amount of time. You’ll want to contact the hospital or provider as soon as possible to avoid your debt going to collections.

You’ll also want to see how your medical debt repayment plan fits in with your overall debt repayment plan. As you might be juggling different forms of debt, it’s important to assess where your medical debt fits into your order of financial priorities.

If you have questions on how to manage your debt, our accredited financial counselors can help you come with a debt management plan (DMP) and answer any questions you have about medical debt.

Tagged in Managing medical bills and debt, Debt collection, Laws and legal questions

A corporate headshot of Jackie Lam.

Jackie Lam is an L.A.-based personal finance writer who is passionate about helping creatives with their finances. Her work has appeared in Forbes, Mental Floss, Business Insider, and Bankrate. She's also a 2022 Financial Literacy and Education in Communities (FLEC) award winner. You can find her at heyfreelancer.com.

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